date posted: 23-12-2016

For some time now HMRC have been targeting what is often described as false self-employment.  Numerous changes to legislation have been brought in in recent years to tackle this perceived problem, some have been effective whilst others have created more work and administration for businesses and individuals. 


One of the latest changes is the reform to IR35 in the public sector.  The changes are set to be implemented from April 2017 will have an impact on anyone who regularly carries out contract work for public sector clients including those working for the NHS, state run schools and educational establishments such as further education colleges and universities, local councils and the BBC. 


What is changing?


At the moment individuals are responsible for determining their own status but for those working for public sector organisations that responsibility will now move to the organisation that has appointed the contractors. 


This means recruitment agencies will have to consider the status of each individual placed to work for a public sector client.  Public sector organisations, if they are recruiting self-employed contractors direct, will also be responsible for ensuring the correct IR35 status of anyone they offer a contract to. 


The outcome


The outcome of the changes is likely to be that public sector organisations and recruitment agencies will opt to assume that third party contractors are not operating within IR35 rules and will deduct tax and NI at source before paying their contractors.  This will happen for two main reasons.  Firstly assessing IR35 can be complex and for those not accustomed to it, their preference may well be to avoid it all together.  Secondly people will want to protect themselves against any potential liability and will take the safe approach of deducting tax and NI.


The concern then is that many highly skilled and experienced freelancers and self-employed contractors who make up the UK’s vital flexible workforce will be deterred from working on public sector contracts.  This could have a huge impact on availability of workers in key areas and particularly where there are skills shortages.


The reforms have been heavily criticised by relevant bodies and associations such as PRISM and the FCSA, as well by recruiters, contractors, freelancers and industry experts. 


Amongst the contracting and freelancing communities there has often been a feeling of being unfairly targeted.  It sometimes feels as though individuals have to work hard to evidence and demonstrate their entitlement to certain tax benefits.  There are clear disadvantages to not being in traditional employment; no sickness pay, no job security, no holiday pay.  At Sterling we believe that those who are prepared to forfeit the security and benefits of traditional employment should be rewarded for working in a more flexible and entrepreneurial way and should be entitled to tax efficiencies which are there to support small businesses boost the economy. 

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