In August 2012, new rules were introduced affecting off-payroll workers in the public sector, including in organisations such as the NHS and BBC. The amendment came presumably with the intention to avoid any scandal of tax avoidance found within government-run bodies.
All off-payroll workers, i.e. limited company contractors, whose contractual chain ends with public sector organisations and whose contract lasts for six months or more and earns £220 per day or more, are required to provide assurance to their agency or end client as to their considerations to ascertain their IR35 status.
Currently, a contractor is required to take HMRC’s Business Entity Test, a series of point-scoring tests designed to assess a contractor’s risk of investigation.
Those whose total points landed them in the low-risk category would need to present a signed declaration proving that the test had been undertaken along with the number of points scored.
Those whose total points landed them in the medium-high risk category and considered themselves outside the scope of the IR35 legislation would need to present the same declaration with the points scored, plus some sort of evidence of a written contract review either by HMRC or a reputable provider.
Those whose total points landed them in the medium-high risk category and considered themselves within the scope of the IR35 legislation, would need to present the same declaration with the points scored, plus confirmation that you will operate IR35 after the end of the tax year. Evidence of this would then need to be provided after the end of the tax year, by an agreed date.
However, as of 6th April 2015, the Business Entity Test will be abolished. This will almost certainly change the way public sector workers will need to provide their assurances. Logic would presume that the written contract review will replace the business entity test as the first point of assessment:
All off-payroll public sector workers where assurance is required will likely be required to provide evidence of a written contract review either by HMRC or a reputable provider and confirmation of whether you consider yourself inside or outside the legislation. Those who consider themselves outside its scope may be required to provide evidence of a working practices review, which is signed off by the end client. Those who consider themselves within the scope of the legislation will likely still need to provide a deemed calculation as confirmation that IR35 will be operated at the end of the tax year and provide evidence of its completion by an agreed date.
It should be reiterated that this is pure speculation as no official notice for what public sector workers should do for their future assurances has yet been published by HMRC. However, this type of practice is currently being used by some public sector bodies.
A crossover is expected particularly for public sector assurances, where clients are unaware of the abolishment and still expect the declaration for Business Entity Tests. Where the client is immovable on the matter, the BETs can still be taken but it is urged that they have no effect on your decision on whether you are inside or outside the scope of IR35. Proper assessment of your contract and working practices should be used for this purpose, as they always should have.
The Qdos Public Sector IR35 Solution will cease issuing Business Entity Test evaluations as part of their assurance packs as of 5th April 2015, however, BET evaluations will be provided as usual upon request where clients maintain its requirement.
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