IR35 within the public sector
In early February 2017, HMRC published its guidance on the impending public sector off-payroll rules (also known as IR35), although the notes are rather lacking in any real detail.
IR35 decision making
The basic principles are that from April 2017 the public sector body, or agency a contractor is working through, will be responsible for determining whether the PSC’s contract falls within the IR35 rules.
If so, the public sector body or agency (known as the Fee Payer) will then need to deduct PAYE and NI as if the worker was an employee on the payroll. The net ‘salary’ (plus VAT if applicable) will be paid into the limited company’s bank account and can be withdrawn by the director as salary without further taxation. VAT returns will continue as normal.
Obviously this net salary will be lower than most contractors will be used to because of the way the majority of PSCs structure their expenses / salary / dividends and it has been suggested that many contractors are in the process of negotiating their fees up to accommodate for this, effectively attempting to keep their take home consistent with current practices.
HMRC’s new ESS Tool to help determine IR35 status
Of course that will only be necessary if your contract is deemed to be caught by IR35 within the public sector, something that the end client / agency will be deciding using a new online HMRC tool called “The Employment Status Service” – https://www.gov.uk/guidance/check-employment-status-for-tax.
How can you protect yourself?
It has been suggested that if a contractor wishes to protect their current status then a contract and working practices review by an IR35 specialist could help. This review pack could then be provided to the agency or public sector manager giving them the reassurance they require when determining your IR35 status.
At a4c we have worked with Qdos, the contractor specialists, and we would recommend their Public Sector review package, which can be found here: https://a4cgroup.qdoscontractor.com/insurance/contract-reviews/qdos-public-sector-ir35-solution.
We have also been in email contact with the HMRC Employment Status Policy Team and hope that our additional questions will be answered shortly.
Any further information we receive on IR35 within the public sector will be published here and forward to our clients as required.
You can also read HMRC’s published notes on these changes – https://www.gov.uk/guidance/off-payroll-working-in-the-public-sector-reform-of-intermediaries-legislation