The Association of Taxation Technicians (ATT) is concerned that workers may lose part of their income under imminent changes to IR35 employment status tax rules.
The ATT has concerns about how the public sector will manage new rules requiring them to make IR35 employment status decisions from April 2017.1 A possible outcome is that a worker may pay more tax because the NHS or another public sector organisation considers them from April to be deemed employees rather than genuine contractors, without an apparent way for the worker to appeal the public sector body’s decision.
Michael Steed, Co-chair of ATT’s Technical Steering Group, said:
“We urgently need clarity from the Government on the new rules in respect of those workers contracted to work for a public body client through an intermediary.
“Shifting the liability to assess whether an engagement is akin to employment or self-employment to the public sector body may lead to some decisions that workers find arbitrary, inaccurate and unfair. It is disconcerting at this stage that there has been little debate or guidance on how such a worker can contest or appeal decisions of the public sector body.”
Up to April 2017, if IR35 applies, then the intermediary has to operate PAYE and NICs at the end of the tax year on any income it has received that has not already been paid out to the worker as salary or wages during the tax year.
Under changes in April, the Government wants public sector organisations to determine the IR35 status of the engagement and then, if caught, the agency or public sector organisation paying the worker’s company has to deduct taxes under IR35 in a similar way as they would for their employees. A worker, however, may feel they should not be treated as an employee in such circumstances but under the draft legislation published by the Government the worker appears to have no apparent recourse to appeal the public sector body’s decision.
The ATT is also concerned about the lack of clarity on which organisation should be paying secondary Class 1 National Insurance, paid by employers, because of the changes. Some workers will also have concerns about how the changes will affect their access to tax credits and how they should treat dividend payments.
Michael Steed said:
“We are concerned that workers may not have the clarity on their tax responsibilities and rights before the changes go ahead in the public sector in April 2017 and this will set a worrying precedent if the changes are rolled out to the private sector in the same style in the future.”
Notes for editors
- Special employment intermediary rules, known as the IR35 rules, prevent tax and NICs being avoided by operating through a personal service company (PSC), where a worker provides services under a contract between a client and their PSC and the income would have been treated as employment income if the worker had contracted directly with the client. Payments falling within the IR35 rules are treated as employment income of the worker if they would not otherwise be so treated.