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Public Sector Workers and IR35

Important changes affecting public sector contracts inside IR35

Following changes introduced by HMRC on 6th April 2017, responsibility for determining your IR35 status depends on the sector you operate:

  • In the public sector, responsibility now lies with the end client (or agency) who pays your limited company. If your contract is inside IR35, this same end client (or agency) will pay Income Tax and NICs (employer’s and employee’s) to HMRC.

  • In the private sector, responsibility remains with the limited company. If your contract is inside IR35, your limited company will pay Income Tax and NICs to HMRC.

Often an agency will be used to work between the end client and the limited company (and worker), which can complicate the flow of funds and deductions for Income Tax and NICs.

The following illustrates how the process differs for private and public sector end clients:

Private sector

  1. End client pays the agency in return for work done by the limited company

  2. Agency passes this amount on to the limited company

  3. Limited company is responsible for determining IR35 status

  4. If inside IR35, the limited company pays Income Tax and NICs due to HMRC

Public sector

  1. End client pays the agency in return for work done by the limited company

  2. Agency is responsible for determining IR35 status

  3. If inside IR35, the agency pays Income Tax and NICs due to HMRC and passes the remainder to the limited company

  4. Limited company passes this amount on to you (or the worker)

Want to learn more about IR35?

 
Last Updated: 05 May 2017 09:41AM BST

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