Three months on from the introduction of new IR35 public sector rules, HMRC has sought to clarify which bodies are affected by the legislation change.
This is important stuff, because organisations defined by the off-payroll legislation as being part of the public sector will need to decide whether IR35 applies when engaging a limited company contractor.
As HMRC states in its update, called Off-payroll working rules for public authorities, when a contractor is found to be inside IR35 the public sector body will need to:
… deduct tax and National Insurance if you pay the worker directly. If the worker is paid by an agency or other labour provider, you’ll need to tell the body that pays the worker that, in your view, the off-payroll working rules should apply.
IR35: how is the public sector defined?
HMRC says the following organisations, which are classed as public sector under Freedom of Information legislation, are also defined as such for the purposes of the off-payroll rules:
- Government departments and their executive agencies;
- Many companies owned or controlled by the public sector;
- Schools and universities;
- Local authorities;
- Parliamentary bodies; and
- The National Health Service (NHS).
So far, so straightforward. Things get a bit more complicated, however, when it comes to the NHS.
The NHS and the IR35: public v private sector
Hospitals, GP surgeries and dental practices that provide NHS services are deemed to be part of the public sector and therefore:
… will need to consider whether the off-payroll working in the public sector rules apply to all contractors working for them through an intermediary. This includes contractors who are providing ophthalmic and pharmaceutical services to the NHS.
However, retail businesses providing ophthalmic and pharmaceutical services for the NHS, like high-street pharmacies or opticians, are not affected by the new off-payroll rules.
HMRC also used the update to emphasise that the rules don’t apply where a public authority has fully contracted out services to a third party (like an outsourcing company) and contractors do not personally provide their services to the public authority.
Find out more
You can read HMRC’s update here. It’s worth a read whether you’re a contractor, recruiter or public sector hirer.
Alternatively, get in touch with ADVANCE and we’ll be happy to discuss the legislation with you.