close menu

What HMRC’s proposed IR35 tweaks mean for contractors in the public sector

by Kobus Van den Bergh | Sep 14, 2016
  • HMRC is aiming to clamp down on contractors and self-employed workers who are not paying the correct amount of tax. Their efforts could see 90% of contractors either move to the private sector or increase their fees to compensate for the costs.
  • Tax

    The government is currently deciding whether to shift the responsibility for intermediaries’ legislation compliance – known as IR35 – from the individual contractor to a public body or employment agency.

    These reforms will result in contractors having to pay the same amount of tax as permanent employees, without receiving any of the associated benefits, such as sick and holiday pay.

    In the 2016 Budget Statement, George Osborne announced that those who use the services of any contractors working through limited or personal service companies will be required to pay income tax and National Insurance on the contractors’ behalf. The rule will also be applicable where a contractor works through a public sector body or agency. It is proposed to come into force in April 2017.

    If this goes ahead, HMRC hopes to raise an additional £400m by targeting the 20,000 public sector contractors who are currently not paying the correct tax under IR35 rules. It is estimated that only 10% of those who should apply the rules do so.

    A recent survey of 250 public sector IT contractors showed that only 10% of respondents would pay extra tax. The remaining 90% stated that they would either go into the private sector or increase their fees to compensate for the extra tax. A fee increase to the public sector could be as much as 30% if a contractor wishes to maintain the same level of income after being deemed to be inside IR35.

    If HMRC chooses to proceed with the proposed clamp down, government could end up losing out on £115m in projected tax revenues. In addition to this, it could face a £610m rise in costs per year to re-hire contractors who move to the private sector.

    In the case of an HMRC investigation resulting in a negative outcome, it is essential to have insurance cover in place to help with both the cost of an audit (professional assistance) and the possibility of a tax liability that may arise.

    We have partnered with a law firm to help provide our clients with comprehensive advice. Follow this link to get free quote for contractor insurance, as well as the option to have your contract reviewed for IR35 purposes for only £40 (usually £199).

    • big-ben-london
      Start your life in the UK the stress-free way
      Aug 21, 2017  |  by Leanne Shrosbree
    • woman-alarm-clock-scream
      Applying for an emergency UK visa in South Africa
      Aug 17, 2017  |  by John Dunn
    • Three friends having breakfast
      Roommates, budget and location: Your guide to finding accommodation in the UK
      Aug 11, 2017  |  by Leanne Shrosbree
    • Group of friends having drinks
      5 ways to meet new people in London
      Aug 07, 2017  |  by Leanne Shrosbree
    • SA and UK flag
      How many South Africans were granted British citizenship last year?
      Aug 03, 2017  |  by 1st Contact
    • Puppy
      No pet left behind: Bring your furry friends with you to the UK
      Jul 28, 2017  |  by Leanne Shrosbree
    • Stoketoberfest
      Stoketoberfest is upon us
      Jul 28, 2017  |  by 1st Contact
    • heart calculator desk cash
      Stay on the right side of HMRC as a contractor
      Jul 24, 2017  |  by Kobus Van den Bergh
    • choosing worker
      How to get a job after you’ve arrived in the UK
      Jul 21, 2017  |  by Leanne Shrosbree
    • happy young couple
      Don’t do the long distance thing, extend your UK spouse visa
      Jul 20, 2017  |  by John Dunn

    Do you like cookies? We do, read why.