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IR35 and ‘controlling persons’

Paystream News

Alison Roberts

Friday 31st Aug, 2012


On 31 January 2012, the Chief Secretary to the Treasury announced a review of the tax arrangements of public sector workers. The findings of the review published in May show that there are currently a large number of workers not paid through central government payroll. The Treasury is concerned about this because it does not want to be seen to encourage or facilitate arrangements where the worker is not paying his/her "fair share" of tax. There has been a lot of publicity about offshore arrangements which are clearly not going to be acceptable. My PSC or My PSC Online customers working in the public sector should be aware that there is a renewed interest in whether certain senior consultants have considered their IR35 status.

New legislation considered

In April 2012 the Treasury announced that it will begin a consultation to consider legislation to ensure to all persons (public and private sector) who are able to influence control over an organisation ("controlling persons") should be on the organisation's payroll. This would capture someone who has managerial control over a significant proportion of the organisation's employees and/or control over a significant proportion of the budget of the organisation.

The proposed changes would mean that the organisation would be responsible for deducting PAYE tax and National Insurance before making any payment to a controlling person. The proposals are opposed by a wide range of business organisations on the grounds that it will likely add another layer of complexity to tax legislation and that IR35 already deals with someone who is part and parcel of an organisation. We will have to wait for Finance Bill 2013 to see whether such legislation will be proposed but in the meantime the Government has instructed its departments as follows:

Current action

  • Identify persons falling into the categories identified in the table below, taking into account seniority, pay and length of contract.
  • Take the appropriate action to ensure that those paid above £220/day are paid as an employee or are outside IR35. Terminate contract if criteria not met.
  • Review arrangements of those paid below £220/day.
controlling persons table
Letters have now gone out to procurement departments in the public sector along the lines mentioned above. Departments will be monitored after one year and if it emerges that the department has not abided by these rules, sanctions will apply with the departmental budget being reduced.


If you are working in the public sector it may be useful to have an IR35 review conducted to support your status. Please contact the Compliance Team on 0161 929 6000 or email if you wish to discuss this further and as ever, free IR35 advice is available on request.
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