IT contractors will be relieved to hear that the UK Government has responded to the IR35 petition. The Treasury stated emphatically that it will not cancel the changes made to the IR35. The changes will come into effect from the first week of April 2017.
The Treasury said that contractors, agencies and end clients are often under the misconception that IR35 refers to off-payroll rules, when in reality it refers to the rules governing intermediaries. The Treasury stated that it was necessary to implement the changes in IR35 since nearly 90 per cent of PSCs did not comply with the rules.
Presently, about 10 per cent of contractors working in the public sector pay taxes on their income in accordance with the IR35 rules, stated the Treasury.
However, this claim has drawn criticism. Andraste Accounting Ltd Managing Director Carolyn Walsh stated that there are no figures available to show the number of contractors opting for IR35, and therefore there are no statistics to show how many contractors are safe when it comes to their taxes as per the IR35 rules.
The Treasury has made it clear that the Government does not want to place obstacles in front of those contractors who want to work through their own companies. However, it did say that the public sector departments and bodies should ensure that they and their contractors pay the correct amount of tax.
The response of the Treasury will not allay fears from the private sector, which believes that the IR35 changes will also apply to it. However, the Treasury clarified that the public sector bodies will be responsible for deciding whether the IR35 rules apply to individual businesses. If they do, the public sector body will have to deduct the applicable employment tax. In case a business is hired through an agency, the public sector body will inform the agency whether or not the IR35 rules apply to that particular business.