The HMRC tax checking service for employment status has become available. Some questions have been clearly written with the public sector in mind (for example with reference to required security clearances of substitutes and helpers). However, in general as the underlying tests for IR35 have not changed, we expect that this test will be used as a default free checking service by many contractors in the private sector as well as public sector contractors.
While contractors in the public sector can rely on the checking service outcome, private sector contractors cannot. The result of the checking service represents HMRC’s view of the IR35 rules but there may be cases where a result found to be within IR35 would, on application of case law tests, be held to be outside of employment tax status. Also the test is stated to be in beta form so while workers, agencies and public sector bodies have no other current HMRC approved resource, the outputs of the test system may change in the coming months.
As well as publishing this resource, HMRC has this week added further technical guidance on the application of the new public sector IR35 rules. This guidance combined with the tax checking service provides a starting point for the mammoth exercise facing many public sector bodies of determining the status of their contractor populations over the coming four weeks.
Guidance remains thin on the crucial question of the boundary between agencies providing workers for public sector clients under a labour-based agency or similar outsourcing arrangement (generally subject to the tests) and outsourced consultancy services where the private sector partner is the end client and so the existing rules apply (with the contractor responsible for working out its tax position). The expectation may be that the public sector will err on the side of caution and apply the new regime to all contractors working on site – which does not appear to be the intention of the legislation and may cause unnecessary impact on the delivery of key government programmes.
Ironically, given the late delivery of this IT service which was originally promised one year ago, one of the largest dependencies on outside contractors is found in Government IT projects.
For further information please contact:
Jon Keeble, Employment, email@example.com
Samuel Dooley, Corporate Tax, firstname.lastname@example.org
Caroline Colliston, Corporate Tax, email@example.com