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Changes to tax IR35

Changes to tax law IR35 (intermediaries’ legislation) and the way in which Contractors within the public-sector are being brought in…

Contractors are used in many areas of work, and are often contracted through an intermediary, or a personal services company (PSC), for example a limited company. A benefit for a Contractor in doing this can include taking advantage of the more favourable tax rules that are afforded to companies, rather than to individuals.

Beginning in April 2017, changes will come in to force which will impact business’ who supply contract labour to the public sector.

Previously, the provisions under IR35 allowed PSC’s to decide whether or not to deduct tax and national insurance contributions from income earned by the Contractor, however, as of April 2017, this will be the decision of the public body, or third party who is engaging the Contractor.

To assist an online tool to determine employment status that has been produced by HMRC, which can be found here. This tool is however, in its current form very basic.

Those Contractors affected by this change will be required to pay tax and national insurance contributions deducted at source by the public-sector body, as if they were employees. It is important to note however, that despite these Contractor’s being viewed as employees for tax purposes, this does not entitle them to employment rights, for example the ability to claim unfair dismissal.

Where an agency (third party) places staff into a public-sector body and pays the PSC, the agency will be responsible for applying the decision made by the public sector and deducting tax, overall, we envisage that this may mean that there are some additional administrative costs for agencies.

The outcome

It is believed that PSC Contractors will begin to turn their backs on the public sector work and this may lead to a shortfall in skills, watch this space…

If you are confused about the IR35 changes or would like to discuss the potential consequences of the changes, please contact our employment law team on 0161 478 3800 or on [email protected]


Changes to tax IR35

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