New IR35 rules governing taxes in the public sector have included the term “reasonable care.” This means that public sector departments and bodies will have to take careful measures to decide the IR35 status of contractors from 6th April when the new legislation comes into effect.
Experts believe that if public sector bodies do not take reasonable care, they may end up being responsible for deducting National Insurance and PAYE. In addition, the public sector departments using IT contractors and other PSC contractors will also have to pay Employer National Insurance.
According to the draft legislation, which was published in December 2016, public sector departments must inform HMRC about the contractor’s IR35 status within a period of 31 days. If they fail to do so, they will have to deduct PAYE and National Insurance, and foot the bill for Employer National Insurance. At the same time, public sector bodies that report their decision within 31 days could still end up with these deductions if HMRC feels that they did not take reasonable care.
Qdos Contractor commented that the “reasonable care” clause in the new IR35 legislation means that public sector bodies should not opt for a blanket IR35 status determination. Instead, each contractor should be assessed and evaluated independently, taking all spheres into consideration. Otherwise, they could be held liable for not taking reasonable care.
Brookson, an accounting firm, believes that “reasonable care” cannot be defined precisely in the world of tax. Nonetheless, the firm stated that the inclusion of the clause is beneficial for agencies and contractors as they can accept the decision taken by the public sector bodies.
Brookson also believes that IT contractors and other contractors will welcome the “reasonable care” clause as their clients will have to inform them of their IR35 status on entering into the contract or before signing the contract.