IR35 – Don’t let the changes derail your delivery deadlines

Date: March 2017

What is IR35?

As of 6th April 2017, new rules come into place affecting contractors working in the public sector. IR35, also known as intermediaries legislation, is a set of rules that affect the tax and National Insurance contributions due by those who choose to work for a public sector client through an intermediary, such as limited companies, service companies and partnerships. The rule change, announced in the Autumn Statement 2016, is designed to bring the tax being paid by contractors into line with that paid by employees. However, it should be noted that the new IR35 rules do not apply if the contractor is working for a client through a Managed Service Company (MSC) or agency.

From 6th April 2017, the responsibility for determining whether or not IR35 applies will change and will now sit with the public sector body engaging the worker. If it is decided that a contractor does have IR35 status then they will be taxed at source by the client. HMRC has created a new  Employment Status Indicator (ESI) tool, which public bodies can use to identify the correct status of their contractor. However there have already been a number of issues and risks identified with the use of the tool. Therefore it is anticipated that when ascertaining a contractor’s status, public bodies will err on the side of caution to ensure they protect themselves.

The new legislation has raised concerns that there will be a negative impact on the public sector’s ability to attract and engage the specialist skills that it often relies on a contract workforce to provide. It is anticipated that huge numbers of  Personal Service Company contractors will leave the public sector with some estimating the impact to be as high as 85% of the affected contractors choosing to leave the public sector in the next couple of months, in favour of the private sector.

IR35 – Transport for London’s reaction

IR35 - TfL threatens to ban PSC contractors

In January 2016, Transport for London controversially stated that they were planning to ban the use of contractors who operate through their own limited company from the start of the new tax year, giving them the options to co thus removing the responsibility and associated penalty risks that the new IR35 rules place on the public sector bodies. They have since backtracked on this and are thought to be reconsidering the blanket ban in light of the impact that this would have on their workforce. With other Government agencies reviewing their use of contractors the full implications of the IR35 changes will be closely watched all involved.

Ten10 Delivery - Managed software testing servicesAs an approved supplier on the government and public sector frameworks, Ten10 works with a number of central and local government bodies. Through our permanent Ten10 delivery team we can enable public sector organisations to cost-effectively engage the expertise and resource required, whilst ensuring delivery deadlines are not affected by IR35.

From individual test practitioners through to fully managed test teams, our talented and passionate people – many of whom have SC clearance – are experienced working across a range of projects and technologies including:  

  • Digital transformation
  • Data migration
  • SaaS, PaaS and shared Cloud
  • Integration and APIs (including ESBs)
  • Front-end websites and mobile apps

You can find out more about Ten10’s work in the public sector here.