In this week’s Money Matters – Ask the Experts column, from Goldwyns Accountants, based in Southend, Sam Blundell ACA, a chartered accountant and a manager at the company, discusses the latest IR35 changes affecting the public sector.

Dear Goldwyns - In your article ‘Time to become an employee?’ (13 June 2017), you mentioned changes for public sector workers. I contract for a local NHS trust through my own company but now they keep telling me I should be treated like an employee. What has changed? What should I do?

Sam Blundell explains:

Although the underlying IR35 legislation is unchanged, as of 6 April 2017 new laws were brought into effect which specifically target the ‘employers’ of contractors in the public sector.  I shan’t go into the technical detail in full here, but essentially the legislation asks whether, without an intermediary in place in the form of, for example, a limited company, really this is an employment relationship (and not just a contract for services).  Critically for you, this question is being asked of your customer or ‘employer’, not of you.

Why does this matter? For public sector workers, this is a having a huge impact.  You, like many, have probably historically concluded the IR35 legislation doesn’t apply and stayed as tax efficient as you can manage.  Now, that decision has been taken out of your hands.  The extra cost to your employer is not huge: it involves them paying extra employer’s National Insurance, so if in doubt they are of course going to take the ‘safer’ route and elect for deemed employment. Sneakily you may find some bodies also trying to pass this on.

For you, however, the difference is colossal.  Your company is now subject to PAYE deductions and National Insurance just as if it was an employee itself.  You get no subsequent relief for these deductions – the only way they can be utilised is if you take a salary from your company.  If you don’t take these salaries out in full, you lose the tax.  Meanwhile, you are not getting ‘normal’ 5% IR35 deductions nor other general running cost reliefs.  Make no mistake – this is very expensive.

What can you do? There is no automatic right of appeal if your customer concludes that you are an employee but you consider otherwise.  A few carefully conducted conversations might enable you both to come to an amicable conclusion.

There are digital tools available to test your employment status and the results of these, providing they have been accurately completed, are binding.  That said, don’t count your blessings until you have completed the test as they are heavily weighted towards employment.

Your worst-case scenario is probably to fight fire with fire.  If your customer feels your contracting arrangement falls foul of the rules, then use that argument against them – drop your contracting company, ask for a personal employment contract and demand your full employment rights.  It’s not ideal for you but if you are going to suffer the higher costs anyway why not have the full benefit?  If they have deemed you are really ‘contracting’ as an employee and wish to retain your services, how can they refuse?

This article was originally published in the Southend Echo on 25 July 2017.