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Off-payroll working in the public sector

From 6th April, contractors working in the public sector through their own companies will no longer be responsible for agreeing their tax status (whether they are treated for tax purposes as employees and so subject to income tax and national insurance contributions) with HMRC. The decision-making responsibility passes to the public sector body where they work.

Note a decision that the contractor is treated as an employee for tax purposes will not make them an employee in law, they will have the tax responsibilities without the employment rights.

The legislation to introduce this major change forms part of Finance Bill 2017 and so may in principle be subject to further change. A budget resolution has however been introduced and so the rules will provisionally come into force irrespective of whether the Finance Bill is passed by 6th April.

There are serious issues with the interpretation of this legislation. For the public sector, making the decision as to whether a person is genuinely self-employed attracts real financial risk; an HMRC tool belatedly introduced promises to offer reassurance – but only if correct inputs are made.

Who is the public sector?
The use of the Freedom of Information Act to define the public sector for these purposes may be seen as a way of capturing non-departmental public bodies – so called Quangos.

It also captures state-owned broadcasters like the BBC, S4C and Channel 4. Could this put them at a commercial disadvantage to Sky, ITV and Virgin?

It also captures those who deliver some public services on behalf of the NHS, like major pharmacy chains. Do the pharmacist locums working for them know that they need to reconfirm their status via their employer? Would they even think of them as a 'public sector body'?

Who is the contractor working for?
Where the contractor company engages directly with the public sector body, as defined, the position is straightforward. However in many cases a contractor may be doing some work on site at a public sector client's premises while engaged by a private sector company. Do the new rules apply?

The answer to this depends on whether 'personal services' are being supplied by the contractor to the private sector company or the state. Little guidance has been published. Recruitment agencies placing 'bums on seats' are clearly caught by the new rules, while a building firm constructing a new building for the State is not. But contractors supporting a private sector company to deliver an outsourced contract for public services or accountants or consultants providing professional advice to the government may be within or outside the rules, depending on the contractual terms and how they are carried out in practice.

Unfortunately a case by case review of contracts is probably required. The HMRC online tool does not address this question.

DWF reported separately on recent changes to self-employment tax and tax changes for owner managed businesses and contractors. If you would like more information on how to deal with the off-payroll working challenge for your business, contact one of the sector experts below. 

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Samuel Dooley

Associate

I advise and train on tax issues, specialising in real estate and M&A transactions.

Caroline Colliston

Director

I am an experienced commercial tax solicitor and chartered tax adviser.

Jon Keeble

Partner

I am a Partner in the Employment team with a particular specialism in working with organisations in the retail, education and affordable housing sectors.

Jon Stevens

Partner

I am a Partner and specialist tax lawyer with experience of advising on all aspects of tax planning related to corporate and property transactions.

Helga Breen

Partner - Head of Employment (London)

I am a Partner and head of the Employment team in London.