HMRC updates IR35 guidance for public sector bodies

The taxman has updated his February guidance on the public sector’s off-payroll rules, in what represents the first fresh guidelines since the rules bit in April.

Made on Friday, the update is two-fold but centres on one of the most frequently asked questions that contractors have about the rules -- which organisations they apply to.

So in the online document, HM Revenue & Customs confirms that the rules apply only to ‘public authorities;’ provides the definition of a ‘public authority’ and gives examples.  

The confirmations are helpful, in that they clear up the misperception that merely being funded by public money is sufficient criteria to make the rules apply.

But because the rules affect only what the FoI Act defines as public authorities, it means that some outfits who looked caught by the rules, like some charities and GCHQ, are actually out of scope.

HMRC’s new guidance also outlines a last-minute change it made to the legislation, with the effect that private sector retail businesses serving the NHS were excluded from the rules.

“High street pharmacies or opticians, will not need to check if the off-payroll working rules apply,” the department says.

“Hospitals, GP surgeries and dental practices that provide NHS medical and dental services will need to consider whether the off-payroll working in the public sector rules apply to all contractors working for them through an intermediary.” 

Part two of HMRC’s update is just three paragraphs’ long -- it outlines an affected end-client’s responsibilities and, “what they need to do to follow the off-payroll working rules.”

“As a public authority, you’ll need to decide if the off payroll working rules apply and tell the worker, or the agency or other labour provider who supplies the worker, if they apply,” HMRC begins.

“You’ll need to do this before the contract or the work starts (whichever is later). If the contract was entered into before 6 April 2017, you’ll need to inform the relevant person of your decision before the next invoice payment is made.”

And finally, the tax authority warns end-users that they’ll need to “reconsider your decision if the working practices of the engagement change.”

More detailed guidance for end-users is available from HMRC in a technical note, but whether they are allowed to alter working practices to try to change an ‘inside’ IR35 result to an ‘outside’ IR35 result (via the ESS) is not clear.

Asked by ContractorUK this specific question (albeit before Friday’s update), the Revenue seemed to side-step it, saying only: “It is the responsibility of the public sector body to determine employment status”.

Posed a related question, a spokesperson for HMRC added: “We do not oblige anyone to use the [IR35 digital] tool but we stand by its results where correct information has been inputted in line with the guidance. “

A service provider to contractors says public authorities are already skewing the outcomes of the ESS (also known as the IR35 digital tool), by getting an ‘outside’ IR35 result, and then going off to fit such working practices around an engagement that previously was ‘inside.’

“If we had any faith in the results of some IR35 assessments being carried out by the public sector, [then that would be a good start],” the service provider’s boss said.

“We are seeing some perverse assessments and our conclusion is often the public sector body has had a 'second go' [with the ESS] and saved themselves 20-25% costs. I suspect they are counting on the usual lack of enforcement by HMRC.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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