From April 2017, public sector organisations that engage workers through intermediaries, such as a personal service company (PSC), are required to ensure that IR35 is correctly implemented.
Prior to 6 April 2017 this responsibility largely fell on the individual’s personal service company or agency. This is a major change that will alter the future of PSCs. The tax and NI saving advantages enjoyed by PSCs and public sector bodies have been abolished.
Public sector bodies decide whether any contracts they enter into with PSCs or agencies are subject to IR35. Even the existing contracts entered on or before 6 April 2017 fell in the category for payments made after this date. HMRC Employment Status Service tool is being widely used to identify the nature of the engagement.
Once the relationship is deemed to be caught out by IR35 then:
the public sector engager or agency is treated as the employer for tax and National Insurance purposes
the amount paid to the worker's intermediary for their services is regarded as employment income or of earnings for NIC purposes of that worker
the public sector engager or the agency is liable for Employer's NIC and must deduct tax and NIC from any payments made to the intermediary in respect of the services to the worker
the public sector engager or the agency is reporting such payments under Real Time Information (RTI)
the public sector engager or the agency treats all engagements by default position within the scope of IR35.
Reduction of payment on account:
When completing 2016-17 tax returns discuss with clients if they are being paid net of deductions since 6 April 2017. As a reminder every individual has to make two payments on account every year unless:
the last self-assessment tax bill was less than £1,000 (excluding capital gains or student loans)
80% of all the tax has already been paid, for example through the tax code
Each payment is half your previous year’s tax bill. Payments are due by midnight on 31 January and 31 July.
Payments on account don’t include anything you owe for capital gains or student loans (if you’re self-employed) - you’ll pay those in your ‘balancing payment’.
Payment on accounts can be reduced by:
logging in to your online account and clicking ‘Reduce payments on account’