HMRC have recently announced changes to the way the intermediaries’ legislation (known as the ‘IR35 rules’) will be applied to off-payroll working in the public sector. In particular, contractors who provide their services to a public authority through an intermediary will need to be aware of the changes which take effect from 6 April 2017.
Broadly, from 6 April 2017, responsibility for deciding whether the legislation should be applied will move from the worker’s intermediary to the public authority the worker is supplying their services to.
Where the rules apply, the fee-payer (the public authority, agency, or other third party paying the intermediary) will be responsible for calculating income tax and primary National Insurance contributions (NICs) and pay them to HMRC. These amounts will be deducted from the intermediary’s fee for the work provided. The worker’s intermediary will be able to offset an amount equivalent to the income tax and NICs deducted from payments to it from the fee-payer against its own income tax and NICs liability in the tax year.
The changes will apply to:
- public authorities who hire off-payroll contractors;
- public sector tax managers, payroll managers, human resources managers and procurement managers;
- agencies and third parties who supply contractors to the public sector; and
- contractors who provide their services to a public authority through an intermediary.
Before the changes take effect, public authorities, agencies and third parties supplying contractors will need to consider existing contracts and make the appropriate preparations. Whilst it is for the public authority to determine whether off-payroll working rules apply when engaging a worker through a personal service company, anyone who believes they may be affected should seek further advice.