Updated IR35 rules for public sector contractors

Updated IR35 rules for public sector contractors

17 July 2017

HM Revenue and Customs (HMRC) has released more information about the rules governing off-payroll contractors in the public sector.

HMRC updated its guidance on the rules, which have been in effect since April.

The updated guidance clarifies some sticking points that have confused contractors for months.

Since 6 April 2017, responsibility for determining IR35 status has passed from public sector contractors, operating through an intermediary, to the public sector body engaging the contractor.

Although the fundamental rules are the same, the April change is seismic in terms of how the rules are applied.

Understandably, there has been some confusion in how the rules are interpreted.

The latest guidance from HMRC seeks to address some of these ambiguities. 

The first point the update seeks to clarify is exactly which organisations the rules apply to.

The original guidance was vague. HMRC referred to public authorities but some people thought that the rules might apply to any organisation that received public money – an interpretation of the rules that would have included charities and many other organisations.

The new document clarifies that the rules apply to any public authority as determined by the Freedom of Information Act.

This definition includes:

•                  Government departments and executive agencies

•                  Many companies owned or controlled by the public sector

•                  Schools, universities and academies

•                  Local authorities

•                  The National Health Service (NHS) including hospitals, GP surgeries and dentists

It excludes:

•                  Many charities

•                  GCHQ

•                  Private sector retail businesses serving the NHS (such as high street opticians and pharmacists)

The second part of the update hits home on the end-clients responsibility to enforce the new rules. The following should be nothing new but it does contain some important details that public authorities might have missed or ignored.

“As a public authority, you’ll need to decide if the off payroll working rules apply and tell the worker, or the agency or other labour provider who supplies the worker, if they apply,” HMRC begins.

HMRC has previously clarified that a contractors IR35 status needs to be judged on a case by case basis. A public body cannot, for example, enforce a blanket IR35 position for all the contractors that it engages.

HMRC continues with important details about the timing of these rules: “You’ll need to do this before the contract or the work starts (whichever is later). If the contract was entered into before 6 April 2017, you’ll need to inform the relevant person of your decision before the next invoice payment is made.”

This paragraph could be interpreted as HMRC reminding public sector bodies that contracts entered into before April this year are still subject to enforcement under these rules.

HMRC also includes a warning for public sector bodies to stay on top of the rules. It says: “reconsider your decision if the working practices of the engagement change.”

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