Attention Public Sector Contractors IR35 changes
IR35: What are the changes?
After April 6th, the responsibility for determining the status of a contractor will no longer be down to the intermediary agent or yourselves and instead will be down to the end client, the public sector bodies themselves including GMS and PMS practices and agencies.
These changes will only apply to the Public Sector. There are currently no plans to roll it out into the private sector too. This means that those hurt by the changes are more likely to seek work in the private sector instead, meaning that the public sector is potentially going to see a skills and talent drain.
In conjunction with the NHS Improvement to restrict agency staff working within the NHS could prove to be a nightmare for workers, luckily on 31 March NHS Improvements have put a hold on these plans to restrict agency staff after large objections from Union members and deemed to be “grossly unfair”.
How changes Work
If the end client decides that IR35 does apply then the contractor will be charged tax and National Insurance as if they were an employee. However, this will not change their employment status and means that they will still miss out on employee benefits like pensions, holiday and sick pay that other employees are entitled to.
The reasons for the government changes are to bring people more in line with PAYE earnings removing the advantages of being a company.
If you are unsure of your status you can use the government online checker to establish whether you will be affected or not:
HMRC online assessment was originally promoted as HMRC will stand by its decision, but due to inconsistencies with the tool they are not so keen to keep this promise in recent days.
Another checker for Public sector workers is available to use that gives a more consistent answer and has been used and tested for several years asking a lot more accurate questions you can access here:
Who does this effect?
Locums, Agencies, Personal service companies and everyone in the public sector who are not directly employed through PAYE or Self employment (IR35 does not apply to genuine self-employed locums providing their services directly to practices).
Changes will affect ‘public sector bodies’ – including general medical services and personal medical services practices and NHS trusts – who engage locums to provide services via an intermediary. Non-public sector bodies such as APMS (alternative provider medical services) providers or commercial providers that provide some out-of-hours services are not affected by the changes.
If practices do not deduct tax and NICs from a locum who should have been considered to be within IR35 rules, this could result in HMRC requesting the practice pays back any taxes and NICs due as well as penalties. These taxes could be clawed back on payments as far back as 6 April 2017 when the new rules will have taken effect.
Increase rate to compensate for IR35 to equal existing take home.How much do you need to increase your rate by if IR35 applies?
Occupying the middle ground are contractors who have negotiated higher rates to guarantee the same income after tax. This is becoming a popular strategy that many PSBs are caving to because they can’t afford to lose out on the critical skills that their contractors provide.
If you are in a position where you can play the ‘vote with your feet’ card, the table below shows how much you would need to increase your rate by to retain your current level of take-home pay.
|Current rate IR35 does not apply||New rate IR35 Applies|
*Rates based on 46 weeks per year and an 8 hour day, using tax tables for 2017/2018