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Guidance for public sector contractors to deal with ‘off payroll’ remuneration rules

The UK’s leading contractor organisation, PCG, has issued some practical steps for contractors engaged by public sector bodies to follow when dealing with new ‘off payroll’ remuneration guidelines which are due to take effect in September.

The Government is rolling out new guidance to all departments on how to treat public sector workers who are not paid via the traditional payroll. From mid-September, any limited company contractors who are on public sector assignments will be required to provide their engagers with assurances that they are meeting their income tax and national insurance ‘obligations’.

Essentially, all contractors who are on assignments of 6 months or more, and earn £220 or more per day, will have to provide this assurance.

PCG has published some helpful guidance to enable public sector contractors to deal with the new rules.

Four options for public sector contractors

According to the contractors’ group, if you are on assignment to a public sector body, you will be faced with four choices:

1. Operate within the IR35 rules voluntarily.

2. Take all your assignment income as salary (subject to PAYE and NICs).

3. Submit your contract to the HMRC contract review service.

4. Provide your engager with some other type of evidence that IR35 does not apply.

How do I prove that I am operating outside IR35?

Most contractors will not want to use the official HMRC contract review service, in which case contractors will need to be able to demonstrate that they fall outside the scope of IR35.

PCG recommends that contractors firstly take the controversial Business Entity Test to work out their risk of being investigated over IR35.

If you are a ‘low risk’ according to the test, this should be sufficient proof that your contract is IR35-free.

If you are at a ‘medium’ or ‘high’ risk, PCG recommends using the services of an IR35 contract review specialist to demonstrate that you are not a ‘disguised employee’.

If your engager does not accept the assurances of an independent contract review specialist, PCG suggests a series of further steps one should take to meet the requirements of that particular Government department.

You can read the full guidance here.

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