IR35 changes: Who's responsible for assessing income tax rules?

Inland Revenue 35 – or IR35 as it is known - is changing. New rules coming into force from April will affect who is responsible for assessing and deducting the tax of a contractor who provides services through their own company - often a personal services company (PSC).

IR35 tests whether money paid to that PSC should be treated as corporate income or employment income. Under the new plans, the responsibility for paying income tax and national insurance shift from the contractor to the hiring party and the agencies supplying them.

Victoria Short, managing director Randstad public services, said: “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.” 

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.

What’s changing?

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 contractors are found to be outside IR35 then they 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 the recruitment agency. They will let contractors know what the client has decided about various roles and if they are assessed as within IR35.

What are the next steps?

Agencies 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.

HMRC will be making an online tool available that helps assess if a contractor falls in or out of IR35. However, this isn’t going to be ready until March

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*Information was correct at the time of publication

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