The new IR35 provisions within the public sector apply when:
- A worker personally performs services, or is under obligation to personally perform services for the client
- The client is a public authority
- The services are provided under circumstances where, if the contract had been directly with the client, the worker would be regarded for Income Tax purposes as an employee of the client or the holder of an office with the client, or the worker actually is an office holder with the client.
In summary, individual worker (say, A) provided services via an intermediary (say, B) to a public authority (say, C).
C must look at the arrangements under which A provides their services, and decides if these new rules apply. If C decides the new rules apply tax and employee’s national insurance will be deducted and the net amount paid to B. The VAT exclusive amounts must be accounted for by C through Real Time Information in the same way as for an employee. These rules do not affect employment rights available to the worker.
The guidance from HMRC says: ‘The worker’s intermediary is able to reduce the turnover it records to reflect the deductions made from the fee from the fee payer’.
These new rules do not create any new pension obligations on the public sector, agency or third party to operate occupational or stakeholder pensions. These new rules do not affect:
- workers who provide their services to clients other than public authorities
- where an agency directly employs a worker and it operates tax and NICs on earnings it pays to the worker
- foreign entertainers who are within the statutory tax withholding scheme.
To help to decide whether the new rules apply a tool has been made available entitled check employment status for tax.