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The government announced at Budget 2016 that, from April 2017, where the public sector engages an off-payroll contractor through their own limited company, that body (or the recruiting agency if the public sector body engages through one) will become responsible for determining whether IR35 / SDC rules should apply, and for paying the right tax.

Public sector contracting

If you are currently working in the public sector or indeed plan to in at some point the future you will be affected this includes:

This measure will have a significant initial impact on public sector organisations who engage ‘off-payroll’ contractors and agencies supplying contractors to the public sector.

It will transfer the liability to consider whether the IR35 intermediaries legislation applies from personal service companies to public sector engager's and agencies that pay workers engaged in the public sector. Where the intermediaries’ legislation applies the engager or agency will be responsible for deducting Tax and NIC payments from payments made to the PSC and remitting them to HMRC. There will be a consequential impact on public sector organisations, which will now have to consider whether the intermediary’s legislation applies to their contractors.

Umbrella Companies

It is now anticipated that contractors who supply public sector bodies through their own PSC’s will likely move to umbrella companies before April’s IR35 reform comes into force.

Accountancy firm Orange Genie says the numbers favour such a move. “You’ll be £83 worse off per month, if declared ‘inside IR35’ than even if you were with an umbrella company,” it said, factoring in VAT at 16.5% (FRS) and the removal of the 5% expenses allowance. “So for once,” the firm’s Dan Moss added during a webinar, “the umbrella company take-home pay is outweighing a PSC in income if you’re inside IR35.”

As regards these changes applying to individual contractors, it should be noted that those who operate through an umbrella company will not be affected in any way whatsoever.

Before the April deadline we will be providing you with a comprehensive update with details on how to navigate the new legislation.