Intermediary providing services to the public sector

From April 2017, the rules for individuals providing services to the public sector via an intermediary such as a personal service company will change. This change will shift the responsibility for deciding whether the intermediaries’ legislation applies to the public sector body, agency or third party paying for the services received.In addition, the 5% flat rate allowance that applies to personal service companies to reflect the administrative cost of maintaining this structure will be removed when working with the public sector. These changes do not introduce a new liability to tax for the individuals providing the services but are expected to result in increased compliance with the current rules.HMRC has published draft secondary legislation on the changes for technical comment. The public consultation opened on Friday 27 January 2017 and will close on 17 February 2017. Affected public sector bodies and agencies need to ensure that their payroll systems can handle this change and be able to report the relevant PAYE information from the beginning of the 2017-18 tax year.HMRC is also expected to publish further guidance to help those affected by this change identify engagements that fall within the new rules. HMRC is also developing a digital tool to provide employers engaging an incorporated worker with a real-time HMRC view on whether or not the intermediaries’ rules need to be applied.