Last month HMRC announced the launch of their consultation into IR35 in the private sector
stating that “they are particularly interested to hear how the off-payroll working rules […] in the public sector could be adapted to fit the needs of the private sector”
In light of this we take a quick look back to the public sector reforms, what happened and what we can learn from the April 2017 changes.
Changes to the Public Sector
In April last year the rules for working in the public sector changed to ensure that those working through their own limited company but operating “within IR35” would pay employment taxes in a similar way to employees.
The main changes were:
Assessment of IR35
– Assessment of employment status switched from being the contractor’s responsibility to that of the end client.
We’ve seen widespread criticism of this move with many questioning the accuracy of the government’s CEST tool. Amongst its flaws the CEST tool doesn’t test for mutuality of obligation (MOO) – one of the key considerations when testing employment status.
Many end clients have been left feeling ill-equipped, resulting in blanket decisions being made on IR35 status
. As we’ve discussed previously IR35 status should be assessed on each assignment
rather than on a blanket basis.
Working within IR35
– For those assessed as within IR35 the limited company has to pay Income Tax and National Insurance converting their contract income into a taxable salary, known as a deemed salary. You can find out more about how a deemed salary is calculated here
As an advocate for contractors and the self-employed, Danbro welcomes the launch of HMRC’s consultation which will give the government and those affected by the proposal the time to reflect on the aftermath of the public sector reforms.
Having campaigned on last year’s reforms we hope that the government will take this opportunity to listen to the concerns of the industry before finalising any further changes to the Intermediaries’ Legislation.
For more information on IR35, take a look at our guide.