Public Sector IR35 Changes 2017

Since 6th April 2017, liability for establishing the IR35 status of a public sector contract has passed from the contractor to the client, or ‘engager’ – be it a government department, recruitment agency or consultant to the private sector. Some engagers are exempt – some charities, GCQH and ‘private sector retail businesses serving the NHS’, such as high-street pharmacies and opticians.

What is IR35?

IR35, or the “Intermediaries Legislation”, was created to fight ‘disguised employment’ – that is, contractors operating through a Limited Company, with all the associated tax advantages, but behaving as an employee. It requires 95% of all income through a contract caught by IR35, to be taxed as a deemed salary. For more information, see our handy IR35 guide here.

What has changed?

The changes only apply when engaging contractors operating through a Limited Company, for work in the Public Sector.

If the engager deems a contract to be within IR35, they are responsible for tax and National Insurance deductions from the contractor’s invoices, before the money reaches the contractor. In short, payments are treated as salary – Corporation Tax is not due on any income paid in this manner, but only very limited tax advantages can be claimed.

In practice, because the rules around IR35 are so complex and the penalties for non-compliance so severe, public sector engagers are deeming contracts within IR35 in all but the most cut-and-dry cases. Most engagers are also insisting on the contractor earning via an Umbrella Company and not a Limited Company.

HMRC has developed an online IR35 tool (found at https://www.gov.uk/guidance/check-employment-status-for-tax) to support classification of a contract. HMRC state that it will “stand by its results, where correct information has been inputted in line with the guidance.” It is worth noting that the tool has not yet been tested in a court of law and contractors and engagers alike should be wary of relying solely on this assessment.

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What does this mean for me?

If you are found to be working within IR35 on a public sector contract, you will have tax and National Insurance deductions taken from your invoices to the engager. Unlike other contracts within IR35, there is no 5% allowance for company running costs before calculations are made – 100% of the invoice income will be subject to tax and NICs.

Unfortunately, since the liability for incorrect IR35 assessments falls on the engager, there is unlikely to be much a contractor can do to appeal an ‘inside IR35’ decision.

Some commentators hold the opinion that the public sector IR35 changes will be pushed into private sector engagements as well, even as soon as 2018! We will keep you updated on any further developments around IR35 legislation.

If you have any questions about your own IR35 status, or for advice on whether a contract may fall inside or outside IR35, please call us on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.

Whats next…

Why Dolan Accountancy?

Dolan Accountancy was set up by Simon J Dolan, the man behind the well-known brand SJD Accountancy. With over 25 years experience in the contracting marketing, Dolan Accountancy has the heritage, reputation and credibility you can trust. Working closely with our sister company, ContractorUmbrella, it means we can offer one low cost, fixed fee package at £95 + VAT per month. This gives you the flexibility of using both our Limited Company Accountancy Services and our award winning Umbrella Service, for one inclusive cost. We don’t believe in tiered packages or hidden extra fees, instead we aim to give you everything you need, including:

  • Free Company Formation – This is where it all begins. Once you have decided on an available name, we will form your company free of charge (if using our accountancy services) and it will be ready for you to use in as little as three hours.
  • Free use of ContractorUmbrella – With changes in Public Sector IR35 Legislation we understand that sometimes you are required to contract via an umbrella company. We will keep your limited company ticking over, while you work margin free via our sister company, ContractorUmbrella.
  • A Dedicated Accountant – Your accountant will be there for any company or personal tax advice that you require. We will never outsource work, even to internal teams.
  • Free Access to FreeAgent – The founder behind the multi award winning FreeAgent platform was one of Simon’s first clients, therefore it only seems fitting that we offer all of our clients access to FreeAgent, free of charge.
  • Free Business Banking – We have decided to waive our commission so our clients can use CashPlus free of charge for the first year, saving you £69.
  • Unlimited IR35 Status Reviews – We will review all of your contracts for IR35 purposes and provide you with our professional opinion as to its status.
  • Free Registered and Director’s Service Office Address – Sometimes you just don’t want your home address on display at Companies House. When you sign up to our accountancy services, we will offer the use of our address as an alternative.
  • Your Business and Personal Taxation Needs – This includes Company Accounts, Director’s Personal Tax Return, VAT Returns, Payroll, Corporation Tax and Dividend advice, to name just a few.

If you’d like to find out more about how Dolan Accountancy can help you and your business, please give us a call on 01442 795100 or email sophie.lewis@dolanaccountancy.com or jaime.thorpe@dolanaccountancy.com.

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