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Budget 2016: public sector contractors face tax avoidance crackdown from 2017

Contractors working in the public sector face investigation by their public sector clients to ensure their tax affairs are in order from April 2017, following a consultation. This is one measure in a raft of tax evasion and tax avoidance policies designed to generate an additional £12bn in tax.

The planned restrictions on tax relief for travel and subsistence expenses and the dividend tax changes look set to go ahead, despite intense lobbying by contracting and business organisations.

“In every budget I have given action against tax evasion and avoidance has contributed to the repair of our country’s finances, and this budget is no different,” highlighted Chancellor George Osborne in his Budget 2016 speech to the commons.

“In the Red Book we set out in detail the action we will take to shut down disguised remuneration schemes.

Crucially, the Chancellor went on to say: “Public sector organisations will have a new duty to ensure that those working for them pay the correct amount of tax rather than giving a tax advantage to those who choose to contract their work through personal service companies (PSCs).”

Section 2.40 of the Red Book says: "From April 2017 the government will make public sector bodies and agencies responsible for operating the tax rules that apply to off-payroll working through limited companies in the public sector. The rules will remain unchanged for those working in the private sector. The government will consult on a clearer and simpler set of tests and online tools. (Finance Bill 2017) (40)."

Other measures relevant to contractors include:

  • Tax-free personal allowance to rise to £11500 by April 2017
  • A reduction in corporation tax, so by April 2020 corporation tax will be lowered to 17%
  • Two new tax-free allowances worth £1,000 for micro-entrepreneurs
  • Oil and gas contractors will benefit from a reduction in the supplementary charge of 10% and abolishing petroleum revenue tax, designed to stimulate exploration and investment
  • Buy-to-let stamp duty rates confirmed to come into effect next month. Rates “to apply to larger investors too”. Use receipts to support community housing trusts
  • Infrastructure: HS3 rail link between Manchester and Leeds given go ahead
  • Crossrail 2 also to be commissioned by Government.

On the savings front, from April 2017, anybody under the age of 40 can open a lifetime ISA and save up to £4,000 each year. The Government puts in one quarter of the funds invested by the ISA holder.

There will be no tax upon withdrawal, and the funds can be accessed at any time for a small charge. The limit is £20,000, labelled by the Chancellor as: “Generous and completely flexible.”

Published: 16 March 2016

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