Budget 2016 public sector contractor implications
A key target of Budget 2016 are contractors engaged in the public sector, specifically those working via their own limited company (or PSC).
The Budget highlights the issue ‘off-payroll’ working arrangements for public sector engagements and the need to reform the intermediaries legislation (IR35). In recognising there is confusion surrounding the IR35 rules which has led to widespread non-compliance, responsibility for determining working status passes from the director of the PSC to the public sector body (or the recruitment business placing contractors in the sector) itself.
“From April 2017, individuals working through their own company in the public sector will no longer be responsible for deciding whether the intermediaries legislation applies and then paying the relevant tax and NICs. This responsibility will instead move to the public sector employer, agency, or third party that pays the worker’s intermediary. The employer, agency or third party will have to decide if the rules apply to a contract and if so, account for and pay the liabilities through the Real Time Information (RTI) system and deduct the relevant tax and NICs.”
The intermediaries legislation, introduced in 2000, set out to tax individuals working through an intermediary (eg their own limited company) to pay broadly the same tax and National Insurance contributions as employees, where they would have been an employee if the individual had provided their services directly.
Compliance with IR35 is based on reviewing both the contract of engagement and the actual working practices and falls to the individual to determine.
The Government plans to address non-compliance with IR35 within the public sector via new measures.
HMRC will introduce objective tests for public sector employers to use to decide at the point of hire whether an engagement is caught by new rules. A ‘simple and straightforward’ digital tool will be developed to use in cases which are less clear cut.
Existing IR35 rules will continue unchanged in respect of non-public sector engagements, although the digital tools will be made available to all businesses and agencies to use.
Consultation on the proposed changes will be announced in the coming weeks. We hope clarity on how public sector employers will test engagements against the new rules will emerge later in the year.
In the meantime, if you would like a no-obligation consultation on working via your own limited company, talk to Method Accounting today.