Although there are no changes to the rules covering the private sector, there were concerns that this could be the thin end of the wedge.
Paragraph 2.9 of the supplementary documentation relating to the overview of tax legislation said: "As announced at Budget 2016, from April 2017 the Government will make public sector bodies and agencies responsible for operating the tax rules that apply to off payroll working in the public sector. The rules will remain unchanged when individuals are working in the private sector. The government will consult on a clearer and simpler set of tests and online tools. Legislation will be included in Finance Bill 2017."
The Government will now go out to consultation on the detail However, the direction it is intending to go is clearly shown, with examples, in a technical note: Off-payroll working in the public sector: reforming the intermediaries legislation.
The off-payroll issue has plagued the Government for a number of years after the media exposed many senior public servants and associated workers, such as high-profile BBC presenters, were operating through their own personal service companies to reduce the tax and NI obligations.
There were several attempts to resolve this with clear dictats from the Treasury to the individual Departments to put their houses in order and ensure that their contractor workforce were operating as independent businesses, rather than using the corporate structure as a tax dodge.
The technical note explains the rationale: "Public sector bodies have a responsibility to taxpayers to ensure that the people working for them are paying the right tax. From April 2017, individuals working through their own company in the public sector will no longer be responsible for deciding whether the intermediaries legislation applies and then paying the relevant tax and NICs. This responsibility will instead move to the public sector employer, agency, or third party that pays the worker’s intermediary. The employer, agency or third party will have to decide if the rules apply to a contract and if so, account for and pay the liabilities through the Real Time Information (RTI) system and deduct the relevant tax and NICs."
Since IR35 was first mooted in 1999 there have been concerns that financial responsibility might shift to the client, making contractors less attractive - or a more complex risk to engage.
Self-employment group IPSE, welcomed some of the measures but expressed its 'deep disappointment' at the new 'off-payroll' proposals.
It felt that genuine businesses would have to jump through numerous hoops and it could lead to the cost of engaging contractors increasing. Plus there were concerns that it could endanger the delivery of public services and important projects like HS2.
IPSE Chief Executive Chris Bryce said: “We’re deeply disappointed the Chancellor has ignored the concerns of people working through personal service companies, with no desire to become employees. Previous rules for off-payroll working in the public sector have already created a lot of disruption to contractors working in Central Government. IPSE is very concerned the new rules will make matters worse.
“HMRC have told us they intend to consult closely with us over these new rules. We will work tirelessly to ensure they are fair for contractors in the public sector. We have been told by HMRC that these new rules will not apply to the private sector. The Government must keep its word on this and we would firmly oppose any future change to this position.
"If the rules aren’t clear or implemented properly there’s a huge risk of discouraging specialist contractors from lending their expertise to the efficient running of public services and the delivery of large-scale projects."
Agency group, APSCo felt that the burden being put on agents was 'unjust' and 'unreasonable'. It also predicted that few recruitment companies would be willing to take on this sort of liability, which would have a huge negative impact on the public sector's ability to recruit freelancers.
Samantha Hurley, Head of External Affairs at APSCo said: “HM Treasury has announced that there is to be a new duty on the public sector to ensure workers who are engaged through a PSC pay the right tax. While we support this in principle, HM Treasury has also said in the small print that when recruitment firms are involved, they will be deemed responsible for assessing employment status for tax purposes and consequently liable for the payment of taxes.
“This is clearly unjust, because determining someone’s tax liability is highly complex. The IR35 tax rule, which governs the tax paid by PSCs, is not a simple test and requires detailed understanding of many aspects of a worker’s relationship with the client, and of a PSC’s day to day operations. But recruitment firms simply do not have sight of the reality of the working relationship. It is, therefore, entirely unreasonable to expect them to make this decision, and be financially liable for it.
“Deeming provisions in tax law have been challenged repeatedly in the courts, and clearly there is a huge principle of fairness that should apply to all tax payers, including recruitment firms. The proposals seem to totally contradict recent government reviews. The Office of Tax Simplification has just conducted a review of small company taxation and is also undertaking a cross departmental review of tax and benefits relating to freelancers. Additionally, Julie Deane, CEO of the Cambridge Satchel Company, recently completed an independent review of self-employment for the Government. Yet none of these reviews were mentioned in the Budget.
“I believe that few, if any, recruitment firms will be willing to take on this type of liability. This will stop the vast majority of PSCs from providing services to the public sector, significantly impacting its ability to access the specialist skills it so badly needs.
“The only light is that the proposal is not due to take effect until 2017 and HMRC has announced that it will enter into a consultation process in the meantime.
“APSCo will consequently vigorously fight this unreasonable proposal on behalf of its members, and will be asking the Government to publish its assessment of the impact this will have on the delivery of public services, because I find it hard to believe they’ve properly assessed the effects.”
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Susie Hughes © Shout99 2016