What is the current position?
At the moment, if a contractor provides their services to a public body through their own limited company, either directly or through an agency, all payments by the public body may be made gross. The onus lies with the limited company or agency to determine the correct income tax and national insurance (NICs) treatments.
From April 2017 these rules are changing
Going forward from April next year, the public body will need to determine whether to subject payments made to a contractor’s limited company to tax and NICs. This means that the risk of compliance and tax and NICs withholding transfers to the public body.
If an agency provides workers to the public body who provide their services through a limited company, the obligation to determine whether income tax and NICs are due will continue to lie with the agency that provides the workers. The public body, however, needs to be satisfied that the agency is fully complying with the rules.
So what does this mean?
There are likely to be substantial increases in the cost of engaging contractors from April 2017. In addition, these changes create a significant amount of pressure and responsibility on the public body and considerable risk if they get it wrong.
If you would like to discuss these issues in more detail, please contact your usual RSM adviser.