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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!

Agencies can override incorrect Off-Payroll (IR35) status decisions by clients
The Off-Payroll legislation shows that agencies are free to override assessments made by clients, as Matt Boddington of Chartergates explains.

How to appeal wrongful tax treatment following an incorrect Off-Payroll assessment
Tax expert David Kirk explains the various options available to contractors seeking to reclaim tax that has been overpaid as a result of Off-Payroll.

10 key failings of HMRC's IR35 testing tool CEST - 18 month investigation
An 18-month investigation by ContractorCalculator has uncovered numerous shortcomings and inconsistencies, proving that CEST is not fit for purpose

^ TopLatest news on public sector reforms

Off-Payroll Working: new petition launched to ensure fairness for all workers

Contractors are urged to sign a petition to help prevent irrevocable damage to UK flexible working and ensure fairness for all workers.

Last week | Thu, 13 Sep 2018

ContractorCalculator launches Off-Payroll ‘fact pack’ to help contractors inform MPs

ContractorCalculator has published a ‘fact pack’ to help contractors inform MPs of the damaging effects of Off-Payroll and prevent a private sector rollout.

Last week | Mon, 10 Sep 2018

10 key failings of HMRC's IR35 testing tool CEST - 18 month investigation

An 18-month investigation by ContractorCalculator has uncovered numerous shortcomings and inconsistencies, proving that CEST is not fit for purpose

Last month | Tue, 14 Aug 2018

CEST does not provide certainty or reasonable care, says ex-HMRC tax inspector

CEST doesn’t constitute reasonable care, meaning hirers who use it to assess IR35 status retain the tax risk, warns ex-HMRC inspector Philip Manley.

Last month | Wed, 08 Aug 2018

How to appeal wrongful tax treatment following an incorrect Off-Payroll assessment

Tax expert David Kirk explains the various options available to contractors seeking to reclaim tax that has been overpaid as a result of Off-Payroll.

Last month | Tue, 07 Aug 2018

CEST was not formally assessed under Governments own standards, reveals FOI

Despite impacting thousands of tax payers, HMRC’s online tool CEST was not formally assessed under the Government Digital Services standards.

Last month | Mon, 06 Aug 2018

CEST exposed as hopelessly unreliable using HMRC's own test data obtained via FOI

CEST is exposed as hopelessly unreliable, after HMRC’s own test data obtained by FOI and used to back accuracy claims is shown to be incorrect.

Last month | Wed, 01 Aug 2018

CEST only asks a fraction of questions usually posed during an HMRC inquiry

CEST asks between four and 16 questions; just a fraction of the number of questions usually posed to a contractor during an HMRC IR35 inquiry.

Last July | Mon, 30 Jul 2018

Agencies can override incorrect Off-Payroll (IR35) status decisions by clients

The Off-Payroll legislation shows that agencies are free to override assessments made by clients, as Matt Boddington of Chartergates explains.

Last July | Wed, 25 Jul 2018

Off-Payroll (IR35): 84% of perceived tax avoided is by hirers, reveals HMRC examples

HMRC’s own Off-Payroll consultation shows that 84% of its perceived tax shortfall from non-compliance is due from the hirer, not the contractor.

Last July | Mon, 23 Jul 2018

^ TopExternal Resources

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

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