Certain accountancy firms have reported a rise in the number of requests from public sector contractors for IR35 reviews. Many believe the increase is down to recent controversy surrounding the NHS’ use of off-payroll arrangements.
IR35 is a somewhat controversial set of rules that helps clarify the distinction between employee and independent contractor. It prevents companies from claiming that employees are actually self-employed providers of an in-house service in order to claim a tax advantage. If the contractor does not meet the definition of self-employed according to IR35 rules, they are classed as an employee and must be treated as such and included on the business’ own payroll.
Monitor, the English regulatory body for health services, looked into various NHS trusts and identified 86 individuals, working across 21 separate foundation trusts, who warrant further investigation into the way they have used service providers. As of January this year, these individuals had yet to provide the necessary assurances as to the validity of their tax status.
May within the accounting industry believe that these investigations are behind the sudden increase in the number of enquiries relating to IR35 regulations being received from contractors in the public sector. Spurred into action by the spate of NHS investigations, it is believed that many other contractors working in the public sector who are concerned about their position have sought clarification on the issue. Presumably, they hope to take any necessary action now in case investigations begin looking at the wider public sector in future.
Particularly vulnerable to the IR35 rules in this case are contractors who earn more than £220 daily on assignments that stretch to six months or more. All contractors in this situation are likely to be required to provide assurances to the government that they are indeed contractors and do not belong on the relevant payroll.
Some have suggested that the increase in queries shows contractors being “pro-active” and taking steps to ensure that they meet their obligations. However, others believe that it is fear motivating them to check the security of their position. Any tax avoided as a result of being taxed as a contractor off-payroll can be subject to interest, and significant penalties can be levied if a contractor has deliberately been concealing their status. There is also the possibility that their contracts could be terminated by their “employer” – NHS trusts in the case of the recent investigations – which would themselves face the possibility of action.
The recent spate of investigations has largely targeted the public sector. However, businesses who regularly use contractors and wish to be sure they do so in accordance with regulations can consult their payroll bureau. With Yorkshire Accountants, you get a payroll service which is fully compliant with all obligations and equipped to give you advice on important issues such as this.