Updates on the IR35 Rules

IR35 has changed its new policy document and off-payroll working rules regarding public sector contractors.

Who are affected?

The new IR35 rules affect the public sector organizations, personal service contractors working in the public sector, and agencies supplying PSC employees to the public sector.

IR35 changes

The policy paper explains that the ‘IR35 status’ of a public PSC contractor is now granted to the staffing agency or public sector body. Contractors will no longer have the capacity to determine whether or not the IR35 ‘intermediaries legislation’ works on them. Moreover, many contractors will have huge salary cuts.

The said policy document also explains that deduction and payment of employment taxes and contributions to National Insurance are now the sole responsibility of the organization engaging the contractor.

The agency will act as an employer for tax and Class 1 NICS purposes. It is important to note that this agency will not give employment rights such as sick or holiday pay.

Contractors who apply the five percent allowance will no longer be able to apply it as this is now shifted to the administration’s responsibility.

Reasons for the changes

IR35 rule changes are meant for a fairer tax system for everyone. This will enable the Treasury to gain more cash with non-compliance with these rules.

How will it affect contractors?

There is a general agreement that applying these general rules will increase the number of public sector PSC contractors to be ‘inside IR35.’

The British government estimates that these changes will affect an estimated 26,000 personal service companies. This will filter many contractors who will stop operating as a PSC or in the public sector.

How will it affect the public sector?

The policy document deems that there will be great significant changes in the public sector organizations that employ off-payroll workers. Moreover, this will bear more administrative responsibilities to these public sector organizations. Contractors will shy away from working in the public sector. This will affect the greater difficulty of the public sector in recruiting the best people.

How will it impact agencies?

Agencies will not be greatly affected as it changes will mainly be felt by the public sector organizations. The government predicts that smaller agencies will feel more difficulties placing workers on the payroll.

Steps contractors should do

Public sector contractors can shift working in the private sector. However, economic experts believe that these policies will also be implemented to the private sector in the near future. Contractors can also make negotiations with the public sector body in order to increase prices and still recover some lost take home pay.

For more information on the IR35 changes, you can contact this website.

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