In the 2016 Budget the government announced that it will reform the Intermediaries Legislation (known as IR35) for public sector engagements.

The Intermediaries Legislation was introduced in 2000 and requires individuals working through an intermediary to pay broadly the same tax and National Insurance contributions (NICs) as employees, where they would have been an employee if they had provided their services directly. An intermediary in this context is typically someone working as a sub-contractor, a sole trader/partnership or has their own limited company, often known as a personal service company (PSC).

From April 2017, individuals working through their own company (“off-payroll workers”) in the public sector will no longer be responsible for deciding whether the IR35 regulation applies and then paying the relevant tax and NICs. This responsibility will instead move to the public sector employer (the University), agency, or third party that pays the worker.

Where the University engages directly with the intermediary, the University will be responsible for operating the new rules and then collecting and paying the relevant tax and NICs through the Real Time Information (RTI) system and deduct the relevant tax and NICs.

Where the University engages the worker indirectly through an agency, then that agency is responsible for operating the new rules and collecting and paying the relevant tax and NICs. However the responsibility of assessing the employment status of the “off-payroll worker” will lie with the University and the University will need to inform the agency that they are contracting with a public sector body. The University will also be required to check that the agency operates the rules correctly.

The above rules will not apply to workers provided through an agency where the workers are employees of the agency and not supplied through their own company.

To assist the public sector institutes to determine the tax status of an “off-payroll worker”, HMRC have a new online tool, the “Employment Status Service” (ESS) which can be accessed here. This tool can be used for current or future engagements and HMRC will stand by the results given by this tool unless a compliance check finds the information provided wasn’t accurate.

Therefore with effect from April 2017 all recruiting Managers must use the above tool to determine the tax status of an “off-payroll worker” before agreeing to hire the PSC. The hiring Managers must inform the PSC or agency with whom they have a contract whether the engagement falls within the new rules. Hiring Managers must be able to explain to the worker, if asked, why they have reached a particular determination on the worker’s status.

It is vitally important that the above process be carried out against current “off-payroll workers” to ensure that they are being processed correctly, as any payments that are made on or after the 6th April 2017 will fall within the above legislative change irrespective of when the individual was hired.

IR35 Off-Payroll Worker Engagement Form