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There are some new rules on the horizon about IR35 and public sector contracts – basically people contracting for national or local governments and public sector agencies like BBC and NHS.

The proposals are outlined in Cabinet Office Public Procurement Note 7/12

This in turn follows on from a consultation in May this year

So what do these new rules mean for a typical Whitefield client, operating via a PSC?

If you are in contracting in the public sector then there will be a two stage test:

~ first are you high, medium or low risk using the business entity risk guidance issued in May 2012

~ if these tests come back as medium or high risk – and they will for most contractors – then the organisation you are contracting to must seek confirmation that you are complying with your tax obligations either by

– paying tax as if caught by IR35; or

– having a contract review which puts you outside IR35

A few points to note:

1 ~ this is quite new, it will evolve and settle down – its obviously politically driven at the moment in so far as tax ethics and public standards are in the headlines at the moment

2 ~ the Procurement Note suggests if a contractor is medium or high risk, verification can be provided by “for example, following a contract review by HMRC‟s independent IR35 helpline”.  Note the “for example” –  there is no obligation for you to have a HMRC contract review, or for the engaging organisation to insist you do.  A accountants or lawyers contract  review will be adequate.  Whitefield offer these to clients at £200+vat.

3 ~ the rules are cascading – thats to say even if you don’t contract directly with the public sector, the requirements will cascade though any agency or other intermediary, eg a outsourcer.

In conclusion, for someone who is well organised and has done all they can do to improve their IR35 status and minimise risks there is probably little of concern here, other than a level of hoop jumping.  But it does stress the importance of facing up to IR35 concerns, and not ignoring them.