IR35 and public sector bodies: clarity on “Public Authority” emerges

Photo of Justine Ricccomini By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)

12 May 2017

As anyone who is working with or for a public sector body and has anything to do with tax knows, the landscape of engagement of individuals working through intermediaries has changed substantially from 6 April 2017.

“IR35” rules concerning “public authorities” now dictate that the payer of the intermediary has to operate PAYE and NICs on the payment where an examination of employment status concludes an employment relationship exists, were it not for the intermediary company.


Until now, confusion has existed over what exactly constitutes a “public authority”.  This is because the wording of the Freedom of Information Act 2000 and the Freedom of Information (Scotland) Act 2002, upon which the definition relies, included anyone providing general, medical, dental, pharmaceutical or ophthalmic services on behalf of the NHS.  

This could have included organisations such as Boots, Specsavers, Asda, as well as smaller, local retail providers.  Unfortunately, in the rush to get the legislation through, this anomaly was not addressed by HMRC until after the start of the new tax year 2017/18 – when the legislation became operational.  Guidance published as late as 20 March 2017 made no mention of these service providers or offered any comfort as to where they stood.

So, mainstream public sector bodies had clarity, but those on the periphery did not, and some will undoubtedly have erred on the side of caution in the absence of any advice to the contrary, and started to procure workers in accordance with the new IR35 regime.

Saved by the General Election

The snap calling of the June General Election by Theresa May actually provided an unexpected resolution to this problem, when a shortened Finance Bill was voted through and an amendment published which specifically excluded businesses providing retail-based ophthalmic and pharmaceutical services for the NHS from the new IR35 regime. 

Amended HMRC guidance additionally now further clarifies that ophthalmic and pharmaceutical services provided through intermediaries to NHS hospitals, as well as anyone providing services through an intermediary to a GP or dental surgery, must be assessed by that hospital or surgery to determine whether the rules should apply.

IR 35 “Too difficult”  

Finally – the Chartered Institute of Personnel and Development (CIPD) recently reported that IR35 is too complicated for HMRC’s own helpline advisors to understand, citing instances of incorrect advice, and the Financial Times also reported that many contractors are boycotting public sector in favour of private sector contracts to avoid taking home up to 30% less pay than they were previously. 

However, this behaviour may only represent a short-term sticking plaster to contractors’ perceived cash flow problems, as in all likelihood, the new regime will be extended to private sector bodies by HMRC in the near future.

Stay up to date with the latest tax changes…

… by attending the ICAS Tax Conference 2017, which takes place at the Radisson Blu Hotel, Edinburgh on Tuesday 23 May. Cost: Members and Students: £192 Non-members: £234 CAPS Firm: £174. All prices include VAT.


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