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New rules for contractors come into force mid-September

From mid-September, contractors providing services to the public sector – and who are acting through their own limited companies – must provide proof that they have met all liabilities related to income tax and national insurance.

Employers in the public sector must now obtain key information about the tax affairs of those contractors they engage, whether directly or indirectly through agencies. Specifically, government departments will be required to establish whether individuals employed at senior level are on the payroll and that other contractors – on a six month contract or longer and receiving in excess of £220 per day – can provide assurances that they are in full compliance with their tax obligations.

Financial penalties will be levied against any government department that fails to implement such checks and any contractors reluctant to comply could have their contracts terminated. For sole traders, their public service client will have to assess their employment status to ensure the department is properly employing them on a self-employed basis. This should not be new or unexpected to any, since it is consistent with the requirements on other businesses.

However, for contractors operating through limited companies, they must now provide proof that they operate PAYE on all their income or demonstrate they have considered whether IR35 applies to the contract. If you have a public service contract of more than six months, it would be a good idea to talk to a contractor accountancy service, which can provide expert advice and guidance to help you through these new measures.

Posted by Louise
September 24, 2012
Tax

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