HMRC publishes public sector IR35 guidance set

A five-part overview of public sector IR35 reform by HMRC has gone live, next to a nine-section guidance note for 'fee-payers' and a four-fold guide for personal service companies.

Published late on Friday night, the set of documents seems to lack new details but neatly collates the taxman’s many tweaks since consulting and sums up the rules -- generally; for agencies/clients and PSCs.

One exception to this absence of new information is the Revenue finally naming the IR35 digital tool as the 'Employment Status Service,' and says its launch is due later this month. 

‘Repayment Claim’

The department also states for the first time that, if a PSC contractor believes they have been taxed incorrectly (presumably due to ‘wrong’ IR35 decision), they can submit a “repayment claim.”

To be submitted to HMRC, the claim is then for tax staff to determine if the PSC contractor is due an income tax or NICs repayment. This seems shy of the expected appeals procedure.

Despite being crucial to PSC contractors, the ‘repayment claim’ detail is not contained in the guide for PSCs, indicating that contractors might find all of HMRC's new documents relevant, not just the one which the department has marked for them.

PSCs’ three responsibilities

Further reinforcing the need to read across the documents set,  the overview of the reform says that PSCs must carry out three duties, but this trio fails to win even a mention in the actual guide for PSCs.

The three are; provide details to help decide whether the rules apply; provide the fee-payer with data to allow the tax-NIC deduction and report to HMRC “on [their] own,” as usual.

What the guidance for such workers does contain is a clarification that dividends will not need declaring in self-assessment tax returns, where certain criteria are met.

Notably, “you can pay yourself a tax-free dividend up to the total of the net fee received from contracts in the public sector, where Income Tax and NICs have been deducted at source,” HMRC says.

PSCs are also given the official position under the IR35 reforms on paying themselves salary; calculating corporation tax and VAT. An example of a PSC invoicing a client, for £7,200 is provided too.

VAT (continued)

But the example (which includes £1,200 in VAT) and the guide as a whole, and even the paragraph on VAT, omits any mention of the VAT Flat Rate Scheme changes, which PSCs' advisers say need to be factored in on top of the reforms.  

And there is no acknowledgement by HMRC that the collective effect on PSCs, of the reforms alone or of them in conjunction with the VAT FRS changes, is going to be a much greater outlay for PSCs in tax terms.

The closest the Revenue guide comes to guiding them on this is the sentence: “Where it has been determined that the rules should apply, how your company gets paid for your work will change.”

‘Fee-payers’

Meanwhile, for ‘fee-payers,’ such as agencies but potentially end-clients as well, the changes are divided into nine areas, including ‘Payroll Requirements,’ ‘Starter Information’ and ‘Exceptions.’

Like PSCs, such parties will gain from reading the overview too, as it lists four things they must do for compliance, just above the three things that the “public authority” (the end-user) must do.

Also on Friday night, end-users were handed a note by HMRC outlining the procedural steps to take when engaging PSCs, either directly or indirectly such as via an agency or intermediary.

Unifying all parties is the timeline. “The reform applies to payments made on or after 6 April 2017, including payments made for contracts entered into before that date,” HMRC says.

Seeming to confirm that April 5^th is the cut-off, it added: “Where work is completed before 6 April 2017 but the payment is made on or after 6 April 2017, the rules will still apply.”

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