This consultation is titled “Off-payroll working in the public sector: reform of the intermediaries legislation”.
HMRC believe that a change in liability is necessary because at present, the liability lies with the PSC and that there is widespread non-compliance. They quote figures of this costing the Exchequer £440 million this tax year. How they arrived at this figure is not entirely clear on first reading of the consultation but of course, it is understandable why government would be keen to clampdown on perceived tax avoidance, particularly in light of the Panama scandal.
This change would be highly problematic if it was decided that the liability should fall upon the agency / interim provider. As has been discussed in previous consultation rounds, the agencies does not have oversight of the nature of the work being performed by the candidate when they are on assignment, and therefore agencies are in the worst possible position to assess whether the intermediary rules apply. The REC will be making strong representations to HMRC on this point.
1. Changing the liability – so that it becomes the duty of the hirer or the employment intermediary (eg the interim provider, employment business or management consultancy) to apply the intermediaries rules for anyone working off-payroll, through a Personal Service Company (PSC), in the public sector.
2. HMRC will develop a new online tool to help decide if the intermediaries rules apply.
Assessing whether someone is in or out of scope of IR35 on any given assignment has always been problematic. One of the issues is getting absolute clarity on the nature of the assignment and clear guidance from HMRC. The nuances of how someone chooses to work and the type of work that is required do not often translate well into the short, simplistic case studies favoured by HRMC in its guidance.
HMRC have listened and recognise why Supervision, Direction or Control would NOT be the appropriate test for deciding if IR35 applies.
This consultation raises a number of concerns about how government views the vital contribution of interim managers and contractors make to the public sector, and we have already raised these concerns directly in a joint letter to the Chancellor of the Exchequer with other stakeholders.
Whilst we believe it is right that this government is committed to tackling tax avoidance, we think that this consultation raises a series of important issues that must be considered:
1. It has the potential to blur the boundaries between employment rights and taxation status and could usher in a host of unnecessary reforms, which fail to take into account why individuals choose to work on an interim, freelance or contract basis. If it becomes a straight choice between taking an assignment in the public or private sector, we believe many will choose the latter.
2. Aligned with the first point, the public sector needs to consider if they can afford to take on the costs associated with making these individuals “employees” in all but name. Most pressing of all on the public purse would be pension contributions.
3. Previous iterations of “tests” to determine IR35 status have not worked and it is unclear what will be different this time around. Government must fully involve stakeholders in developing these tests and allow adequate time for the pilot and roll out.
4. Finally, HMRC has a duty to enforce existing legislation adequately. Simply shifting liability onto the employment intermediary will not abdicate HMRC from its responsibilities. More pertinently, it is impossible for a recruitment business to make an informed decision about the IR35 status of an engagement.