Public Sector IR35 Changes - What we know now

It was nearly a year ago that our last Chancellor announced there would be changes to IR35 in the public sector. Designed to make sure people abide by the IR35 rules, after much strife most details have been clarified but there are still a few holes - and a few myths!

The IR35 rules aren’t changing

If you were Outside IR35 before you should still be Outside IR35 when the changes come in on 6th April 2017, no matter who you work for.  HMRC are looking to catch all those people who aren’t operating correctly, haven’t checked or don’t care.  

To do this, HMRC has just released a digital tool that will help decide whether you’re Inside or Outside, assuming you answer properly!  Due to be out at the end of February, this was released on 2nd March.  Now everyone is testing it to make sure it supports case law and is not a weighted opinion of anyone else.

 

Working in the public sector doesn’t mean you’re Inside IR35

The changes mean it’s now the public sector body you work for (even if it’s via an agency or other third party) who have to decide whether you’re Inside or Outside IR35.  Your job role isn’t changing and you can’t be ‘declared’ Inside IR35 unless you actually are.

HMRC feels there are a lot of people who work for the public sector that don’t check or aren’t operating correctly.  As they use taxpayer’s money, they’re trying to cut out any IR35 abuse - if you’re not operating correctly you’re not paying the right taxes.

What this does mean is all public sector bodies now have a huge additional burden; from working out who works through a PSC (or via a consultancy) to understanding each contracted role well enough to work out if it’s caught by IR35 (Inside) or not.  Whilst the digital tool should be simple to use, it’s not mandatory and there will have to be an assumed level of knowledge to be able to answer queries effectively.

 

Working in the Public Sector doesn’t mean you’ll pay more tax

Well, not much more.  If you’re Inside IR35 and working for the public sector, the 5% allowed for expenses is being taken away, so you will feel a slight pinch.

If you were operating Outside IR35 incorrectly and it’s found you’re Inside IR35 - i.e. you were operating incorrectly - you’ll find the change much more difficult.

However, given the additional burden the public sector bodies will have some are shying away from using PSCs, instead opting to use contractors via umbrella companies.  These have similar restrictions and you don’t have a choice over IR35 as you become an employee of the umbrella company.  There are pros and cons to going through an umbrella and here at Crisp we have that option should you need it - just give us a call to see if it’s right for you.

 

Working in the Private Sector doesn’t mean you should ignore this

HMRC have promised that these rules won’t move over to the private sector, but you never know!  It’s not something to worry about for now, but you need to be aware of these changes for two reasons:

  1. Should you move to the public sector, you’ll be drawn in to these new rules and checks
  2. Now the digital tool (ESS) is available, we highly recommend you check your own contract now.

Whilst the tool isn’t fallible and HMRC only state that they’ll stand by the outcome if the right information was entered, if you don’t do a check and HMRC investigate you we think they’ll be taking much more of an interest in you.

 

How do I know if this affects me?

If your end client is in the Public Sector (defined by the Freedom of Information Act), even if you work through an agency or another third party, you’ll be affected.  The decision of whether you’re Inside or Outside IR35 won’t rest with you any longer, though you should still be aware of IR35 and ask for clarification if you think their decision is wrong.

 

I’m Inside IR35 and in the Public Sector - what happens now?

For any payment you’re due to receive after 6th April 2017, your agency will either deduct your PAYE and NI from the amount they pay your company or talk to you about going through an umbrella company or on their payroll (quite unlikely).

They should be talking to you about this now, even if they’re unsure of the route they’ll recommend yet.

You can still use your limited company if you have any other contracts that are outside and if the agency will pay your company.  If this is the case, they’ll ask you to sign a ‘Starter declaration C’ and they will deduct taxes without taking any personal allowance in to account until they receive an updated tax code from HMRC.  There are changes as to how to complete your self assessment as well.<

Will anything else change?

There is another budget is just around the corner and the legislation for this won’t be passed until 20th March, so there is time for change.  Given the start of this is a month away it’s very unlikely they’ll add more or change anything now.

We’ve been to round tables with HMRC and other industry discussions over the last few months and what’s been discussed there is reflected in the current thinking, despite responses suggesting alternatives.  

 

Next steps

We’ll be contacting everyone we know who is in the public sector to make sure you’re aware of it and know, or will know, what will happen.  If you think these changes apply to you do please get in touch, just in case!

 

You can find the digital tool - the Employment Status Service - here: https://www.gov.uk/guidance/check-employment-status-for-tax.

 

We’ll also let you know if there are any further changes or updates.  If you have to use an umbrella company (or are considering that option) get in touch for a quote.  As always, give us a call if you’re unsure about anything.

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