Government reforms (2): Intermediaries (IR35) and the Public Sector

Government ReformsWhat do we already know?

We updated you in our March 2016 Newsletter Government reforms (2): Budget 2016 news on the proposed changes to the intermediaries legislation, often referred to as IR35, in respect of the public sector.

From 6 April 2017, individuals working through intermediaries (most commonly their own Personal Service Company (PSC)) in the public sector will no longer be responsible for deciding whether IR35 applies. From this date when a public sector organisation engages an off-payroll worker through their own PSC and it has been decided that the engagement falls within the scope of IR35, the public sector organisation (or a recruitment agency if used) will become responsible for operating PAYE on the payments it makes to the PSC and for paying employer’s NIC.

What’s new?

  1. New Guidance: On 3 February 2017, HMRC published new guidance, available here, containing a summary of the responsibilities imposed on public sector bodies such as local authorities, universities and the NHS that engage workers through a PSC. The new HMRC guidance contains links to new materials specifically setting out for public sector bodies and their intermediaries (fee payers) the steps that they will need to take before April 2017, including 1) deciding whether to set up a separate payroll for deemed employees; 2) determining the status of contractual relationships, and 3) operating payroll deductions.The page also contains a link to new guidance for individuals who operate through PSCs on how the changes will affect their own tax accounting.
  2. Draft Regulations: On 27 January 2017, HMRC published, for technical consultation, draft regulations (available here) in relation to engaging off-payroll workers in the public sector. The regulations make provision for NICs, and will be known as the Social Security (Miscellaneous Amendments) Regulations 2017.