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Changes to IR35 rules for public sector off-payroll working

Print publication

27/04/2017

From 6 April 2017, IR35 rules for off-payroll working in the public sector will be changed. Where the rules apply, public sector organisations engaging contractors through an intermediary or personal services company (PSC) will be responsible for reporting and paying PAYE.

The key changes are:

  • responsibility for deciding if IR35 should be applied shifts from the worker’s PSC to the public authority that the worker is supplying services to where the rules apply, the public authority must calculate income tax and NICs and pay them to HMRC via PAYE
  • it is for the public authority to determine whether the off-payroll working rules apply when engaging a worker through a PSC.

HMRC has issued new guidance and an online ‘employment status checker’ for the purposes of deciding whether IR35 applies. The checker can be used by both private and public sector employers.  IR35 will apply where the worker would (for tax and NI purposes) be an employee of the client if they worked directly for it rather than through the intermediary.

The online employment status checker is a binary tool. In anything other than extremely clear-cut cases it will simply conclude that it is unable to give a definitive answer. Given the serious consequences of getting it wrong we would always advise that professional advice is sought if you are in any doubt about a contractor’s IR35 status.

Whilst this development is currently limited to the public sector, it is possible that it may be rolled out into the private sector over time so it is certainly one to keep on your radar.

If you would like further advice on this topic please contact David Smedley or Andrew Rayment.

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