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The Spring Budget 2017: IR35 and Public Sector Contractors

Some, or most of you will recall that the government introduced IR35 in 2000 to stop ‘disguised employee’ i.e. self-employed individuals, who fundamentally share the characteristics of an employees, working under a limited company to benefit from the tax breaks. 

Whether IR35 achieved the aim that the government set remains debateable. However, in this spring’s budget the government took a step further and confirmed from 6 April 2017, in the public sector only, IR35 status will be determined by the client, not the contractor. 

If a client decides that IR35 applies, the contractor business will be taxed at source, through the Real Time Information (RTI) system, exactly as if it were an employee. While the tax position would be the same as that of an employee, unfortunately, the benefits won’t as the contractor will not be entitled to sick or holiday pay, nor will they have the right to claim unfair dismissal.

What happens to contractors working via an agency?

The legislation states that the entity responsible for deciding whether a contractor falls within IR35 is the one which is responsible for payment, however, this is likely to be the agency, who are unlikely to have a real knowledge of the working relationship between the contractor and public body, and will rely heavily on their client. 

How will new arrangements, after 6th April 2017, going to be structured? 

It is common knowledge that the IR35 rules are so complex, there is always going to be some issue as to whether or not an engagement falls within IR35. As clients or agencies will become liable if the wrong determination is made, they are more likely to take a risk-averse approach, and apply a blanket policy of applying IR35 across the board. 

Could public sector limited companies be taxed retrospectively? 

HMRC has not ruled out investigating public sector contractors retrospectively. 

Is there anything contractors and locums in public sector can do to protect themselves against a retrospective investigation? 

If you are a contractor or a locum GP, and you want to continue working with a public sector client, even after it has decided your engagement is within IR35, you should arrange a completely new, properly worded contract to be in force from 6 April 2017. You should not merely implement an extension of your current contract or a side letter changing the current contract. 


While the full extent of the IR35 changes will not be clear until at least the middle of 2017, public sector contractors and locums, should ensure that new agreements are drawn up to ensure that they reflect the true nature of their employment status. 

Here at SCE Solicitors, our Samira Cakali has a wealth of experience in assisting organisations deemed to be public bodies, such as GP Practices and other clients on IR35 rules.  If you would like to discuss the implications of the new IR35 rules or any other employment law issue, please contact her on 01133 50 40 30 or at hello@scesolicitors.co.uk.

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SCE Solicitors is a boutique employment law and dispute resolution practice based in Leeds which advises clients nationwide.  Please note that the information in this blog is to provide information of general interest in a summary manner and should not be construed as individual legal advice. Readers should consult with SCE Solicitors or other professional counsel before acting on the information contained here.

Samira Cakali

Samira Cakali is a pragmatic and approachable solicitor advocate with extensive contentious and non-contentious experience in the fields of employment law as well as civil litigation, within a range of commercial businesses from SME’s to multinationals as well as senior executives.

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