The Government has made a series of announcements about its intention to control the pay arrangements of contractors working for Government Departments, after fierce criticism of individuals, including head of Students Loans Company, Ed Lester, who were working for public sector organisation and receiving their remuneration via limited companies.
Now, trade group, the PCG, has said that it has received a document which appears to be the ‘final’ guidance from the Treasury for Government departments on how to implement the rules.
The document says that if a worker is engaged through their own limited company and not being paid PAYE, they will need to provide evidence of one of the following:
- Low risk IR35 that their company is low risk of an HMRC inspection for IR35 compliance according to HMRC's 'business entity' tests described in HMRC's the guidance.This would be required at the six month point of the contract.
- Medium/high risk If the contractor is medium or high risk according to the business entity tests but feels that they are outside the scope of IR35, then they will need to provide assurance in a different way. The document gives the example of a contract review by HMRC's independent IR35 helpline. Again, this would be at the six month point.
- Within IR35 If the contract is within the scope of IR35, the contractor should provide evidence that they are operating the IR35 legislation on the payments received.
The document also says that if the Department is not satified with the information they receive from the contractors, they can send details to HMRC to assist with its work on tackling non-compliance.
The PCG has said that there are several outstanding issues which need further clarifications. In an online briefing, the group has said that:
- In the second point where the contractors is given the option to provide assurance regarding their tax obligations in a different way to the business entity tests, it's unclear what would be acceptable other than the example of HMRC's own contract review, which many contractors would be reluctant to seek. PCG said it would be trying to establish whether there is some other form of assurance that would be acceptable.
- Different departments seem to be implementing the rules differently. Department of Business, Innovation and Skills (BIS) and the Department of Health are pursuing implementation more vigorously than other Departments. BIS appear to be keeping to the guidelines that these rules apply only to those on over £220 who have been in post for more than six months, while DoH are applying the rules to all ‘off-payroll’ engagees.
- It’s still not clear whether limited company contractors, working through a prime contractor will be affected, as the contractor would have the contract with a body who had a contract with a Government Department, rather than directly.
- The guidance document suggests that Departments will give contractors just 20 days to provide the assurance once it has been requested.
The PCG said that it will be extremely difficult to effect a change to these measures as they 'will be implemented'. As the Government is 'the client', these measures are now going to be part of their terms and conditions. The PCG said: "There is wide spread support for these measures amongst politicians, media and public opinion. This means we can only achieve change by hard evidence which we can back up. Our approach has to be political, subtle and micro rather than macro: we will not win our argument just because we think we are right."
There is also a consultation process going on separately about the Taxation of Controlling Persons in the private sector.
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Susie Hughes © Shout99 2012