New rules apply from 6th April 2017 impacting anyone working through a personal service company (PSC) in the public sector. The public sector, in this context, broadly means any government body – for example the NHS, a local council or the BBC.
It is now the government body that must determine whether contractors fall inside or outside IR35. If found to be inside IR35, the amount paid to the PSC is deemed to be employment income and the government body or, where relevant, the agency is required to deduct PAYE when making payments.
If found to be outside IR35, PSCs may still be paid gross, however there remains a risk of HMRC challenging the judgement and seeking to recover the tax from the government body itself.
In addition, contractors working through PSCs in the public sector will no longer be entitled to the 5% tax free allowance.
In reality, these changes could see the end of PSCs in the public sector, with a significant burden placed on government bodies and little financial benefit to contractors.
Please get in touch with your usual Ryecroft Glenton contact on 0191 281 1292 if you would like to discuss any of the above in further detail.