In the Chancellor’s Budget two weeks ago, those contractors working in the public sector were targeted to reform the intermediaries legislation.

From April 2017, these contractors will no longer be responsible for ensuring the correct IR35 status is applied to their contract, and instead this responsibility will fall on the shoulders of the end client or agency. These changes have come about due to the government suspecting that many contractors operating through limited companies are disguised employees, and as opposed to paying Corporation Tax at 20%, they should be paying Income Tax which is taxed at 40% above the higher rate threshold.

Contractors that are currently working in the public sector may find that there will be investigations into their contracts prior to April 2017. The Monitor/Trust Development Authority issued an update to NHS Trusts which stated that they can only engage into a contract with a personal service company where they have been assured that the contractor is complying with the IR35 legislation.

It is not currently known whether contractors caught by IR35 will be put on their end client’s payroll, however George Osborne stated that the government intends to “consult on a clearer and simpler set of tests and online tools” to ensure that these changes can be implemented.

The Freedom of Information Acts define the public sector under the following categories, however this is not an exhaustive list:

  • Government departments, legislative bodies, armed forces
  • Local government
  • NHS
  • Schools and further and higher education institutions
  • Police
  • Other public bodies (listed in a Schedule including bodies such as The British Museum, BBC, Channel 4)
  • Publically owned companies (wholly owned by the Crown and/or the wider public sector such as Transport for London)

Legislation surrounding these changes will be introduced in the Finance Bill 2017, and will be subject to a full consultation. 

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