Chancellor George Osborne has announced that public sector organisations and recruiters will be responsible for enforcing IR35 from April 2017. The new measure featured in a raft of new tax avoidance and evasion policies in the latest Budget, which are designed to generate billions of additional tax revenue.

While IR35 was not mentioned specifically in Mr Osborne’s speech, he did state that there would reforms to the intermediaries legislation for off-payroll working in the public sector in order to increase the effectiveness of IR35. The new policies will apply to the majority of public sector bodies, including schools, the NHS and Government departments.

The Chancellor said “Public sector organisations will have a new duty to ensure that those working for them pay the correct tax rather than giving a tax advantage to those who choose to contract their work through personal service companies.” He added “In every Budget I’ve given, action against tax evasion and avoidance has contributed to the repair of our public finances, and this Budget is no different.”

This means that contracting professionals will no longer decide whether IR35 applies, as the burden will pass to the business that pays the contractor’s limited company, which is either the agency or end client. These engagers will have to deduct tax at source for any payments if they believe they fall within the new rules. It appears that flexible workers operating in the private sector will not be affected by these changes.

HMRC has stated that it is in the process of developing “clear, objective tests” to help employers with IR35 rules so they can determine whether a contracting worker is caught at the time of hiring. The tax authority is also planning to launch a digital tool that will aid the decision-making process.

Seb Maley, Director of IR35 experts Qdos, gave his thoughts on Wednesday’s developments. He said: “The proposed new rules do appear complex and cumbersome, and the biggest question will be how agencies and public sector bodies will react. The development of an online tool will also be interesting, particularly if the same tests for IR35 remain in place in April 2017.”

There were a number of positive new proposals for contracting professionals in the latest Budget, including a rise in tax-free personal allowance to £11,500 and an increase in the threshold for higher tax rate from £43,000 to £45,000. Both of these changes will come into force in April 2017. There will also be a reduction in corporation tax from 20% to 17% by the end of the decade and two major cuts to stimulate economic recovery in the oil and gas industry.

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