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An update on IR35 and the public sector

Paystream News

Alison Roberts

Wednesday 23rd Nov, 2016

Following a consultation earlier in the year to consider the use and application of IR35 in the public sector, Chancellor Philip Hammond confirmed in the Autumn Statement the government is going ahead with these unpopular proposals.

What does this mean to agencies and contractors? Well, if a contractor is working in the private sector, it is business as usual. They should continue to take regular advice from PayStream with regards to IR35. However, if a contractor is working in the public sector, change is afoot. From April 2017, it is proposed that the responsibility for operating IR35 when working in the public sector will shift from the individual's PSC to the 'Engager' paying the PSC - the agency, public sector body, or other third party.

We don't yet know how the public sector and their agencies will react to this new responsibility. Some may take a risk-adverse approach and insist that all limited company contractors work within the scope of IR35. Others may diligently carry out IR35 reviews and we are speaking to agencies in respect of sharing our IR35 advice or to calculate, report and advise on payment of relevant taxes if IR35 does apply. Ideally, we will get to the situation where contractors genuinely working outside the scope of IR35 can continue to manage their tax affairs efficiently.

Government also announced that the 5% tax-free allowance will be removed for those working in the public sector. They believe this reflects the fact that contractors will no longer bear the administrative burden of deciding whether IR35 applies. In reality, very few contractors will use the entire 5% deciding whether IR35 applies and traditionally, it was for the general expense of running a business.

Whether you are an agency needing help and support with implementing these changes or you are a limited company contractor concerned about how these proposals will affect you, speak to us.

Contractors may be concerned about the future need for their limited companies. If this is the case, we can talk to them about what’s best for the limited company moving forwards. In many cases, there will be more advantages, then disadvantages, in keeping their limited company; for one, it offers so much flexibility and secondly, future contracts may fall outside the scope of IR35 meaning they have more options in respect of tax planning.

Whatever the future holds for IR35, rest assured that PayStream is here to support our agencies and contractors every step of the way. If you as a contractor feel you need an IR35 review at this time, or as an agency want more information on IR35, please take a look at our webpage or email us at

Our IR35 review service is available to both PayStream and non-PayStream accounting customers.

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