The Autumn Statement brought disappointment for trade bodies and industry as the government ignored pleas to rethink their clampdown on public sector contractors operating through Personal Service Companies (PSCs).
The government has adjusted IR35 in order to tackle “false self-employment” in the public sector. At present, it is the worker, in their role as PSC Director, who must determine whether their work falls under the IR35 legislation or not. However, the new proposals move the responsibility for this from the worker to the public sector body or the recruitment agency which engages the worker.
The responsibility for applying employment taxes for those businesses caught by IR35 will be shifted to the end hirer (e.g. public sector body) or agency.
Many business organisations told the government that the change had the potential for creating a disaster in the delivery of public services. However, the government has ignored the pleas and warnings. According to the Autumn Statement: “Off payroll working rules – Following consultation, the government will reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company. The government believes public sector bodies have a duty to ensure that those who work for them pay the right amount of tax. This reform will help to tackle the high levels of non-compliance with the current rules and means that those working in a similar way to employees in the public sector will pay the same taxes as employees.”
In addition, the five per cent tax-free allowance that was introduced as an IR35 sweetener will be removed for those who are working in the public sector.