Contractors' Questions: Where are the new off-payroll rules retrospective?

Contractor’s Question: In HMRC’s new official guidance, it states that the new off-payroll rules apply in the public sector from 6th April 2017. The use of the word ‘from’ implies that the rules are not retrospective, which seems to go against this ContractorUK article.

So what is the legal position with regard to this aspect of the Finance Bill 2017; what does the legislation actually say? Surely; it’s the legislation that counts the most. Can the new employment status assessment criteria be applied to payments received before 6 April 2017? Or can contracts be scrutinised retrospectively?

Expert’s Answer: There has been some confusion as to whether the much-maligned new rules affecting PSCs providing services directly or indirectly to public authorities are intended to apply retrospectively or after 6 April 2017. The normal legal position is that legislation applies from the date it receives Royal Assent.

The Finance Bill 2017 (at Schedule 1 Part 4) states that the new Chapter 10 applies to payments made on or after 6 April 2017 even including payments for services provided before the enactment date. In other words, the new Chapter 10 applies to engagements which overlap the commencement date. As the IR35 legislation applies on an ‘all or nothing’ basis, it is possible that engagements in progress as of 6 April 2017 involving public authorities will be affected by the new rules and there are no specific transitional rules for the new Chapter 10. Therefore, it is entirely possible that a PSC engaged to fill a role, provide cover for a public authority's employee or otherwise undertake non-project based work where the start and end dates overlap 6 April 2017 would be caught, so it is imperative to get competent professional and/or legal advice. If a PSC is undertaking a fixed term engagement where the 'services' are defined merely by reference to a job title, then Chapter 10 applies without question.

However, the Finance Bill 2017 can be amended prior to the planned enactment date and it is open for PSCs and interested parties to oppose the planned new rules. Our advisory believes that the Treasury must urgently clarify whether the new Chapter 10 requires public authorities or recruiters (as appropriate) to review contracts and working practices in respect of engagements which overlap 6 April 2017. This is likely to pose an administrative burden for public authorities and recruiters who lack the resources to decide whether the new Chapter 10 should apply to a particular engagement. Given the abject failure of the Business Entity Tests, it is extremely doubtful whether public authorities, PSCs and recruiters can trust HM Revenue & Customs' imminent Employment Status Service.

Notwithstanding the lack of clarity surrounding the new Chapter 10, engagements which have finished before 6 April 2017 involving the provision of services to public authorities will not, as the Finance Bill 2017 currently stands, be affected. It is therefore inaccurate to state that the new Chapter 10 is truly retrospective. It is always open for HM Revenue & Customs to open an inquiry against a PSC at any time in respect of historic engagements and there's nothing in the Finance Bill 2017 to suggest otherwise. These new plans underscore yet again that complacency is not an option.

The expert was Martyn Valentine, founder of The Law Place Limited, a legal advisory specialising in IR35 and employment status.

Thursday 16th Feb 2017
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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