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

^ - the ultimate assurance solution 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 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 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.

^ TopLatest news on public sector reforms

HMRC’s CEST figures, obtained by FOI, indicate widespread wrongful tax treatment

Thousands of contractors are overtaxed and can appeal following public sector IR35 reforms, findings from a ContractorCalculator investigation suggest.

This week | Wed, 25 Apr 2018

Can umbrella companies deduct employer’s NI lawfully?

Attempts by recruiters and hirers to use umbrella companies to negate employment costs at the expense of contractors could lead to legal challenges.

Two weeks ago | Tue, 10 Apr 2018

HMRC holds no detailed evidence to prove CEST accuracy claims, reveals FOI requests

HMRC has acknowledged that it has no detailed proof to support claims about the accuracy of CEST, FOI requests from ContractorCalculator reveal.

Three Weeks ago | Wed, 04 Apr 2018

Nurses & agencies using umbrella loan schemes risk tax bills and prosecution

Locum nurses using umbrella loan schemes owing to IR35 reforms risk huge tax bills and agencies face prosecution under the Criminal Finance Act.

Last February | Thu, 01 Feb 2018 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.

Last January | Mon, 08 Jan 2018

How to lobby your MP against more damaging IR35 reforms

The recent IR35 reforms caused considerable damage and could hurt you if rolled out to the private sector. Please lobby your MP now to prevent this - here’s how.

Last September | Mon, 11 Sep 2017

Is HMRC facilitating tax avoidance with its own IR35 CEST status tool?

Analysis of HMRC’s CEST tool shows that it can’t be trusted and that it may even be facilitating tax avoidance. Find out how.

Others | Fri, 07 Apr 2017

Test contractors for IR35 or risk litigation: IPSE’s warning to public sector clients

Public sector clients who don’t take necessary measures to assess contractors for IR35 could risk litigation, warns IPSE chief executive Chris Bryce.

Others | Tue, 04 Apr 2017

Public sector IR35 reforms: Agency/client cooperation key to overcoming hurdles

Agencies and clients need to work together to ensure IR35 compliance, but FCSA CEO Julia Kermode warns of further threats to the supply chain.

Others | Mon, 03 Apr 2017

Public sector contractors: How to calculate your new rate if IR35 applies

The public sector IR35 reforms mean many clients will only engage contractors inside IR35. Find out how much to increase your rate if IR35 applies.

Others | Mon, 27 Mar 2017

^ TopExternal Resources - Off-payroll working in the public sector - free online IR35 status reviews.