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HMRC has gone out to public consultation with a number of proposals outlined in 'Off-payroll working in the public sector: reform of the intermediaries legislation' .
Non-compliance
This has been a presentational issue for a number of years in the Civil Service and other public bodies, after a media campaign showed that many leading public sector workers, particularly in the BBC and NHS, were operating through their own companies as a means of mitigating their tax and NI responsibilities.
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"The intermediaries legislation, often known as IR35, was introduced to make sure that people who do the same job in the same manner pay broadly similar amounts of income tax and National Insurance, whether they’re employed directly or they work through an intermediary, such as their own limited company.
"There is evidence of widespread non-compliance with the legislation. This is both unfair to those who pay the correct taxes on their income, and costs the Exchequer a significant amount of revenue each year.
"The Government believes public sector bodies have a duty to ensure the people working for them are paying the right tax. This consultation sets out proposals to reform the intermediaries legislation where people work in the public sector through their own limited companies (known as personal service companies). This reform will improve the effectiveness of the rules in the public sector.
"In summer 2015 HMRC published a discussion document setting out a framework for a dialogue with business about how to improve the effectiveness of this legislation. We heard from many interested parties that the current rules can be difficult and complex.
"The Government believes that the proposals set out in this consultation will go a long way towards solving this whilst making sure those engaging off-payroll workers in the public sector can apply the rules with confidence and certainty."
Proposals
For most agencies, IR35 is currently a commercial consideration relevant to the contractor with no tax consequence for the agency. However the proposals in the consultation, intended to apply from April 2017, would make IR35 a significant concern for public sector suppliers.
Under the proposals, the agency which contracts with the personal service company (PSC) will be responsible not only for assessing whether IR35 applies, itself a far from straightforward issue, but also for deducting PAYE and NICs from payments it makes to the PSC and accounting for employers NICs where it concludes that IR35 applies.
Freelancer and self-employment group, IPSE, said that the proposals would increase the tax burden on these organisations, and the microbusinesses they rely on, and hamper the delivery of vital projects.
Chris Bryce, IPSE CEO, said: “Public services will suffer badly from these plans. All businesses should, of course, pay the tax they owe. But the plans will impose disproportionate and punitive taxes onto the smallest businesses, and these talented experts will simply shun the public sector entirely and take on private sector work instead.
“The UK as a whole will lose out, and the only winners will be the large consultancies drafted in to fill the void.
“If the Government wants to increase its revenue from employment taxes then it should employ more people. Instead, they are proposing to tax freelancers as employees without offering them employment rights. This proposal is exploitative.”
Theresa Mimnagh, Associate Director at legal specialists, Lawspeed, said<: "The effect of this proposal, if implemented, is likely to be significant, adding additional administration and risk into supply arrangements. This proposal along with changes to travel and subsistence, agency tax rules and the introduction of reporting requirements, effectively makes recruiters liable for the tax affairs of others in the recruitment chain”.
Agency body, APSCo, was also fearful of the impact it would have on the sector.
Samantha Hurley, Operations Director at APSCo said: "Recruitment firms will not be able to take on this kind of unknown liability and so will have to assume that the contractor is inside IR35 which will result in large numbers of contractors in ‘false employment’ – and it will also mean that contractors lose control of their business tax affairs. Last but not least the public sector is likely to lose access to the skills they need as contractors will be too expensive – and will choose to work in the private sector.”
“We do not believe the public sector wants or intends to avoid its taxation and employment responsibilities. We are sure it has serious concerns about its continuing ability to source the skills and services it needs to deliver its many significant ongoing infrastructure projects, including the ongoing digitalisation programme.
“HMRC are not even consulting on whether it is fair and appropriate for the public sector’s duty to determine its own taxation responsibilities be transferred to private third party recruitment firms and we consider this to be challengeable.
“If these proposals are a dry run for the private sector then we fear for the whole future of the flexible workforce.”
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Susie Hughes © Shout99 2016
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