From 6 April 2017 new rules will apply to any contractors in the public sector who are self-employed through their limited companies. From this date, the contracting public sector company or recruiting agency (if used) will be responsible for determining whether or not the individual is an employee. If deemed so, the contractor will no longer control how their tax is accounted for.

How will it work?

To determine the contractor’s IR35 status, the HMRC has developed an online tool. The contracting company will enter information about the nature of the contract, and the tool will generate an ‘in’ or ‘out’ result.

If they are deemed to be an employee, the contracting company will have to withhold PAYE and NIC on the earnings and notify the intermediary – usually the personal service company. If ‘outside’  the contractor can be paid gross and account for tax as they do now.

Therefore, the payment received by the contractor will be the invoiced amount net of VAT, minus the PAYE and NI, plus the VAT charged on the invoice.

Would your rights and entitlements change?

Even though the contractor will be treated as an employee for tax purposes,  the same employment rights won’t apply.

They will have no right to paid annual leave. Through the contractor’s personal service company or intermediary they will continue to claim:

  • statutory sick pay
  • statutory maternity pay
  • redundancy pay
  • national minimum wage, and
  • pension auto-enrolment.

If you’re unsure about any of the changes and what impact they will have on your personal situation, please contact me, Sarah Eble on 0345 201 1580 or I can help explain the rules and may be able to help you switch to a more tax-efficient income structure.