Off Payroll Tax Rules
From April 2017 Contractors operating in the public sector will be subject to a new and unique set of rules which could see their turnover treated as employment income regardless of the fact they are trading via a Limited company.
The new rules will make public sector engagers, or the third parties who engage workers through personal service companies on their behalf, responsible for determining whether the intermediaries legislation (IR35) applies and then collecting any relevant tax and national insurance.
Where these new rules apply, they replace the current rules that apply to personal service companies and other intermediaries.
This is a unique situation where an Agent would be responsible for determining your status under IR35, potentially without knowing your working practices and then operating deductions on your invoiced amounts for employees national insurance and Income tax. The engager must also pay employers national insurance based on the deemed employment income.
There is a government consultation currently underway which will also look at the ability to claim a 5% expenses deduction, however any travel or subsistence expense will not be an allowable deduction as this will be deemed normal commuting.
It also seems the workload for Agencies will increase dramatically by the implementation of these rules as they will be required to run RTI payroll on behalf of the PSC, which would require multiple RTI filings for each engaged worker.
These changes will fundamentally impact public sector contracts and far from levelling the playing field as Mr Osborne claims, could perversely see a contractor providing service in the public sector paying more tax than a contractor providing the same service in the private sector.
This will undoubtedly see a shift in the number of contractors willing to provide services to public sector organisations.
For clarity, public sector organisations have been defined under the freedom of information Act as below:
- Government departments, legislative bodies, armed forces
- Local government
- Schools and further and higher education institutions
- Other public bodies (including The British Museum, BBC, Channel 4, et al)
- Publically owned companies (wholly owned by the Crown and/or the wider public sector such as Transport for London)
The government will bring forward legislation to effect these changes in the Finance Bill 2017 and in matching National Insurance contributions legislation. Draft clauses will be published later in the year, alongside the Finance Bill.
If you are contracting in the private or public sector it is essential you have an accountant who you can consult with regarding IR35. We have Charted Accountants and Tax Advisors available to guide you through these changing times, along with IR35 protection which will indemnify you from a large tax liability. This could ultimately protect you from a personal insolvency situation.
Contact us today to arrange a free face to face consultation at our Canary Wharf offices.