In the Autumn Statement 2016 Philip Hammond announced some proposed changes in relation to how public sector contractors work within IR35. These changes have been confirmed in the Spring Budget 2017 and will come into effect from April 2017.
Who will be affected?
The new rules will apply when:
- a worker performs services personally
- the client is a public authority
- the services are provided under circumstances where, if the contract had been directly with the client, the worker would be regarded as an employee for Income Tax purposes.
What are the changes?
Up until now, the responsibility for determining IR35 status for public sector workers lay with the worker.
From April 2017, the public sector body (the client), becomes responsible for making this decision so the resonsibility is taken out of the worker’s hands.
What is the impact?
If the client determines that the worker is caught by IR35, the end client will be responsible for deducting tax from payments made under the contract. This could significantly reduce take-home pay and make the limited company route much less appealing for public sector workers.
HMRC have launched the Employment Status Service (ESS) – an online tool for determining IR/Employment status. This aims to establish whether a worker should be treated as employed or self-employed for a particular contract or project.
The tool can be found here.
As always, please get in touch if you have any queries in relation to the above.