New Public Sector IR35 Rules

As was widely anticipated, the draft legislation and
guidance published yesterday has confirmed that where a contractor provides
services to a public sector hirer and the arrangement is considered to be
caught by IR35 the paying party will be obliged to deduct tax and primary NICs
from the payment it makes. The gross amount paid by the paying party will
qualify as part of their pay bill for the purposes of the Apprenticeship Levy.

It also means that for the first time employer’s NICs will
be due on the value of an invoice from a company contractor. Normally the rate
an agency pays to a company contractor is a gross sum which reflects the
business to business relationship and the fact that the company is responsible
for statutory payments and taxes.

Ben Grover, External Policy Adviser at the Association of
Recruitment Consultancies said “We now want to study the draft law dealing with
NICs as this is a first, where personal deductions must be made in respect of a
payment which would otherwise be due to a company. There will inevitably be an
adjustment to rates where IR35 applies and it remains to be seen as to how
agencies address the employers’ NICs element. Fortunately the new rules will
not apply until April 2017.