The IR35 Public Sector Reform and Private Sector Reform are legislative changes implemented by the UK government to address tax avoidance and ensure fair taxation for contractors working in both the public and private sectors.
Under the IR35 Public Sector Reform, which came into effect in April 2017, the responsibility for determining the employment status of contractors shifted from the contractor to the end-client, which is typically a public sector body.
The end-client is now responsible for assessing whether a contractor should be treated as an employee for tax purposes, taking into account the nature of the engagement and the contractor’s working relationship with the organization.
This reform aimed to tackle the issue of “disguised employment” where individuals work as self-employed contractors but perform roles similar to employees, thereby avoiding higher tax and National Insurance Contributions (NICs) obligations.
Building on the success of the public sector reform, the government extended similar changes to the private sector with the IR35 Private Sector Reform, effective from April 2021. Under these reforms, medium-sized and large businesses became responsible for determining the IR35 status of contractors they engage.
The end-client must assess whether the contractor’s working arrangement is akin to that of an employee and apply the appropriate tax and NICs deductions.
This reform aimed to create consistency in tax treatment across sectors and ensure that individuals working as contractors are appropriately taxed based on the nature of their work
What do the IR35 Public and Private Sector Reforms mean in practice?
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.