Off-Payroll Working

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Following a number of far-reaching reforms that HMRC has implemented in recent years relating to the temporary supply industry, and in particular the use of Umbrella companies which were used to bring down the cost of agency staff to the clients, it has now turned its focus back to the Interim market, and more specifically the Intermediaries legislation, more commonly known as IR35.

It announced in the 2016 Budget that they were going to look to reform this part of legislation, and in May of this year published a Consultation Document which addressed the subject of “Off-Payroll Working” restricting it specifically to the Public Sector. Closing date for comments on this document are due in by 18 August 2016, with a view to implementing the new Regulations from April 2017.

The key issues being raised in the Consultation are:

  • Workers, or Interims, who are engaged through their own limited company (PSCs) with a public sector body, will have tax and national insurance deducted at source to ensure they are paying the same rate of tax as employees.
  • The responsibility of ensuring this happens will fall on the public sector body or agency, whoever is closest to the “contractor”
  • HMRC are planning to develop an interactive online tool that will simplify the process and provide a definitive HMRC view on whether or not the rules apply to a particular engagement.

The key issue for HMRC is that they are looking to move the responsibility (and liability) of making the decision as to whether the engagement is within or outside the IR35 Regulations, away from the Interim, and onto the Engager, ie the public sector body or agency, depending on how the contract is structured.

This still doesn’t resolve or address the key question as to the employment status of Interims, which has been the subject of much debate since the legislation was introduced back in 2000. HMRC has tried in the past to introduce guidelines to simplify the process, but these were later withdrawn as they caused even more confusion. All this is doing, is passing on the responsibility of making the decision to the Engager!

In the Consultation Document, a number of Diagrams and Flow-charts look to pose specific questions, with the focus being primarily on the DSC issue – whether Direction, Supervision and Control exists within the engagement. Any online tool is likely to have a far narrower interpretation of the IR35 Regulations.

There are some far reaching consequences if this shift of responsibility is implemented:

  • If the cautious approach is taken by the Engagers (the public sector body or agency) to avoid any potential liability, this could result in a significant number of genuine Interims paying employment tax when they are clearly not employees.
  • The Interims will increase their charges to take account of the added cost, which will be passed straight through to the Public Sector Body.
  • The ability of public sector bodies to take on flexible solutions and expertise to implement cost-saving projects without the onerous process of entering into formal, costly employment contracts, particularly when there is so much pressure on reducing head-count, will be significantly damaged.
  • Further administration burdens on businesses, increasing costs, and resulting in over-compliance.

Agencies and public sector bodies will need to introduce far stricter compliance processes in advance of the go-live date in April 17, if this legislation is introduced and tough decisions will be faced by existing interims on how they set their daily rates.

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