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​Engaging Contractors in the Public Sector

Engaging Contractors in the Public Sector
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Contact Qdos Contractor:0116 269 0999
 
 

Guidance for Contractor Agencies

 

Public Sector IR35 for Recruiters

Recent changes to the application of IR35 for contractors in the public sector has meant that recruitment agencies have become far more involved in the application of the intermediaries legislation.

The amendment to the IR35 legislation, often referred to as the 'off-payroll working rules' was implemented from April 2017 after being announced in the 2016 Autumn Statement. Whilst previously the determination of employment status for tax purposes was the responsibility of the limited company contractor, this was passed from April to the end user.

Whilst it is the end client's duty to determine the IR35 status of the workers engaged to them under the new rules, the financial liability and responsibility for applying IR35 lies with the fee-payer, which will usually be the recruitment agency.

The Autumn Budget 2017 has also suggested extending the IR35 reform to the private sector. A consultation document will be published early 2018.

The Agency's Responsibilities

 

In some cases, the end users have required that their agency take on the IR35 determinations, but for the purposes of this guide, we shall assume that the end user is taking this responsibility as per the rules.

If the end user deems the contractor as being outside the scope of IR35, the contractor will continue to provide their services as usual, providing there are no significant changes to their working practices during the course of the engagement.

If the end user deems the contractor as being inside IR35, then the agency becomes responsible for paying the contractor appropriately by making a deemed payment calculation.

The deemed payment calculation is the amount payable to the contractor's business, minus any VAT, deductible expenses and costs of materials. You will then need to deduct income tax and NICs before paying the contractor the final sum.

You will then also need to pay the relevant employers NICs as the agency becomes the contractor's employer for tax purposes. Payments will need to be reported to HMRC using a Full Payment Submission, much in the same way as you will do for PAYE workers and keep a record of the deductions on a deductions working sheet.

Common Queries

 

Whilst it all sounds straightforward, it is seldom so. Many agencies aren't set up for putting contractors on payroll, and it adds a wealth of administration in liaising between contractors and end users to find out the status of an engagement to be able to apply the rules correctly.

Office-holders
The office-holders rules can be misconstrued when dealing with contractors, as they are office-holders in their own companies. These rules only apply when the contractor holds an office position in the end client's organisation, as opposed to being Directors of their own companies.

'Inside' rates
A common occurrence on jobs boards since the implementation of the off-payroll rules in the public sector, is the advertisement of 'inside' or 'umbrella' rates, meaning that the end client has already determined the role as within scope of the IR35 rules. This can be confusing for many contractors as it is often unclear if the advertised rate represents the fee before or after deductions being made, and further confusing when 'umbrella rates' are advertised as it is unclear what exactly has been deducted for umbrella fees, or if they have to use a particular umbrella company or not.

Some clarification of these points can be helpful when advertising job roles, not only for contractors, but to encourage applicants. Contractors are more likely to apply for roles where they can see the rates and terms on offer clearly.

For more information, please contact us on 0116 2690992.

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The Company

 

About us

Why Qdos?

 

We are a UK leading specialist on the IR35 legislation, completing over 600 contract reviews each month and successfully handling over 1,500 status enquiries on behalf of contractors, saving them over £35million in tax. Our dedicated team of specialists are on-hand to provide advice over the phone, via online chat or email as part of our full-service offering, and partners and contractors alike are assigned an account manager to deliver a personal service, whether we speak with you once a week or once a year.

 

Our History

 

Qdos started out as a tax consultancy firm in 1988, set up by ex-Revenue inspectors, and focussed its expertise on contractor tax with the introduction of the IR35 legislation in 2000. Qdos has now become a leading provider of contractor compliance services in the UK, recognised for many awards including the Queen’s Award for Enterprise in Innovation, and featured in the London Stock Exchange’s ‘1000 Companies to Inspire Britain’.

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