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IR35 - Public Sector Reforms - April 2017

What Is IR35?

IR35 is the short name used for the ‘intermediaries legislation’, introduced in 2000 aimed at countering tax avoidance, specifically aimed at the limited company contractors that organisations hire.

Genuine limited company contractors are small businesses who pay tax differently to permanent employees. They do not receive any kind of job security or the employment rights and protections that employees enjoy. But contractors choose to work that way because of the benefits they enjoy from being their own boss.

IR35 is designed to combat ‘disguised employees’ - which HMRC believes would be employees of the client if they didn’t work through an intermediary, such as a limited company.

The taxman argues that someone performing the same role as an employee should be taxed as an employee, even though IR35 is actually concerned with the nature of the working relationship between the hirer and worker.

What are the public sector off-payroll IR35 reforms?

Prior to April 2017, contractors have been responsible for determining their own IR35 status. And their limited companies have been liable for any unpaid taxes and penalties if HMRC investigated and decided that the legislation applied. But, from 6 April 2017 in the public sector, the compliance burden and potential liability for unpaid tax shifts further up the supply chain.

The key changes introduced in the public sector are:

  • Contractor’s end clients, are responsible for determining the contractor’s IR35 status.
  • Recruitment agencies must calculate, report and process tax at source via Pay As You Earn (PAYE) on each payment made to a contractor who is caught by IR35.
  • If there is no agency, responsibility for processing the tax rests with the hirer.
  • The agency is liable for tax if an incorrect IR35 judgement is made.
  • The hirer must take reasonable care when assessing contractors else be vulnerable to extra cost.

The reforms generate many challenges for the public sector. Being able to compliantly keep hold of contractors without incurring significant administrative and financial costs is essential.

^ TopPublic sector IR35 guide - FREE download

IR35 changes in the public sector generate significant risks to you. Use this guide to understand the changes, and find out what you can do to keep hold of your contractors, control costs and mitigate tax risk.

Click here to download

^ TopIR35Testing.co.uk - the ultimate assurance solution

IR35Testing.co.uk is an alternative, automated compliance solution that assesses the IR35 status, and helps keep them outside IR35.

The free-to-access test takes only 15 minutes. Contractors that pass can buy a detailed analysis Report used to help support evidence to HMRC that reasonable care has been taken in determining status.

It is underpinned by decades of IR35 experience and employment case law, and underwritten by insurers. Based on the Report, the entire tax liability can be insured by contractor, agency or client, offering the ultimate protection.

For more information visit IR35Testing.co.uk or simply Take The Test

IR35 Tax Calculator - calculate the cost of being caught by IR35

If IR35 applies to a contractor then they have to pay tax as if they were employed directly, including employers and employees National Insurance Contributions. But they will not get any employment rights. Because of this they may ask for an increased rate rise. Use the calculator below to explore the impact.

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Guides on the IR35 Reforms

^ TopHow to deal with the reforms

IR35Testing.co.uk vs HMRC CEST tool: How our tool can help everyone beat IR35
Keeping contractors outside IR35 is key to keeping their skills in the public sector. Find out how you can do exactly that with our IR35 testing tool.

Public sector contractors: 6 step plan to carry on working outside IR35
Follow this 6 step action plan to keep you operating outside IR35 by mitigating the impact of the public sector reforms.

Public sector contractors – 11 ways to commit IR35 suicide
Here are 11 things you must avoid if you want to stay outside IR35. Whatever you do, don’t ignore them!

How public sector organisations need to prepare for the IR35 reforms – right now!
Use our expert five step action plan to retain skilled resources, cut costs and keep compliant with the public sector IR35 reforms.

How contractors can reclaim their tax for a wrongful IR35 assessment
Contractors who have been adversely affected as a result of the Off-Payroll rules could recoup thousands of pounds in overpaid tax. Find out how!

^ TopLatest news on public sector reforms

The new Off-Payroll tax – coming to the private sector and killing business

HMRC is attempting to introduce an Off-Payroll tax to the private sector, to be paid by firms engaging contractors, many of whom don’t even realise.

Last week | Mon, 16 Jul 2018

HMRC dismisses IR35 forums members views and courts on laws omitted from CEST

HMRC’s view remains unchanged over its omission of case law from CEST and dismisses the compelling evidence put forward by IR35 Forum Members.

Two weeks ago | Tue, 10 Jul 2018

How contractors can and should use a limited company if inside Off-Payroll (IR35)

Limited companies remain advantageous for contractors caught by the Off-Payroll rules, once they have overcome the accounting challenges posed.

Two weeks ago | Mon, 09 Jul 2018

HMRC new Paper on Mutuality of Obligation incorrectly defines MOO, invalidating CEST

HMRC’s Paper on Mutuality of Obligation for the IR35 Forum incorrectly defines a key element of employment law that the taxman is supposed to enforce.

Three Weeks ago | Thu, 05 Jul 2018

Survey: Major business disruption if new Off-Payroll tax hits the private sector

A ContractorCalculator survey has found many UK firms risk spiralling costs, intensified skills shortages and legal action if the new Off-Payroll tax hits the private sector.

Three Weeks ago | Wed, 04 Jul 2018

Off-Payroll Working: Contractor lifts lid on HS2’s non-compliant IR35 practices

HS2’s failure to comply with IR35 has intensified skills shortages and imposed 30% tax hikes on contractors, says former HS2 contractor James Horabin.

Last month | Thu, 28 Jun 2018

Latest EAT ruling reinforces that HMRC erred in law with CEST tool

An EAT has overturned an earlier tribunal decision due to a lack of mutuality of obligation, proving that HMRC erred in law by omitting MOO from CEST.

Last month | Wed, 27 Jun 2018

How contractors can reclaim their tax for a wrongful IR35 assessment

Contractors who have been adversely affected as a result of the Off-Payroll rules could recoup thousands of pounds in overpaid tax. Find out how!

Last month | Mon, 25 Jun 2018

Has HMRC misled the Chancellor and Treasury on the Off-Payroll tax and IR35 rules?

HMRC’s integrity has been called into question after correspondence emerged suggesting the Chancellor and Treasury may have been misled on the law.

Last month | Tue, 19 Jun 2018

HMRCs IR35 CEST tool without MOO can never be fully accurate says legal tax expert

IR35 tribunal history shows that, without considering MOO, HMRC’s CEST tool can never be fully accurate, says Chartergates director, Matt Boddington.

Last month | Thu, 14 Jun 2018

^ TopExternal Resources

Gov.uk - Off-payroll working in the public sector

IR35Testing.co.uk - free online IR35 status reviews.