During this years Autumn Statement, the Chancellor Philip Hammond announced that from April 2017 new rules would apply to those working ‘off payroll’ (working through your own limited company) within the public sector. This is the biggest shake up for contractors and freelancers working in the public sector for a number of years and is effectively the government trying to tighten the rules surrounding IR35.
What do these new rules mean for contractors and freelancers?
Currently it’s your responsibility as a company director to determine your IR35 status. However from April 2017 the government is shifting the liability to the engager. This means that the responsibility of determining your IR35 status will be with the public sector body, agency or nearest related party.
To help the engager the government will be releasing an online tool to help them determine whether or not IR35 is to be applied to the contract.
If the rules are found to apply then they will be responsible for deducting income tax and National Insurance from contractors invoices.
During the budget announcement the Chancellor also announced the removal of the proposed 5% tax free allowance of invoice value. Therefore the full amount of the invoice value will be covered by rules and taxed as a full employee. However, despite being taxed as an employee contractors will not receive the same employment rights such as holiday and sick pay.
These new proposals have been met by strong opposition and concern by contractors and contractor bodies such as IPSE and even by the governments own office for Tax Simplification. Despite this the Chancellor has announced that this will be coming in from April and therefore those working in the public sector will have to be.
Over the coming months we can expect the government to publish further details regarding the new rules along with its online tool. Until these are released there is little information on how this tool will determine contractors status.
Once further information becomes available we will keep you updated.