Inland Revenue 35 - to give the law its full name - is changing and the new rules could affect how much tax you pay. The legislation isn’t new - IR35 has been around since 2000 - but it’s back on the government’s agenda after it planned to create a “fair and sustainable” tax system.
IR35 sets out the rules known as the "intermediaries" or "disguised employment" legislation and currently applies to someone who provides services through their own company, which is often called a personal services company (PSC).
It tests whether money paid to that PSC should be treated as corporate income or employment income. Changes in April 2017 will affect who is responsible for assessing and deducting tax.
Victoria Short, managing director Randstad public services, said: “April might seem a long way off but public sector workers simply cannot afford to ignore the changes to IR35 if they want to avoid a last minute shock.
“Unless you’re a tax expert, IR35 is a difficult rule to get your head around and so far there has been very little guidance from HMRC on how public sector contract roles will be assessed. Contractors play a crucial role in keeping public services running so it’s frustrating that HMRC will publish its In/Out IR35 questionnaire in March, leaving workers a matter of days to consider how it will impact them.”
If you’re unsure whether the changes affect you, Randstad has answers to the most important questions.
Who does IR35 affect?
The changes will apply to public sector contractors who work through a PSC. For example, if you are a care worker who got their job through Randstad and set up their own limited company, you will be impacted. Overall, the legislation is anticipated to affect tens of thousands of workers across the country.
Currently it's up to the directors of the PSC to perform the IR35 assessment and decide if the role is more like employment and not an independent business. The proposed changes require organisations in the public sector (and any agencies supplying them), to perform that IR35 assessment.
How does IR35 work?
If after the assessment you are found to be outside IR35 then you can continue to be paid gross. If on the inside, the agency will deduct income tax (PAYE) and employee and employer national insurance before they pay the PSC.
How do I check if IR35 applies to me?
The responsibility for operating IR35 in the public sector will rest with your recruitment agency. They will let you know what the client has decided about various roles and if your role is assessed as within IR35.
What are the next steps?
Your agency will present the following options: remaining as a PSC and have the deductions made for you or move to being a worker on a payroll, either with Randstad or with an umbrella company. On the whole there will now be little difference in any of these.
Randstad will be in touch during February to explain the financial impact if your role is assessed as within IR35 and the implications of other ways of working with us. In March we hope to be able to tell you how the public sector client has assessed your role.
Still have questions? Contact email@example.com
*Information was correct at the time of publication
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