What the IR35 changes mean for public sector contractors

13th February 2017

Professionals in the public sector will have been waiting with bated breath in recent months to find out exactly what the IR35 changes mean for contractors and when these will come into play. In an overview published this month, HMRC confirmed that not only will the changes come into force for the next financial year, but also that invoices paid after 6th April 2017 for work carried out prior to this date will be subject to the new rules.

What are the IR35 changes?

In summary, the new IR35 rules mean that Personal Service Company contractors in the public sector lose the right to determine their own tax status. The amendments have been made following concerns from HMRC that individuals working in this way were doing so to avoid PAYE and Class 1 NIC. As a result, those deemed to be operating outside of IR35 will need to be brought within PAYE and NICs, subsequently leading to a significant financial impact on individuals.

A move against flexibility

Many industry leaders have made calls against this move since it was announced in Philip Hammond’s Autumn Statement. The Association for Professional Staffing Companies (APSCo), for example, has repeatedly voiced its concern that this action will limit the flexibility of the workforce and could see an exodus of expert talent in the very near future.

So what do contractors and recruiters need to do now?

HMRC has developed a tool – The Employment Status Service – which will become available later this month. This has been designed to determine an individual’s tax status once the required information has been entered online.

However, the world of compliance and, in particular, the IR35 regulations are immensely complex. Speaking to an expert, then is crucial in order to truly know what any changes mean for contractors and the recruiters placing them.

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