Public sector and IR35 – Some big changes, and 5 things they could mean to recruiters

You may well be aware of this already, but there are about to be some changes to the way the IR35 tax system runs. Since its inception in April 2000, the IR35 system has had a somewhat turbulent history. While it was intended to address the issue of self-employed contractors effectively performing a role that could count as employment, it has been alternately praised and damned depending on your perspective. In theory, it seems simple. The underlying principle of IR35 is that you cannot act as an employee and claim self-employed tax status and the attendant benefits. The difficulty in practice, however, is that what that actually means is a grey area that makes enforcement difficult.

The ups and downs of the system are not what this article is about though because I think anyone who is involved in recruitment has probably gone around that particular carousel a few times. The fact is that IR35 is law, and as such, it has to be adhered to, or you are subject to a potentially heavy-handed response from HMRC as several high-profile cases have shown.

There is an ancient Chinese curse that springs to mind which is ‘May you live in interesting times’ the interesting here meaning troubled and difficult. In 2017, there is a new change coming to IR35 that will make things a little more interesting, to say the least, if you are not prepared for it.
We don’t have room to go through the whole change here so these are five important things that you may need to be aware of.

1. The big change in 2017 is public sector. The new rules will specifically apply to contractor workers with limited companies supplying into the public sector. All departments within the P.S. arena have been tasked with looking at the employment status of their departments, so this change is being driven from within as well as by legislation.

2. The change is on who is responsible. Traditionally decisions about who does meet IR35 requirements have been made by the contractor’s business. Under the new rules, the decision will be made by the supplying agent. That means the recruiter or commissioning department will be responsible for the decision of IR35 compliance.

3. Responsibility means just that. As far as we can see at the moment, the responsibility for legal compliance is tied to the decision maker. That broadly means that if the case goes to legal, and the contractor is deemed to be performing a role that would otherwise be employed directly, the supplying agent could be liable for the legal fallout.

4. Be aware of what public sector means. We tend to immediately thing of NHS, local government and so on but there are other areas that are potentially considered to be under the P.S. banner – for example, the BBC and Channel 4. Watch out for providing services to public and private sectors at the same time. There is no clear address to how that would resolve at the moment.

5. Get some advice. IR35 is at best complex and a bit woolly, and at worst a minefield. Our suggestion is that as soon as you think the new system will impact on you, get some professional advice on how it will affect your business.

That last one is very important because if the rules change in the way they are currently laid out and you assess the IR35 compliance wrong then you, not the contractor, will potentially be responsible for any underpaid tax, NIC, and penalties imposed. These changes will need to be handled by the recruiters themselves, and ominously HMRC has said they expect many to caught out.

Finally, we are not the experts you need in this particular instance. While we are always happy to help with other matters at Back Office, the new IR35 rules simply do not involve us in the decision at all.

The good news is that the government has promised a series of support facilitates (there is a link below to some of it) which should explain it all clearly and offer guidance you need to comply with the new rules.

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