Public Sector – Exempt From New IR35 Rules?

Q. I work as contractor in the public sector under a Limited Company structure through an agent. I send my timesheet to a local authority (LA) who in turn sends it an employment agency who then pay me. My contact is with the agency and they in turn have a contract with the LA. There are a number of contractors at the LA who operate in the same manner. Our question is as follows: if we were to form a new company with 6 or more directors without the use of an agency while also operating from our own office, supplying our own equipment and the LA was our ONLY client; would we be subject to the new IR35 rules? We all work with the civil engineering field in either the planning / feasibility side or actual detail design. The projects we would be working on would specific and discrete rather than day to day tasks. As I understand it Mutuality of Obligation would not exist as once the project was complete the contract would terminate. As a private company we would have the right to substitute one (or more) of our group (company) to carry out the work. However we would, at least starting out, have only one client our soon to be deemed ‘employer’ the aforementioned LA. Could a contract be written that exempts us from the upcoming IR35 rules?

A. The circumstances you refer to would not automatically ‘exempt’ your company from IR35, if all of the directors in the business are going to control more than 5% of the ordinary share capital.  However the fact that you could be used as substitutes for one another would make it extremely difficult for the IR35 legislation to be applied. Additionally it is clearly stated in HMRC ‘s Technical Note (point 30), with regard to IR35 reform in the public sector (from April 2017), that the new rules will apply when ‘a worker personally performs services, or is under an obligation to personally perform services for the client’ which would not be the case under such arrangements. However as the public sector body would be responsible for determining employment status you would need to be sure that they recognise the right of substitution for each contract.

This answer is provided by Qdos Contractor.

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