The chancellor of the exchequer announced in the Autumn 2017 Budget that there would be a consultation in 2018 to tackle non-compliance with IR35 rules in the private sector.

It is common practice for workers to provide services to clients through a personal service company (PSC) – that is, a company owned and controlled by the worker. IR35 enables Her Majesty's Revenue and Customs to ask whether, ignoring the PSC's existence, the worker would be an employee of the client. If the answer is yes, where the worker is providing services to the private sector, IR35 requires the PSC to pay pay-as-you-earn (PAYE) tax and national insurance contributions (NICs) on its fees, less certain statutory deductions.

With effect from April 2017, IR35 was amended(1) where a worker provides services via a PSC to the public sector. Under the new regime, the public sector client – rather than the PSC – is generally responsible for deciding whether IR35 applies and, if so, for operating PAYE and NICs.

The consultation announced in the budget(2) will consider whether these public sector reforms should be extended to the private sector. In other words, it will consider whether the responsibility for determining whether IR35 applies – and, if so, operating PAYE and NICs – should fall on the private sector client.

This is likely to be a controversial exercise. The public sector reforms have produced widespread confusion and have, in many cases, led to contractors either leaving the public sector or becoming employees. While extending the reforms to the private sector might help to level the playing field between it and the public sector, such a change would also increase burdens and costs for businesses.

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For further information on this topic please contact Victoria Goode at Lewis Silkin by telephone (+44 20 7074 8000?) or email (victoria.goode@lewissilkin.com). The Lewis Silkin website can be accessed at www.lewissilkin.com.

Endnotes

(1) See www.lewissilkin.com/Insights/Clarification-on-tax-changes-for-the-public-sector-off-payroll-workers?_sm_au_=iVVnrTCMVMjHn077.

(2) See www.gov.uk/government/publications/autumn-budget-2017-documents/autumn-budget-2017.