A ‘reasonable care’ clause – which would require public sector organisations to use good judgement when deciding the tax status of their limited company contractors – has been put into the final legislation for reforms to IR35, it has been reported.
Freelance news website Freelance UK reports that local authorities falling foul of the measure could then be deemed the ‘fee payer’ – the party responsible for deducting PAYE and National Insurance and paying employer National Insurance contributions.
From April 6th 2017 public sector organisations, not the contractors themselves, will be responsible for deciding whether they are ‘inside’ or ‘outside’ of IR35. Currently, it is beneficial for contractors to declare themselves as ‘outside’ IR35 so they are not taxed in the same way as on-payroll employees.
Experts told Freelance UK that failing to take ‘reasonable care’ could constitute a public sector body blanket-assessing all their contractors as inside or outside IR35. They would then become the ‘fee payer’. This could also happen if a local authority fails to notify its IR35 decision within 31 days.
“Put simply, this [new reasonable care clause] means that public sector clients must not make general, blanket determinations of freelancers’ IR35 status,” Qdos Contractor told Freelance UK.
“[Instead, they] should ensure every contractor engagement is considered independently and fairly… [or they] could be liable if it was proven that reasonable care was not taken.”
Matt Fryer from accounting firm Brookson told the website: “[The reasonable care provision] is good news for agencies.
“This may make it easier for the agency to accept the public sector body's IR35 opinion.”