Newsflash: Intermediaries (IR35) and the public sector

What 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 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 employers NIC.

What’s new?

The Government is pushing ahead with the above proposal and HMRC has issued a consultation document, available here, in this respect. The closing date for comments is 18 August 2016.

It is confirmed that the changes will take effect from April 2017. However, it is not clear whether the changes will apply only to contracts entered into (or renewed) after that date or to all contracts in place on that date.  It is clear, however, that these proposals will not affect the operation of IR35 in the private sector (yet!).

HMRC has proposed a simplified process to determine whether the new rules apply.

It is not surprising that the Government is pushing ahead with these proposals as it has long been concerned that there is widespread and growing non-compliance with IR35, and that HMRC does not have the resources needed to review arrangements on a contract-by-contract basis.