HMRC unveils IR35 consultation on public PSCs

A consultation on reforming IR35 in the public sector has been published by HM Revenue & Customs, allowing affected parties and “particularly contractors” 12 weeks to have their say.

Spanning some 87 pages, the consultation’s main proposal appears to be what was expected –- to shift the responsibility of applying IR35 from the PSC to the party who pays the PSC.

Views on the impacts of this change are sort between now and August 18th, as is input on the design of the policy, including “a new process” to determine whether a PSC is inside IR35.

That new process is partly the Digital Tool, which public engagers can use from April 2017 but only after they first address the other part -- whether there is both ‘A Right to Personal Service’ and ‘Control.’

And if engagers decide they do have the right over the PSC worker to decide how the work should be done, and they require the PSC worker to do the work themselves, then they are responsible.

So the engager must account for tax and National Insurance on their payments to the worker’s PSC, where just two of IR35’s many aspects are found to be present.

In this sense, HMRC seems to be proposing a “truncated version of IR35,” a chartered tax adviser told ContractorUK just a few hours before the consultation was published yesterday.

So despite fears that HMRC’s vow last summer to “improve the effectiveness” of IR35 meant the legislation would be expanded, it is actually being streamlined, the adviser said.

“The current [IR35] rules [in the public sector] can be difficult and complex”, David Gauke, financial secretary to the Treasury admits in the consultation foreword.

“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.”

As to achieving that certainty for its customers, HMRC says the “main way” is via the Digital Tool -- which engagers must run if the Control and Personal Service questions cannot both be answered ‘yes.’

“[It] will be tailored to the specific needs of engagers in determining if the off-payroll rules apply,” HMRC says of the tool. “[We] will be bound by the outcome of the test if accurate information is entered by the engager and circumstances do not change.”

So the tool will “provide a record which engagers will be able to keep and refer to as necessary,” and will let taxpayers “know at the outset HMRC’s view of how intermediaries rules apply.”

But the tool won’t just be confined to the public sector. “[It] will also be available for those working in the private sector to use if they wish,” the Revenue says, seeming unaware of industry’s predictions back in March.

The tax authority claims: “This will give people more clarity over HMRC’s view of whether or not they should be applying the intermediaries rules to their PSC’s income.”

Sixteen questions accompany the Revenue’s proposal in the consultation document; they cover where agencies will have to test for IR35, the incidence of multiple agencies; VAT, transfer of liability and the 5% rule, among other areas.

The document, of which only about 40 of its 87 pages actually relate to detail of the proposals (but also contain replies to last year’s IR35 ‘discussion document), invites views from a range of affected parties.

It states: “The government would like to hear from individuals and organisations affected by the rules, particularly contractors, public sector organisations and anyone involved in the supply of workers to public sector organisations.”

Written responses can be sent via email or by post to HM Revenue and Customs, Employment Status Team, Room 1E/10, 100 Parliament Street, London SW1A 2BQ.

May 27, 2016