What's this all about then?
In the 2016 Autumn Statement, the Chancellor confirmed that from the start of the following tax year (from April 6th 2017), the status of contractors / freelancers in the public sector would be assessed by the public sector body (PSB) engaging them either directly or via an agency. Where the PSB determines that the contractor is inside IR35, the fee payer (the company closest to the contractor company) will be responsible for deducting PAYE and National Insurance as if the contractor was an employee. This applies to all payments received after April 6 2017, regardless of when the work was done or even if you are in contract any more.
The decision to bring the changes in was done so despite significant opposition from many places (I personally sat with HMRC and explained why this was "a very bad thing", and know many others that did too). However, HMG ignored the voices from many quarters and brought forth the rules anyway. So what does this mean for contractors in the public sector?
For contractors working in the public sector
- Their IR35 status will be determined by the client
- If you are determined to be inside IR35 then all payments received by your company will be made after PAYE and NI have been deducted
- Travel and subsistence expenses will no longer be allowed
- The normal 5% allowance for expenses does not apply to public sector engagements
- Even though you will be taxed as an employee, you will not gain the rights an employee is entitled to
Please note, this is my own personal view on the changes to how IR35 is determined in the public sector. I have drawn heavily from published sources, notably the IPSE Guide to IR35 in the Public Sector (2017) which can be downloaded from their website