Public Sector Contractor IR35 Rules
HMRC has published the new public sector contractor IR35 rules. They are effective from April 2017.
The main difference is in who determines your IR35 status.
Contractors decide their own IR35 status. They decide whether they operate through a personal service company or umbrella company.
However, that is not the case after April 2017 for public sector contractors.
Off Payroll Workers and IR35
According to HMRC “From April 2017 there are changes to the way the current intermediaries legislation (known as IR35) is applied to off-payroll working in the public sector.
“Where the rules apply, people who work in the public sector through an intermediary will pay employment taxes in a similar way to employees”.
It will be the contractor’s client, i.e. the public sector authority or department who will decide the contractors IR35 status.
Employee or Self-Employed Contractor
If they say that the contractor is an employee rather than being self-employed, then the contractor will have to pay tax as if they are an employee.
They won’t have any choice in the matter. Their agency will have to deduct the tax and National Insurance and pay it to HMRC.
Say HMRC “Where a public authority employs a worker through an intermediary, it decides if the off-payroll working rules for the public sector apply.
“If the rules apply, the fee-payer deducts the associated Income Tax and NICs from the employee’s salary and pays them to HMRC.”
It seems that the new rules apply to payments rather than work done. So, if you do the work before April but are paid after it, the new rules will apply.
Public Sector Department Decides
It is now the fee payer, in this case the public sector department who decides the IR35 status of contractors.
Once they decide a contractor’s IR35 status, they must inform the contractor’s agency within 31 days.
If they don’t, the public sector entity will become liable themselves.
IR35 Appeals Process
It seems that the contractor has to stump up the IR35 tax even if they disagree as to whether they are inside or outside IR35.
Once the public authority have decided their IR35 status, their agency will have to dedcut tax and NI from the contractor’s fee before paying them.
So, what is the appeals process?
Can they have this adjudicated by an independent body?
No, the people that he, or she, can appeal to are none other than HMRC themselves.
They will the judge and jury on this decision.
This appeal will take place after the contractor has paid his, or her, IR35 tax.
They have, basically, to claim it back.
Special Commissioners and General Commissioners
HMRC have lost an absolute ton of IR35 verdicts that go to the Special Commissioners and General Commissioners. They have hardly won any.
So, now they will just decide, themselves, if a contractor is inside IR35 and will pay them lots of tax money or whether he, or she, is outside IR35 and will pay them much less.
This does not seem fair!
It would be interesting to see it challenged by the courts?
It will be interesting, also, to see what contractors group, IPSE, do about it.
Have a look at Simply Umbrella – the umbrella company where you can take home as much as if you are in a limited company.