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Surprise Change to Off-Payroll Working in the Public Sector

12 Dec 2016

At First Recruitment Group we stay close to the issues that matter to our clients and contractors. Last week there was a surprise change to off-payroll working in the public sector that we feel you may want to know about. The new rules only apply where the services of a worker are provided through an intermediary to a public sector client.

Background

Back in August this year HMRC stated that they were planning to make the engager, usually the agency supplying and paying the contractor, liable for IR35 compliance. The engager would then be expected to liaise between the client and the contractor when answering a series of questions using HMRC’s new online digital assessment tool to determine whether the contractor fell under the IR35 rules.

Public sector clients responsible for IR35 status

HMRC are still working on this digital tool to support the decision process, but contrary to what they originally intended, they have recently released draft legislation explaining that public sector clients will be responsible for checking IR35 status.

This surprise change will apply even when an agency is involved in the hiring process and in the subsequent supply of the contractors’ services.

These notes are taken from the legislation’s technical notes:

Requirement on public sector body to provide information to agency as to whether employment status test is met
“The public sector client must inform the intermediary, agency, or third party with whom they have a contract to provide the services that the contract falls within the new off-payroll rules or that it does not.”

Accounting for Tax, NICs
“Where the rules apply, the person paying the fee to the intermediary for the worker’s services “the fee payer”, is treated as an employer for tax, NICs and Employment allowance purposes.”

Will this affect you?

A number of our clients and contractors have questioned whether this will affect their businesses, especially those that are providing services and/or are working within the public sector. It’s important to understand that when these changes come into effect in April 2017, they will only apply to contractors that are providing their services as self-employed, LTD companies or PSC’s to public sector clients.

A public sector client

The new rules apply where the services of a worker are provided through an intermediary to a public sector client. A public sector client means a public authority for the purposes of:

the Freedom of Information Act 2000
the Freedom of Information (Scotland) Act 2002

The government anticipates these changes will be introduced as part of the Finance Bill and will be in force from 6 April 2017.

We expect HMRC to release further details and a beta version of the online digital assessment tool in the coming months.

We hope this information proves useful and helps you to prepare accordingly.

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