Limited co/PSC contractors working in the public sector are now subject to new rules (known as off-payroll working in the public sector) whereby their agency or end-user will be charged with determining their IR35 status.
If the contractor is deemed to be caught by IR35, the agency or end-user would be responsible for applying the deduction of PAYE tax and National Insurance (employers and employees) contributions and RTI submissions.
PSC contractors are also no longer able to deduct the IR35 5% tax‐free allowance, which was intended to reflect the costs of managing IR35.
Agencies need to be aware of those clients that are public sector bodies, or that subcontract to public sector bodies in order to determine the IR35 status of contractors working for them. A list of public sector organisations can be found here (Annex B).
To help contractors working in the public sector determine whether they fall under IR35 rules, HMRC has developed the Employment Status Service (ESS). This online tool calculates a contractor’s status based on their responses to a series of questions.
While it is only PSC contractors working for public sector clients who are affected by new IR35 rules, those in the private sector can’t afford to relax. When it comes to IR35, everyone needs to ensure their house is in order.