IR35 and the public sector

What is IR35?

IR35 is a legislation designed to tackle ‘disguised employment’ – to prevent people from reaping the benefits of self-employment, when they are in fact in an employed setup.

It is based on the level of risk, liability and responsibility of a contractor.

If a self-employed worker is seen as having the same risk, liability and responsibility as an employed person then they will fall ‘inside’ IR35, meaning they will be subject to the same tax and National Insurance as an employee – this will result in them having to pay more than if they were to fall ‘outside’.

Their business expenses will also be limited.

Each contract is looked at individually, meaning an IR35 status can change with each client.

Read our IR35 Guide for more information.

IR35 and the public sector

In 2017, changes were made to the IR35 legislation that only affected those working in the public sector.

During this time, contractors decided their own status, however, IR35 reforms meant that self-employed professionals taking on contracts with public authorities had to leave it up to the client to make the decision.

The type of public authorities affected included government departments, the police, the NHS and the BBC.

Then, further changes to the legislation meant that after April 2021, this rule applied to every client, no matter what area they worked in.

This did, and still does, result in many businesses blanket-assessing their self-employed workers as being ‘inside’ IR35 – this is due to some believing that it’s ‘safer’ to do so in order to avoid getting it wrong and facing questions from HMRC.

The government does provide a Check Employment Status for Tax (CEST) tool to determine a worker’s employment status, which uses information based on:

• Details of the contract
• The worker’s responsibilities
• Who decides what work needs to be done
• Who decides when, where and how the work is done.

However, CEST has been heavily criticised for not always giving accurate results.

A contractor can disagree with the employment status given to them by their client, in which case, it is a legal requirement to set up a process to deal with the disagreement.

If you have any further questions, our team of experts are available to answer any queries, so give us a call on 01442 795 100, email jaime.thorpe@dolanaccountancy.com or contact us via live chat.