Contractors working in the public sector will no longer be able to clarify or justify their IR35 status, according to the latest documents under the Finance Bill 2017. This is bad news for IT contractors who have their own personal service companies.
If and when the new rules come into place, deducting taxes from the contractors’ payment will lie with the end-client or the staffing agencies, depending on who pays the contractors. However, when it comes to deciding whether IR35 applies to a contractor, the end-client will be responsible for it. This will be the case even if the contractor was hired through a staffing agency. When HMRC raises questions about how the end-client decided the status of a contractor, the public sector department will have 31 days to come up with a plausible response.
The Finance Bill 2017 documents also show that if the end-user takes longer than 31 days to respond to the IR35 status query, they will be responsible for accounting for PAYE.
Qdos CEO Seb Maley stated that it has come as a huge surprise to learn that public sector bodies will be responsible for deciding a contractor’s IR35 status.
Many staffing agencies and contractors, including IT contractors, have been caught off guard with these revelations as they assumed that the staffing agencies that pay contractors would be responsible for determining the status of contractors.
Contractors will be unhappy with this move, while staffing agencies and recruiters will be relieved, according to Bauer & Cottrell Co-Founder Kate Cottrell.
Cottrell explained that public sector bodies will be given 31 days to justify the status of a contractor. If they do not comply within this time, they will become liable.
She added that the public sector has been made responsible for determining IR35 status because they have “assurance” processes in place. However, Cottrell believes that this is not the case, so there are bound to be issues.