IR35 Update- Public Sector

Public sector contractors will be impacted by IR35 from April 2017.

Call 0161 703 2549 or email info@championcontractors.co.uk

It has been confirmed that the proposed reforms to the Intermediaries Legislation, commonly known as IR35, will go ahead.

The reforms only apply to off-payroll engagements of contractors who operate through an intermediary, such as their own Personal Service Company (PSC), in the public sector. It includes engagements that are sourced and undertaken via recruitment agencies.

From April 2017, where contactors are engaged through their own PSC, the responsibility to determine whether IR35 applies will fall to the public sector organisation they provide services to.

If public sector contractors are deemed to be inside of IR35, then recruitment agencies will be required to deduct Income Tax and National Insurance contributions before they are able to make any payments to a PSC bank account. This represents a massive change over previous circumstances and will directly impact on the financial benefits formerly enjoyed by these PSC owners.

Public sector organisations will be required to confirm reasons to support their IR35 decisions and will need to communicate information to recruitment agencies within 31 days of being asked for it. This will then allow the agencies to agree/disagree with findings. Failure to provide details within this timeframe will result in the public sector organisation becoming responsible for all PAYE deductions.

HMRC have recently released an online tool  to help assess a contractor’s individual IR35 status. Public sector organisations are now being actively encouraged by HMRC to use the tool for all determinations.

An HMRC guidance note can also be found by clicking here.

It is important to know that use of the HMRC online tool is optional. Champion, in association with our legal partners Weightmans LLP, have designed a robust set of tests/measures/processes that, we believe, can better satisfy public sector organisations, recruitment agencies and contractors. We are now working extremely hard with all parties to help them understand and fairly navigate the new rules.

NOTE – For the purpose of IR35 reform, a Public Sector Organisation means an organisation as defined for the purposes of the Freedom of Information Act 2000 and the Freedom of Information (Scotland) Act 2002.