Accessibility Links

Will the new IR35 changes affect you?

Posted by: Jemma Puzey


The government has confirmed that changes proposed in 2016 surrounding IR35 within the public sector will be implemented in April 2017. Details of the legislation will be confirmed in 20th March 2017 – only a few weeks before the law will take effect. The changes are estimated to impact around 30,000 personal service companies (PSCs) and will apply to contracts entered into, or payments made, on or after 6th April 2017.

The new measure is a response to wide-spread non-compliance. The idea behind the changes is to ensure a fairer tax system by preventing avoidance of tax and NI contributions by working through a personal service company (PSC). An individual’s employment status (and therefore the tax they pay) is not a matter of choice, and a worker using an intermediary cannot choose to be outside IR35 if in fact, the reality is otherwise. The status should be determined by the terms and conditions of the engagement that the individual is working on. IR35 provides that where an individual works through an intermediary such as a PSC, but if it was not for the existence of that intermediary, the individual would be treated as an employee of the end client, then the intermediary should treat the individual as an employee for tax purposes.

To achieve this, the measure has moved the responsibility and risk for determining whether PAYE and NI applies to the individual for an engagement, from the intermediary (e.g. the PSC) to the public authority, agency or third party that pays for the engagement. This means that the organisation is also responsible for deducting any taxes and NI contributions from the individual and paying HMRC; transferring the administrative cost of calculating tax and NI from the PSC to the public authority or employment business supplying the individual. If an employment business is used, the public authority is responsible for reporting to the employment business if the engagement is inside or outside of IR35 and if it doesn’t within a set time frame, then the public authority becomes responsible for making the necessary deductions from the individual instead. If inside IR35, the public authority or employment business must put the individual supplied via the intermediary on its own payroll and deduct tax and NI contributions using RTI, just like they would for direct employees.

Further, the 5% allowance intended to cover administration costs will no longer be available for individuals working in the public sector. Additionally, any direct expenses that an individual can claim in line with their duties such as travel, equipment costs etc will now be subject to the consideration of the public body or the employment business when calculating tax due. This new rule means that these individuals are in the same position as employees, whose employers choose whether or not to reimburse expenses occurred by employees.

HMRC has provided an online digital calculator to help support public authorities and employment businesses to identify whether engagements fall within the new measure.

There are currently no plans to roll out these changes across the private sector. However, it is difficult to see how two sets of legislation dependent on the client being private or public, can be managed effectively.

Add new comment