6 September 2017

Off-payroll working: Understanding the rules

IR35, or off-payroll working rules, have been in place for a number of years, however, this year they have been extended specifically to the public sector.

What is IR35?

IR35, or off-payroll working rules, apply to any individual who provides services to an end client through an intermediary, such as a limited company or a partnership. The rules are designed to prevent individuals who use such intermediaries, or personal service companies, achieving a tax advantage by not paying National Insurance Contributions (NIC).

The application of IR35 to personal service companies has been in place for a number of years, with the tax treatment being largely dependent on self-policing by the personal service company as the intermediary. There are many commercial reasons for the use of such a structure, however, it does throw up some challenges in terms of tax.

Back in April this year, the IR35 rules extended specifically to the public sector. These organisations are now going through the ‘What does it mean for us?’ phase and applying the legislation to their particular circumstances.

Understanding the legislation

Given the fact that the HMRC guidance only came out in March this year (a matter of days before the implementation date), a number of people have been sceptical as to whether HMRC were ready.

This view has been further reinforced by the recent setting up of a third party survey by HMRC to gauge how public sector organisations are approaching their responsibilities under the new legislation. The survey is labelled confidential and is signposted as anonymous.

Feeling confused?

It’s clear that we are in an unusual phase of implementation, where best practice is unclear and HMRC is even battling to find out what is happening. The new rules are bringing about some difficult conversations between personal service companies and their public sector customers. As a consultant, I am in the privileged position of being able to help my clients through this, hearing how they are approaching the matter, sharing experiences and putting organisations with similar circumstances in touch with each other. It’s certainly both challenging and interesting!

If you have any concerns in relation to the implementation of this new legislation, please do not hesitate to contact Shaun Young.

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