HMRC has published a number of documents providing guidance to the changes to the way the current intermediaries legislation (known as IR35) is applied to off-payroll working in the public sector, which come into effect on 6 April
They include additional new guidance designed to help public authorities, employment agencies, and other third parties who supply labour to identify if the contracts they have are within the scope of the reform.
The note focusses on the types of contracts that need to be considered and gives further guidance on what is out of scope. It also aims to provide clarification on what HMRC means when it says a contract is a whole service contracted out to the public sector.
The new IR35 provisions apply when a worker personally performs services, or is under obligation to personally perform services for the client, and that client is a public authority.
The worker provides those services via an intermediary (usually their own personal service company (PSC)) which can include an intermediary that is also a managed service company (MSC).
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.
Under the current intermediaries’ rules, if the intermediary is also a MSC the MSC legislation applies, not the intermediaries’ rules.
However, with effect from 6 April 2017, where a company is a MSC and all the conditions outlined in the HMRC guidance apply, the new rules will apply and not the MSC legislation.
There are a number of situations which fall outside the scope of the reforms. These are where an agency or similar third party supplying the worker to the public sector directly employs the worker and PAYE and NIC deducted. There is separate guidance for employment intermediaries supplying workers in this way.
The new rules also do not apply where an agency or similar third party supplying the worker uses an umbrella company to employ the worker and PAYE and NIC deducted (and the worker does not work through an intermediary such as their own company).
Foreign entertainers within the special foreign entertainer tax regime are exempt.
There are also exemptions for workers who provide their services either through their PSC or as a sole trader who would not be an employee if they were engaged directly. HMRC says these workers are likely to have a significant level of financial risk associated with delivering their work and have a high level of control over how, where and / or when they do that work.
Equally situations where a public authority has fully contracted out services to a service provider and the workers do not personally provide their services to the client are outside of scope.
HMRC says this is a reform of intermediaries legislation, so it is about situations where the worker provides their services to the client through their own company. This might be a PSC they own or control, a partnership or via another individual and includes those which are MSCs. It is not relevant to situations where an agency or consultancy sends their workers who are employed directly and PAYE and NIC deducted.
The legislation also requires that the worker provides their services personally to the public sector client. This condition is not met where the public authority has contracted out the service to a third party (for example an outsourcing company) in such a way that that entity does not as part of that provide the public sector with the services of the worker or workers.
HMRC includes two case studies to illustrate the way the measures will work.
In addition, HMRC has updated separate guidance explaining how the responsibility for deciding if the legislation should be applied, which shifts from the worker’s intermediary to the public authority the worker is supplying their services to. It has also updated its technical note, which provides a large number of worked examples.
HMRC guidance Off-payroll working in the public sector: scope of the reform and preparing for 6 April 2017 is here.
The detailed guide Off-payroll working in the public sector: scope of the reform and preparing for 6 April 2017 is here.
Off-payroll working in the public sector: reform of the intermediaries legislation - technical note is here.