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The underlying IR35 rules are not changing, but the responsibility for determining whether they apply will shift from the contractor to the public sector end client. So, in the public sector only, the hiring organisation will determine the IR35 status of an engagement. If it decides IR35 does apply, the contractor business will be taxed at source, through the RTI system, exactly as if it were an employee. This change will be effective from April 2017.
How will the agency or client determine IR35 status?
Good question! HMRC are rehashing an online tool to help determine IR35 status which will apparently be released in January 2017. However, this has been a shambles in the past and its a bit like asking a gamekeeper to assess whether a poacher is a poacher or not. It is likely to be biased towards classifying status as being inside of IR35. The whole idea is doomed to failure unless the law is changed clarifying what determines IR35. The case law that has gone before in IR35 is still relevant and a new online tool doesn’t change that. I can see a raft of challenges to this one (if contractor lobbyist organisations like IPSE do their job). Isn’t it amazing that instead of passing better laws the government is increasing scaring people into paying tax!
What is a Public Sector Organisation?
For now, the changes will only affect those engaged by public sector clients. Public sector clients are defined as set out in the Freedom of Information Act. In other words: if the organisation has to respond to Freedom of Information requests, it is a public sector organisation for IR35 purposes.
There are some good questions from contractors and answers on IPSE’s website here
As usual, the government continues to attack contractors and support inflexibility when the employment market and industry is becoming more flexible. A major car-crash between the tax status of employment and employee rights continues to slowly drifts towards us.