New legislation for 2017 affecting Worker’s services provided to the public sector
CBSbutler would like to take this opportunity to provide you with an overview of the draft legislation on the Public Sector IR35 reforms.
The scope of the reform will initially cover contractors delivering services to the public sector but there is speculation that this may well pave the way for HMRC to extend the reforms to the private sector.
Who do the Reforms affect?
The Reforms will affect individuals personally providing services (or under an obligation to personally provide services) through an intermediary to a public authority where the individual holds a ‘material interest’ in the personal service company. A Public Authority means any public authority as defined in the Freedom of Information Act 2000. It will include government departments and their executive agencies and companies owned or controlled by the Public Sector, local authorities, NHS trusts and universities. It will not include private sector organisations providing outsourced public services.
When do the changes come in?
The new rules will apply to all payments made on or after 6th April 2017 including where services were provided before that date.
What are the key changes?
Contractors can currently determine their IR35 status and make assurances that their companies fall outside of PAYE and NI rules and instead pay corporation tax.
From April 2017, the Government plans to shift the responsibility of determining IR35 status away from the Contractor and onto the entity engaging the Contractor.
If a worker has a contract within the public sector (and within the definition of Public Authority outlined above), the public sector body will be responsible for determining whether the assignment is subject to IR35.
Once that assessment has been made, it is communicated to the Agency paying the Limited Company. If the Public Authority deems their position to be operating inside IR35, it will be the Agency paying the Limited Company worker who will be responsible for deducting income tax and national insurance before payment is made to the Limited Company. This means the payment the Limited Company will receive will be net of PAYE.
How will I know if I am working for a Public Authority?
Please refer to the Freedom of Information Act (and its Scottish equivalent) as a benchmark to determine whether the Public Authority you are working for is within scope of these proposed IR35 changes. CBSbutler will also advise you in good time if the Public Authority you are working with is impacted.
What method will the Public Authority use to determine IR35 status?
It may be clear to the public authority engaging the services of the Limited Company whether the Worker is in or outside IR35 or they may use the digital tool which HMRC are currently developing to determine the status of the worker.
What if the Limited Company does not agree with the IR35 assessment made by the Public Authority for which they are engaged?
More guidance is expected to follow on this point but it is likely that the Limited Company will be able to appeal the assessment outcome with the Public Authority for further consideration. The Public Authority will be given 31 days to respond.
Who will determine the Limited Company worker’s tax code?
HMRC expects that the individual being supplied will have a P45 from previous work and therefore will have a tax code which the Agency will use to process pay. If the individual does not have a PAYE tax code, it is likely that the Agency will use tax codes OT or BR however CBSbutler are still awaiting more information on this point from HMRC so further detail will be provided nearer the time.
Will the Limited Company workers have an entitlement to other statutory payments and employment rights?
HMRC has stated that the act of deduction of tax and NIC’s does not mean that the individual being supplied will have the right to statutory payments such as sick pay, maternity pay, redundancy, pension or employment rights from the paying organisation. However, they may be able to claim some of these from their personal service company in certain circumstances. More guidance is likely to follow on this point.
Can Limited Company workers who are within scope of these changes continue to charge VAT?
Yes, contractors who are VAT registered can continue to charge VAT on their services irrespective of their IR35 status.
- CBSbutler will keep you informed of whether the Public Authority you are providing services to will be impacted by the IR35 reforms.
- CBSbutler will liaise with Public Authorities in scope to assess all workers currently providing services to determine the workers’ IR35 status ahead of April 2017.
- CBSbutler will liaise with all impacted Limited Companies on the assessments and the resulting required action with regards to the processing of Tax and NIC’s.
If you have any concerns or questions relating to the new IR35 reforms please email firstname.lastname@example.org.