Budget 2016: New rules for public sector contractors

The Chancellor announced in last week’s Budget 2016 that the Government will reform the intermediaries’ legislation for public sector engagements.

The liability of paying the correct amount of tax for public sector contractors will move from the contractor’s own company to the public sector body, agency or third party paying the company; commencing from April 2017.

New legislation will be announced in the Finance Bill 2017, subject to full consultation. In partnership with stakeholders, HM Revenue and Customs (HMRC) will develop a new digital tool that will make the decision on whether or not the rules should apply as simple as possible and provide certainty.

Public sector bodies have a responsibility to taxpayers to ensure that the people working for them are paying the right levels of tax.

Presently, some contractors who work through their own limited company are undertaking jobs that would ordinarily mean they are employees of the business that they are working for.

Existing legislation on off-payroll working requires them to pay broadly the same taxes as employees. The level of non-compliance with these current rules is costing the taxpayer up to £440 million a year and rising.

The Government hopes that the new legislation will strengthen the public sector’s role in ensuring that the workers it engages are compliant with the rules.

Jo Nockels, senior training and technical communications manager, TaxAssist Accountants, said: “This announcement will impact both contractors and the public sector.

“For contractors falling within the new rules, tax and National Insurance will now be deducted which will have an impact on their income.

“As for the public sector and agencies, these bodies will now be responsible for applying the new regulations, which is a considerable burden to bear.

“There may also be additional costs for them in terms of training their staff and altering their processes, along with the employer’s National Insurance they will now have to pay.”

Date published 21 Mar 2016 | Last updated 24 Mar 2016