Consultation on IR35 in the public sector announced

Posted on: June 14th, 2016

HMRC have issued a consultation document on proposed reforms to the intermediaries legislation, known as IR35, in the public sector. The changes are intended to ‘improve the effectiveness of the rules in the public sector’ and to crack down on deemed abuse of the IR35 system, resulting in the non-payment of tax.

The reforms apply to off-payroll engagements of workers who operate through an intermediary, such as their own limited company, in the public sector. This includes engagements through parties such as recruitment and outsourcing companies who supply workers. 

From April 2017, HMRC propose that, where contactors are engaged through their own limited company, often known as a personal service company (PSC), the responsibility to apply the intermediaries legislation will no longer lie with the contractor and instead will fall to the public sector body, recruitment company or other third party paying the worker’s company. As a result, the public sector body or recruitment company will be liable to pay any associated income tax and National Insurance contributions, rather than the individual contractor/PSC.

To assist with implementing the changes, HMRC will provide a new interactive online tool to provide a ‘real-time and definitive HMRC view on whether or not the rules apply to a particular engagement’.

Although these proposals do not apply to the operation of IR35 in the private sector, the consultation document states that ‘with reforming the intermediaries rules for engagements in the public sector, HMRC will continue to explore ways to strengthen its compliance response for engagements in the private sector’.

The consultation will be open for responses until 18 August 2016 and can be accessed here.

For further information please contact Amanda Brockwell, Head of Corporate and our specialist Recruitment sector team.