Public Sector Bodies – Employment taxes

The Government announced at Budget 2016 and confirmed in the Autumn Statement that year that it would reform the intermediaries legislation (IR 35) for public sector engagements.

From April 2017 the responsibility for deciding whether the intermediaries legislation will be applied shifts from the worker’s intermediary (i.e. their own company or partnership) to the public sector employer the worker is supplying their services to. The legislation will be finalised at the Budget in March 2017.

“Public sector” has a wide definition, and the legislation will apply to organisations that are Public Authorities for the purposes of the Freedom of Information Act 2000 (FOI) or Freedom of Information Act (Scotland) 2002 (FOIS).

If the legislation applies, the liability to pay the correct employment taxes (i.e. PAYE and NICs) will move from the worker’s own company to the public sector body or agency / third party paying the company.

Charities should already have a process in place to assess if workers can be paid off payroll by applying the appropriate employments status tests. HMRC has also developed a digital tool that makes the decision on whether or not the rules should apply as simple as possible and provide certainty.

The legislation will provide that if the worker fraudulently provides incorrect information then the public sector body, agency or other third party will not be liable for any unpaid PAYE and NICs. Instead, this liability will sit with the worker and/or their company.

HMRC has recently published guidance, which is regularly being updated, as well as a technical note.

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