In the 2016 Budget the government announced that that it was looking to reform the intermediaries rules (commonly referred to as IR35) for off-payroll engagements of workers operating through an intermediary in the public sector.
This is likely to be relevant to most educational institutions as in the consultation referred to below the government says that it intends to use the definition of “public sector” set out in the Freedom of Information Act 2000 and the Freedom of Information (Scotland) Act 2002 for the purposes of applying the changes. This would therefore cover educational establishments including further and higher education institutions, academies and maintained schools. This is, however, subject to the final outcome of the consultation.
In outline, the IR35 regime currently applies where the services of an individual are provided to a client via an intermediary (most typically the individual’s personal service company) in circumstances where, but for the interposition of the intermediary, the individual would have been an employee (or office-holder) of the client. Responsibility for carrying out this assessment falls on the intermediary and, where the legislation applies, the intermediary is, broadly speaking, required to operate PAYE and account for income tax and national insurance (employee’s and employer’s) on the payments it receives from the client as if such payments were payments of employment income being made to the individual.
The Proposed New Arrangements
The government proposes that from April 2017, where the client receiving the individual’s services is a public sector body, responsibility for determining whether the legislation applies will instead fall on that public sector body or, if there are agencies or other third parties in the contractual chain with the intermediary, on the party closest to the intermediary in that chain. In addition, responsibility for operating PAYE and accounting for income tax and national insurance will fall on the public sector body (or relevant third party) rather than the intermediary.
In an attempt to provide greater clarity and certainty, HMRC has developed a simplified process for determining whether the legislation applies which is to be supported by digital tools, both of which are set out in the consultation paper.
The consultation runs from 26 May to 18 August 2016, link to the consultation.