Following the 2016 Autumn Statement, the Chancellor confirmed that from April 2017, in the public sector only, IR35 status will be determined by the client not the contractor. If the public sector client decides that IR35 should apply to the engagement, payment to the contractor's company will be taxed at source - as if they were an employee.
IPSE strongly opposed this proposal, both directly to the Prime Minister and senior officials, and via a written submission to the consultation. In addition we held several roundtables, commissioned surveys and independent research. As of late 2016, we are taking legal advice around the possiblity of challenging the new rules at tribunal. More detailed guidance on how this measure will impact contractors in the public sector will be available soon.
Many freelancers choose to offer their services to the public sector, either directly or by being subcontracted by larger consultancy firms. In 2012 the way in which freelancers (or ‘off payroll engages’) work in the public sector was under increased scrutiny, following the revelations that the head of the Student Loans Company was working via his own limited company. As a result, in August 2012 new rules were introduced for “off payroll engagees” working in the public sector. “Off payroll engagees” such as freelancers must now assure their engager that they are meeting all their tax obligations fully.
It was an extremely difficult set of rules to comply with. The guidance provided by the Cabinet Office, which advised freelancers on how to assure their clients that they are meeting their tax obligations, was unclear. This led to different departments applying the rules inconsistently, with different levels of assurance required. In some cases, the IR35 ‘Business Entity Tests’, were used as a quasi-legal employment status test. In others, ersatz IR35 enquiries were conducted by Departments into the working arrangements of their ‘off–payroll engagees’.
This tax assurance process has now been replaced by the changes to IR35 for public sector engagements.