If you work in the Public Sector then you will be restricted in how you work because of reforms undertaken in 2017 to IR35 and the off-payroll rules.
IR35 legislation was introduced in April 2000, to identify individuals that were ‘true’ contractors and those operating under ‘disguised employment’. Under this tax legislation, contractors that had been deemed within IR35 were liable to follow PAYE regulations, effectively making them employees. Each contract undertaken would be considered as to how the contractor provided services. Until 2017 the contractor was responsible for deciding if they fell inside the legislation and shouldering the consequences of being challenged by HMRC.
However, reforms to the legislation introduced in April 2017, meant that contractors offering services through their Personal Service Company to the public sector were no longer able to determine their own status, and the decision making moved to the end user organisation and the tax liability for this now transferred to the fee payer which in most cases was the recruitment agency. Following the implementation of the changes, a blanket ban on the use of personal service companies took place by public sector bodies including the NHS who engaged a large number of contract workers.
To coincide with the 2017 reforms, HMRC released an online tool: Check Employment Status for Tax (CEST). The tool was intended to help the decision-making process but quickly its accuracy was queried. In law there are 3 tests of employment that are essential to making an IR35 status decision.
Mutuality of Obligation (MOO)
Mutuality of Obligation refers to the obligation of an employer to provide work and pay for it, together with the obligation of the employee to personally do the work. An obligation is a legal requirement that someone does something in the future.
If under the contract there is no notice period to terminate the engagement by either party this would indicate a lack of mutuality as neither party has an obligation for the assignment to be seen through to the end.
Where a client has control over how the individual performs the service this implies that the contractor is employed. If the client has no right of control then the contractor has autonomy and is supported by suitable qualifications and experience.
If the contractor is not required to provide the services personally and has the right to send a substitute to fulfil the contract then it indicates that the contract is not one of employment. The client can refuse to allow the substitute to carry out the work but only if the substitute is not suitably qualified.
The IR35 assessment needs to be carried out for each assignment undertaken by the contractor. Who undertakes the assessment is dependent on if the contract is with a public sector or private sector organisation.