IR35 Update for Off-Payroll Workers in the Public Sector
Published on Thursday, March 23, 2017
The clauses for Finance Bill 2017, published Monday 20th March, details the new rules for how the intermediaries legislation (IR35) will be determined for public sector contractors and freelancers working through a personal service company (PSC). The new rules come into effect on 6th April 2017 and affect payments made on or after that date.
The longest-ever UK finance bill confirms that a contractor’s public sector client will be responsible for determining whether IR35 applies. It will then be the responsibility of the contractor’s agency, public sector body or other third party for deducting the necessary PAYE tax and National Insurance Contributions (NICs) from the PSC contractor’s gross pay.
If you work in the public sector through an intermediary such as your own limited company, your public sector client will be determining your company’s IR35 status, and the legislation states they should take reasonable care in doing so. If you are currently operating outside IR35 and are deemed to be inside IR35 by your public sector client, you will see a reduction in your take home pay.
Furthermore, if you are deemed to be inside IR35, you wouldn’t be able to claim expenses through your limited company except those that are normally allowed by regular employees.
If you haven’t yet been made aware of these changes by your agency or end-client, contact us to find out your options.
Due to the uncertainty and obscurity surrounding the changes, it is likely that many public sector organisations will take a risk-free approach and assess all of their PSC contractors as subject to IR35. This scenario has already caused many public sector contractors to leave their contracts for the private sector where the new rules don’t apply.
Transport for London is one company that has taken a risk-averse approach, saying in an internal memo: “We won’t allow limited company workers to continue working for us… the risk prohibits anyone who might be considered to come under IR35 continuing beyond 6th April.”
Many organisations will use the new tool provided by HMRC to assist with assessing IR35 status, which you can also use to check where you might land.
If you contract for a public sector organisation, there is a chance that they could assess your arrangement as inside IR35. If this is the case, it’s worth considering moving to an umbrella company employment solution as this is a simple, hassle-free way to work with less risk of HMRC questioning your arrangement. Another option is to move to the private sector where the rules don’t apply, and you can enjoy a higher take home pay if you choose to operate outside IR35.
If you currently work in the public sector through your own limited company, contact us to discuss your options from 6th April.
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