Contractors working in the public sector must be aware of a potential issue around deductions from their pay packet.

Intouch Accounting, a specialist in accounting services for contractors, has warned that contractors inside IR35 must be aware that recruiters may make deductions for student loan repayments before payment.

Contractors in the public sector are coming to terms with the recent reforms and changes as to who selects whether they are inside or outside of IR35.

Agencies should report contractors’ IR35-caught income as employment income to HMRC. Tax and national insurance should then be deducted before a contractor is paid.

But a student loan repayment should not be deducted, and Intouch Accounting, in a report first released by Contractor UK, is advising contractors to make agencies aware of this.

Clarifying the situation, Duncan Strike of Intouch Accounting said: “Unfortunately, as HMRC considers the fee-payer to be your employer they will still issue a Student Loan Start Notice and GNS Employer Prompt. Agencies may be mistaken into thinking that they should deduct student loan repayments. They are wrong to do so and you should point this out to them if any deductions are made.”

Contractors should make any student loan payments via their personal tax return and therefore budget accordingly.