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28 April 2017

New IR35 online tool for public sector end users from April 2017

From April 2017 HM Revenue & Customs introduced new IR35 rules for the public sector, which force the end user to determine each contractor’s employment status.

In 2016’s Budget, the Chancellor announced that changes were being made to the application of IR35 for off-payroll workers in the public sector, with the onus shifting to the end user (rather than the contractor’s company) to consider whether workers fall within IR35 from April 2017. An online tool was promised to assist end users in determining each worker’s status.

On 2 March 2017 HMRC finally launched the Employment Status Service (ESS) tool which can be found here.

The tool is aimed at end users, but we would advise any contractors working in the public sector to carry out the test themselves, as if the public sector organisation you work for determine that you are under IR35 then you have a right to appeal to HMRC and can use your ESS result to support your case.

So, what does the tool look at? The tool considers a number of questions, covering day to day control of your work, who provides the equipment, and the right to send a substitute etc.

What happens if the organisation you work for determine that IR35 does apply to your engagement? Assuming you don’t wish to dispute/appeal their decision (see above), then they will be directed to deduct tax and NIC from the payment made to your company, with reference to you personally.

This is quite an odd situation, as it means your company will receive payment of its invoice after deduction of tax and NIC for you personally. Your company can then pay this net amount to you, effectively as net salary. Unfortunately, a real time information submission will still be required through your own company’s payroll for this ‘deemed’ payment.

From discussions with affected clients, many believe that if they fall under IR35 they will become employees of the organisation they are working for, but that won’t usually be the case. As a result, you could end up with all the costs/hassle of running a company, but with no tax benefits compared to being an employee. So, basically, none of the perks of employment (pension, holiday pay etc) but the same tax treatment as if you were employed.

For further information on this matter please contact me.

Key Facts:

  1. New IR35 rules affect the public sector from April 2017
  2. The onus is now on the end user to determine if each worker falls under IR35
  3. There’s a new online ESS tool for the end user to use in determining each worker’s status
  4. We’d advise contractors to use the tool themselves as they can appeal a decision
  5. Tax and NIC will be deducted from payments to the contractor’s company

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