Where our clients work as contractors through their own personal services companies (PSC), we will be aware of the IR35 rules which have been around since April 2000. From 6 April 2017, the impact of the IR35 rules is about to change significantly for contractors working in the public sector.
For those contractors, the decision as to whether they are within IR35 will lie with the end client – the public sector body (PSB). This organisation is supposed to use an online employment status service (ESS) tool to help it reach a conclusion on the worker’s IR35 status. The Employer Bulletin number 64 says this tool will be ready in March, which is cutting it fine to say the least.
If the PSB decides that IR35 does apply, the fee-payer, which will normally be the employment agency who arranged the contract for the PSC, will have to deduct tax and NI from the amount invoiced by the PSC. No allowance will be made for the 5% expenses deduction, or for any pension contributions the PSC may pay on behalf of the worker.
If the PSB decides that the worker is outside IR35, the fee payer can pay the PSC with no deductions. However, the fee payer continues to be liable for PAYE and NIC due, should HMRC decide that the IR35 decision made by the PSB was incorrect. To avoid difficulties some contractors will be taken on to the payroll of the PSB, but others will continue working as normal and put their fees up to cover the tax deductions.
The essence of the IR35 rules have not been changed by this altered procedure, and remain as woolly as ever, so each contractor’s situation will have to be individually assessed to reach a conclusion. HMRC has produced sets of guidance for all the players in this situation, but there are inevitably many unanswered questions.
If you have any further queries please contact our office.
Written by the Tax Advice Network