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Government proposes IR35 reforms in public sector

HMRC has released their consultation on reform to the off-payroll IR35 rules for personal service companies (PSC) and intermediaries who provide their services to a public sector organisation. The new rules propose to pass the responsibility to assess whether IR35 applies, and any associated tax liability, from the PSC to the public sector end client or agency or any third party closest to the PSC in the supply chain.

The definition of public sector organisation includes the NHS, local authorities, police and fire authorities, the BBC, Channel 4 and the Bank of England, amongst others.

The new legislation will also apply to a broader definition of businesses supplying workers to the public sector, not just employment agencies and employment businesses. This wider net is intended to prevent restructuring of contracts to be about service provision rather than a supply of a worker to circumvent the legislation.

The reforms will not apply to workers on a payroll of the consultancy firm supplying them, such as auditors employed by and supplied by an accountancy firm. These individuals and the employers are already paying employment taxes on this employment income.

IR35 rules for PSCs contracted to work for clients in the private sector will not change.

To prevent agencies, or a third party, contracting with the PSC from outside of the UK to avoid compliance with the legislation, Government propose that the liability falls to the last UK resident in the supply chain.

The consultation – a result of HMRC’s alleged abuse of the IR35 legislation – is intended to establish consistency of income tax and national insurance paid by individuals providing a service for a public sector organisation, whether through direct employment, or through an intermediary, such as a limited company.

The consultation closes on the 18th of August 2016. During this time HMRC are seeking views on the scope of the reform of the proposed changes from individuals and organisations that contract to public sector bodies, and the public sector themselves.

For more information on the consultation visit the HMRC website

First Freelance, specialist IR35 accountants, are offering further commentary and guidance to any public sector recruiters wanting to understand how the current proposals are likely to impact their contractors and business.

Request a free consultation or call back from one of the First Freelance IR35 specialists today.

Published on: 31 May 2016 - By: First Freelance

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