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In the Autumn Statement the Chancellor confirmed that the government will be reforming the Intermediaries Legislation (IR35) for workers who are engaged by a Public Authority. They have published draft legislation, and subject to parliamentary approval and Royal Assent, the Finance Bill 2017 will include this legislation.

NB workers engaged in the private sector are not affected by this new legislation, so the current legislation continues to apply.

With effect from 6 April 2017, the legislation will move responsibility for deciding the status of off-payroll workers (chiefly contractors) to the public authority, or intermediary agency if applicable. Where the worker is deemed to be working within the legislation (inside IR35) the public authority or agency will be responsible for deducting employment tax (paye) and national insurance, and paying this across to HMRC. On a less worrying note – the employer NIC will be payable by the engager rather than the worker, so this means the public authority or agency, where applicable.

HMRC are currently testing a new employment status service, which will help clients decide whether or not the new rules apply. The public version will be made available before 6 April 2017. Clients will, from 6 April 2017, be required to apply the status test to all off payroll workers, and whatever the result, they are required to formally notify the worker accordingly.

In conjunction with the new legislation, HMRC is also removing the 5% deduction to cover deemed overhead expenses. It is also worth noting that, when working within IR35, home to work motor and travelling is not tax deductible. That is not to say that your company cannot reimburse you for such costs, but they will be disallowed for tax purposes. Company pension contributions will continue to be deductible, and will reduce the amount of any deemed IR35 salary.

One slight concern  is that the new legislation applies to payments made on or after 6 April 2017, and will affect contracts entered into before 6 April 2017. HMRC have not provided any assurance that they will not apply IR35 retrospectively to those contracts. We would hope they would not, but the thought must have crossed their minds.

It is still difficult to speculate over how public service engagers will react to the new legislation, which is just the formalising of what was announced in the Autumn Statement. Chances are HMRC will slant any status checks towards IR35, in the same way as the disastrous Business Entity Test. How the tests will be received, and how the engagers decide to play it out, is anybody’s guess. Chances are they will be keen to avoid any confrontation with HMRC, so may apply IR35 universally. Hopefully however, they may look at each engagement critically, and ensure that there is fair play. Its unlikely that there will be a mass drive to push workers into permanent employment, as this removes the much needed flexibility of the contracting market. Critically, it is important that, if you are notified by your client or agency that your contract has been found to fall within IR35, you contact us as soon as possible so that we can assess the situation.

The complete overview of this and other recently announced new draft legislation can be found at:

https://www.gov.uk/government/publications/finance-bill-2017-draft-legislation-overview-documents/overview-of-legislation-in-draft

 

Updated by Susan Albest 6 December 2016