The document provides an overview of IR35 legislation that is being implemented in April 2017 for contractors working in the public sector. It will require public bodies to determine the IR35 status of contractors and apply PAYE and NICs deductions for those deemed to be working inside IR35. This represents a significant change from the previous system where individuals were responsible for making their own status determination. The document discusses the implications and options for contractors, such as direct employment, using an umbrella company, outsourcing assessments to specialists, or adopting a deemed employment model. It also covers HMRC's online status tool and the need for thorough planning to address the changes.

1. AS16 & The Impact
Effective April 2017

2. Agenda
 Context
 What it means
 Looking back
 Legislation Overview
 Online Tool
 Considerations
 Options
 Solutions Overview
 Summary
 Q&A

3. Context
The government estimates;
 From over 26,000 personal service companies (PSC’s), only 10% of PSC’s who should be
operating IR35 actually are. The projected cost to the Exchequer in 2016/17 is £440m
 On-line tool (ESS) recently introduced to the public domain (to accommodate work being
completed, and paid in the new tax year)
 Implementation – 6th April 2017 (Public Sector only – for now)

4. What it means
 Effective 6/4/17, the “responsibility for operating the rules moves from the individual workers
personal service company to; public sector body, agency or third party” paying the workers
company (EY IR35 Reform)
 Public Sector – defined in the Freedom of Information Act 2000, and the Freedom of Information
(Scotland) Act 2002
 Increased confusion, and potential risk from HMRC’s Employment Status Service (ESS)

5. Looking Back
 IR35 – plethora of flaws
 Enforcement required an extremely intensive approach
 Complex
 Opinion based, open to interpretation
 Differences in working practice

6. Agency Insight
“I’ve been looking at the topic of IR35 in the Public Sector since early last year. One of the things
that never ceases to amaze me through the recent changes to the staffing industry – such as
MSC, AWR and Intermediaries Reporting – is just how unprepared customers, contractors and
some agencies are for such a monumental change. Throw in the super-aggressive timelines
driven by the HMRC steamroller and it is a recipe for collective disaster.
Last week, I felt, was a real watershed in terms of the community waking up to what is about to
hit. As I did a series of seminars I felt that collective pennies were starting to drop about the
impact. In reality, if you have not started now, the chances are you are too late to be fully in
control of this, as realistically you need to have all your ducks in a row by the end of February.
The legislation applies to all payments made on or after April 6th so, potentially, work done now
is subject to this legislation.”
Andy Hallett, Commercial Director - SThree

7. Legislation Overview
 Introduction of “fee payer” – responsibility for paying the correct taxes
 The person paying the PSC – is the employer for PAYE/NIC
 Or first on-shore intermediary if payer is off-shore
 Public sector body MUST inform the person they contract with, IR35 status (in vs out)
 Document request if information not forthcoming
 If no response received within 31 days, public sector becomes the “fee payer”
 “Deemed direct payment” calculation (excluded from IR35 deemed payment calculation by the PSC)
 Changes to the Flat Rate VAT scheme
 5% expenses deduction removed (Public Sector)
 Should the PSC provide fraudulent documents (intended to demonstrate PSC is outside of IR35), the PSC
becomes the “fee payer” and responsible for PAYE & NIC

8. HMRC’s Employment Status Service (ESS)
 HMRC’s view on IR35 – “determined by the agency”
 Assuming data is correct, can rely on the outcome
 Do not have to use it, or agree with the outcome (?)
 Can be used by the end user, intermediary or contractor, therefore scope for disagreement
 Can be used by Private Sector and self employed individuals
 Matrix driven
 Clarity? Confidence?

9. Considerations
 Ability to react to changes in time
 Migration to permanent (full time) employment
 Transfer of skills to the private sector – albeit caution is required as this is potentially open to abuse and
will remain under the spotlight (see article 8/2 titled “IR35 inspectors to probe public PSCs
retrospectively”)
 Can workers realistically transfer? Does a private school for example deem a contractor being a
“fit” for the environment?
 Concerns over online tool adequacy, confidence & “fairness” (another reason to engage with a trusted
payroll partner, as all deductions managed/applied at source)
 How long will the Private Sector (as a result of changes to the Public Sector) remain “immune”? (a good
reason so stay connected with us)
 Be aware of “schemes”, especially where loopholes seem to be getting explored

10. Options
1. Umbrella or Direct Employment
2. Worker engagement as self employed – directly or via an intermediary
3. IR35 assessment and operate PAYE and NIC
4. Outsource IR35 assessment to a third party (and potentially the entire payroll function)
5. Intermediary in contractual chain
6. Adopt a deemed employment model.

11. Umbrella or Direct Employment
Advantages Disadvantages
Clarity
Reduces PAYE & NIC Risk
Simple
Negates cost and resource needs around
status assessments
Increased employment costs
Contractor satisfaction
Flexibility compromised
Future change - process, policy & contracts

12. Worker engagement as self employed –
directly or via an intermediary
Advantages Disadvantages
No payroll
AWR and other employment rights and
obligations do not factor
Flexibility
Robust status assessment still required
Future change - process, policy & contracts
PAYE & NIC liabilities if
assessment/supporting evidence is
wrong/unsubstantiated
Consideration to employment rights

13. IR35 Assessment
Advantages Disadvantages
Genuine "self employed" contractors can
continue to benefit from PSC structure
Workers caught by IR35 can move to
more appropriate structures, e.g.
Umbrella
Expertise
Resource
Future change - process, policy & contracts
PAYE & NIC liabilities if
assessment/supporting evidence is
wrong/unsubstantiated
Consideration to employment
rights

14. Outsource IR35 Assessment
Advantages Disadvantages
Leverage expertise
Greater backing
More detailed scrutiny, particularly for
borderline cases to reach a correct
decision at worker level
Cost
Adequacy of due diligence
Contractor resistance
Extent of policy and process change

15. Intermediary in contractual chain
Advantages Disadvantages
IR35 responsibility removed
Leverage expertise
Risk, including debt transfer
Significant due diligence required
Future change - process, policy & contracts
Contractor resistance
Increased cost (intermediary)

16. Deemed Employment Model
Advantages Disadvantages
No IR35 assessment
PAYE & NIC accounted for
Longevity of solution given flat rate VAT
changes effective 6/4/17
Employment law risk
Reputation
HMRC do not like this option
Significant due diligence required

17. Summary Snapshot
 Inside IR35, working in the public sector – Umbrella/PAYE permissible solutions
 Outside IR35, ability to remain as Ltd Company or PSC
 Do I generate significant cost that justifies moving from the flat rate VAT scheme to standard VAT and
claim back the VAT on expenditure which would help negate the flat rate VAT saving?
 Do I move to Umbrella, close my company and operate compliantly?
 “Most public sector organisations will probably now move to a model that assumes they are subject to
inclusion in IR35 “unless they can really, really prove otherwise”
John Chaplin, EY, Executive Director
Operating inside IR35 via a PSC WILL often generate a lower take home results vs Umbrella

18. References
 HMRC AS16
 EY IR35 Reform Paper
 Numerous online sources/articles (given the spotlight on this area)

19. Apprenticeship Levy
 Employers must pay the apprenticeship levy effective 1/5/17 (introduced 6/4/17) if;
 Annual pay bill (all payments to employees subject to employer Class 1 NICs) exceeds £3m
 Connected to other companies or charities for Employment Allowance which in total exceed an annual pay bill of £3m
 Pay bill does not include;
 Earning of employees under the age of 16
 Earnings of employees not subject to UK NICs legislation
 Where Class 1A NICs are payable, e.g. benefits in kind
 Levy charged at 0.5% of your annual pay bill
 £15k Apprentice Levy allowance (for employers NOT connected to another company or charity). This
allowance is shared across companies/charities where connected
 The levy will not affect apprentices who started on an apprenticeship programme before 1/5/17
 Reported and paid the HMRC via PAYE
e: nationalhelpdesk@apprenticeships.gov.uk
t: 08000 150 600

20. Apprenticeship Levy (cont’d)
 Funds accessed through a new apprenticeship service account
 Registration required
 HMRC provide a 10% top up to funds (for use on apprenticeship training)
 Funds expire 24 months after entering apprenticeship services account (use it, or lose it)
 Ability to “pool funds” if in a group of connected companies
 All training requires an end point assessment (to ensure standards achieved)
 Assessments MUST be delivered by a government approved assessment organisation (see register via
www.gov.uk/government/collections/register-of-apprenticeship-training-providers)
 Three year retention requirement for records pertaining to information for calculating levy payment
e: nationalhelpdesk@apprenticeships.gov.uk
t: 08000 150 600
NOTE: Employment/Recruitment Agencies – you’ll need to pay the levy if you supply labour (including sub
contractors) to a client (as well as paying Class 1 secondary NICs, and a pay bill exceeding £3m)

21. Q&A
For any questions or queries, please contact us today on:
Telephone: 01252 863 700
Email: info@epayme.co.uk
Web: www.epayme.co.uk
LinkedIn: ePayMe
Twitter: @ePayMe
Facebook: @ePayMe