Government has responded to a petition urging to cancel the IR35 legislation reform that will come into force on April 6, 2017.
The ongoing petition has received over 25,000 signatures.
The IR35 change will mean that public sector Contractors and Freelancers operating through a Limited Company may be taxed in a similar way to employees, but without the employment rights.
The response shows that changes to IR35 legislation will be upheld and continue to be strongly supported by government. The response states that, “reforming the off-payroll working rules in the public sector will ensure that all public sector bodies, and those who work for them, pay the right amount of tax.”
The controversial move could reduce the income of Contractors and Freelancers working in the public sector as they could be expected to pay around 25 per cent more tax each year. This includes deducting PAYE tax and NIC from their income.
IPSE, the Independent Professionals and Self-Employed Association, has estimated that more than half of the 26,000 Contractors and Freelancers in the public sector, would exit their contract if they were caught by IR35.
A survey conducted by ContractorCalculator found that 80 per cent of contractors said that ‘they will seek an alternative contract if the public sector is advertised as being caught by IR35.
Only 10 per cent said that “they will stay working in the public sector under the new rules on their current rates.”
What’s the IR35 reform?
“Where an individual’s company is directly engaged to a public sector body, the public sector body will be responsible for determining whether or not the rules apply.”
This will include “deducting any necessary employment taxes on payments to the individual’s company.”
To cut to the chase, IR35 status will be determined by the client, not the Contractor. If the client decides to apply the IR35 status, the contractor’s company will be taxed at source, just like an employee would.
IR35 legislation has been highly criticised for being ineffective and HMRC have said that ‘only a small number of PSCs are complying with it’, hence the reform.
If you would like to discuss the IR35 reform in further detail with one of our accountants, call us on 0330 024 0406 or email firstname.lastname@example.org.