IR35

You may be surprised to realise that IR35 has been around now for some 16 years.

Basically it affects persons who are contracted to work for a client via an intermediatory which can be your own limited company, a service company or partnership. Under IR35 you have to operate full PAYE and National Insurance contributions on any salary or wages received from the client.

In both private and public sectors the current legislation requires the service company to determine whether the rules should apply to the contract, so effectively self-assessment.  To do this the service company has to look at whether:

• The worker is personally obliged to perform services for the engager;
• Whether the workers are an office holder of the engager;
• Whether the worker supplies their own equipment;
• Who and where the work is done;
• Whether the worker is entitled to holiday pay, sick pay etc.

There is an HM consultation document which proposes changes from April 2017.  The crucial proposal is that the liability to make the determination about whether the intermediatory rules apply with the associated tax liability are moved from the service company to the public sector  client agency or other third party closest in the chain to the service company.  

These new rules do not affect service companies contracted to work for clients in the private sector.

To make the process of determining whether or not the intermediatory rules apply are simple and certain as possible, HMRC will provide a new interactive online tool kit.  This is designed to provide real time and definitive HMRC view on whether or not the rules apply to a particular engagement.  This will affect both the public sector and the private sector.