Contractors in Public Sector
Contractors in public sector left behind their Personal Service Companies for Umbrella Companies.
The reason is the Government’s rule changes for public sector contractors.
From April 2017 contractors in public sector were no longer decide their own IR35 status.
Deciding IR35 Status
It will be their client, the public sector department hiring them, who will decide if the contractor is inside or outside IR35.
How they will acquire the tax expertise to be able to decide that is unknown.
Judges, Special Commissioners and General Commissioners have a lot of trouble deciding that, never mind people who have full time jobs in government departments.
Deducting Tax and National Insurance from Contractor
Once the public sector department has made that judgement, the agency must take income tax and NI contributions out of a contractor’s income and send it to HMRC.
However, we are already seeing that public sector departments don’t want to take this decision. They don’t want to decide an IT contractor’s IR35 status.
So, already two public sector departments have come out and said that they will no longer hire contractors who operate through Personal Service Companies.
So far those two government departments have taken the easy way out.
Personal Service Company Contractors
They have said that they are no longer going to hire contractors who operate through Personal Service Companies.
So, contractors in those departments have a choice.
They can just pay up the IR35 tax – or join an umbrella company.
Joining an Umbrella Company
By far the favourite amongst contractors, so far, is that they join an umbrella company.
It’s a massive drop in income for them of probably 10% to 15% of their income.
However, it is still better than paying the IR35 tax.
Some contractors, of course, would rather just not take any more contracts in the public sector.
However, this is easier said than done.
If a lot of their business and systems knowledge is for Government departments and other public sector companies, they won’t be in the forefront for contracts with major banks, oil giants or telecoms companies.
The worst is that it is being predicted that the Government will roll these changes out in the private sector too in April 2019.
An announcement is expected in November 2018’s Budget.
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