New IR35 Rules and Public Sector Duty to Enforce

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In 2017, the government implemented new rules that apply to public bodies who use consultants to fulfil internal roles. The purpose of the new rules is to ensure that consultants pay the correct income tax and National Insurance Contributions and do not avoid paying them by contracting through a limited company and paying themselves in dividends. 

As a result, every time that a public body thinks about bringing in a consultant it needs to think about whether these rules apply.

The new rules apply when:

  • a worker personally performs services for a client
  • the client is a public authority
  • the contract to provide the services is with an “intermediary” – e.g. a limited company
  • if the contract had been directly between client and worker, the worker would be regarded for Income Tax purposes as an employee of the client or the holder of an office with the client (or the worker actually is an office holder with the client)

Public bodies thinking about using a consultant or if it has a consultant in place who will be continuing after 6 April 2017, it should:

  1. Check whether the rules will apply to the consultancy arrangement by answering the questions in the government’s Employment Status Service App.
  2. If the rules do apply:
    1. Notify the consultant that the rules apply
    2. Ask the consultant for confirmation of:
      1. Full name
      2. Date of birth
      3. Address
      4. National insurance number
      5. P45s from previous employments (if applicable)
      6. Bank details to which payments will be made
    3. Notify Finance/Payroll to update processes so that:
      1. The consultant will need to be added to payroll for tax and NIC purposes and provide the above information
      2. Invoices will need to be paid with Income Tax and NICs deducted

Employer NICs

Note that if the rules do apply, the public body will have to pay Employer National Insurance Contributions on the price being paid (excluding VAT). This will be in addition to the agreed consultancy costs and will need to be budgeted for.

Agencies

Where the public body buys consultancy services from an agency, it is the agency that is responsible for complying with the rules (and paying the relevant Income Tax and NICs). However the public body is responsible for telling the agency whether the rules apply so step 1. above still needs to be followed.

More Information

For more information and examples of how the new rules will operate, visit the Government’s Guidance Page