Changes are coming to the way intermediaries legislation (commonly known as IR35) is applied to workers in the public sector.

From 6 April 2017 the way IR35 is applied to “off payroll workers” in the public sector is changing.  As a result of the changes, workers in the public sector who supply their services through an intermediary will pay employment taxes in a similar way to employees.

The changes will affect:

  • Public authorities who hire “off payroll workers”
  • Agencies and third parties who supply workers to the public sector.
  • Workers who provide their services to a public authority through an intermediary.
  • For the purposes of this new legislation a public authority is defined by the Freedom of Information Act 2000 and the Freedom of Information (Scotland) Act 2002.
  • The definition covers Government departments and their executive agencies, universities, local authorities, parish councils, the NHS and many companies owned or controlled by the public sector and for example will include the BBC, Channel 4 and Bank of England.

How will the changes work?

The responsibility for deciding if the IR35 legislation will apply, will shift from the worker’s intermediary to the public authority, that the worker is supplying their services to.  It will be applied to all payments made after 6 April 2017, including payments for any contracts entered into or work completed before that date.

If the rules apply then the fee payer will have to calculate income tax and employee (primary) National Insurance (NI) contributions, on the workers fee and deduct them before payment to the workers intermediary or Personal Service Company (PSC). This will then be paid over to HMRC, together with employers (secondary) National Insurance contributions.

For example (figures are illustrative):

  • Company A invoices the fee payer for £7,200 for services provided (£6,000 net and £1,200 VAT).
  • The fee payer deducts tax of £1,458 and employees NI of £413, total £1,871.
  • Company A receives £4,129 (£6,000 less £1,871) for services plus £1,200 VAT.
  • The fee payer pays over £1,871 plus employers NI to HMRC.
  • As the net figure received by Company A has already been subject to income tax and NI the net pay will be available to draw down without further deduction of tax.

Responsibilities from 6 April 2017

Public authority:

  • Decide if “off payroll working” rules should apply to existing and new contracts.
  • If using an agency or other third party to provide workers notify them if “off payroll working” rules should apply to the contract they have with the worker.

Agency, third party or public authority where they are acting as the fee payer:

  • Operate employment taxes associated with the contract.
  • Pay the deemed direct payment to the worker’s intermediary (PSC).
  • Report the employment taxes deducted to HMRC through Real Time Information.
  • Pay the relevant paye to HMRC.

Worker provided through Personal Service Company:

  • Provide the fee payer with the information they need to help determine if the “off payroll working” rules should apply.
  • Where the “off payroll working” rules apply provide the fee payer with the information required to allow them to deduct the correct tax and NICs from the payment they make.

HMRC have an Employment Status Service Tool online, to assist in determining if current or prospective workers will fall within the “off payroll working“ rules from 6 April 2017. Click here to view it.

Further information can also be found by clicking here.

Please contact Claire Barringer at or Pat Strods at for further information.

Disclaimer: Please note that this document is not intended to give specific technical advice and should not be construed as doing so. It is designed to alert clients to some of the issues and not intended to give exhaustive coverage of the topic.  Professional advice should always be sought before action is either taken or refrained from as a result of information contained herein. March 2017

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