Public Sector IR35: General Update

Many contractors working for Government Departments have started receiving notification of how IR35 is going to be handled in the public sector following HM Treasury’s ‘Review of the tax arrangements of public sector appointees’ published in May of this year and subsequent guidance issued. 

The good news is that initial reports that suggested all contractors paid over £220 a day would be forced to 'operate IR35' (i.e. paying full PAYE and NIC on all earnings) seem to be incorrect. Contractors are, however, required to provide evidence to show that they are outside IR35.

The guidance we have seen states the following:

  • After 6 months the contractor must take HMRC's Business Entity Test. If they are 'low risk' they must provide evidence to back this up. If this is accepted they can continue to operate as normal.
  • If the contractor is 'medium risk' or 'high risk' they must provide assurance in a 'different way'. The guidance gives the example a contract review by HMRC's IR35 helpline.
  • If the contract falls within IR35, the contractor must provide evidence to show they have made a deemed payment to cover backdated PAYE and NICs and continue to pay this on future earnings.

Different departments, however, are reported to be implementing the Treasury guidelines differently.

At this moment in time it is unclear whether evidence of being outside of IR35 provided by an independent expert such as Qdos will be admissible. It would certainly be unfair to force all contractors to submit their contract to HMRC for review and this is something we strongly advise against doing.

The full details will become clearer in the coming weeks as the new rules are expected to come into force by 15th September and, if you are affected, we will be able to work with you to provide a solution.

 As an aside, the number of IR35 enquiries across all sectors appears to be on the increase. Furthermore, government departments are being encouraged to seek HMRC’s assistance where they are not satisfied with a contractor’s evidence which will further heighten the risk of an IR35 enquiry.  We therefore strongly recommend that you ensure that you have sufficient cover and evidence should you be challenged by HMRC.

By:Seb Maley

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