As was widely anticipated, the draft legislation and guidance published yesterday has confirmed that where a contractor provides services to a public sector hirer and the arrangement is considered to be caught by IR35 the paying party will be obliged to deduct tax and primary NICs from the payment it makes. The gross amount paid by the paying party will qualify as part of their pay bill for the purposes of the Apprenticeship Levy.

It also means that for the first time employer’s NICs will be due on the value of an invoice from a company contractor. Normally the rate an agency pays to a company contractor is a gross sum which reflects the business to business relationship and the fact that the company is responsible for statutory payments and taxes.

Ben Grover, External Policy Adviser at the Association of Recruitment Consultancies said “We now want to study the draft law dealing with NICs as this is a first, where personal deductions must be made in respect of a payment which would otherwise be due to a company. There will inevitably be an adjustment to rates where IR35 applies and it remains to be seen as to how agencies address the employers’ NICs element. Fortunately the new rules will not apply until April 2017.