'Off-payroll staff rules to hinge on IR35 business test'

The two freshest, biggest but until now separate changes to how limited companies should operate seem to be combining in what freelancers’ supporters fear could create a “catastrophic” cocktail.

In an online update, freelancing body PCG said a document it received that “appears” to be the Treasury’s “final” guidance on how public bodies must implement populist ‘off-payroll’ rules will hinge on HMRC’s much-criticised IR35 ‘business entity’ test.

Under this ‘off-payroll’ worker guidance for public bodies, where the worker is engaged through their own limited company, and is outside PAYE, the worker “will need to provide evidence of one of the following,” PCG said the document says.

Either they “should be able to show that their service company is low risk for IR35” under the business entity test, or they must provide “assurance in a different way” if medium or high-risk on the test, but still ‘feel’ they are outside IR35.

Alternatively, and where either position cannot be evidenced at the “six-month point” of the engagement, the Treasury paper is said to state that the worker must “provide evidence that they are operating the IR35 legislation on the payments received” from the end-user.

“This can be evidenced by the worker providing a ‘deemed calculation,’” PCG wrote, quoting directly from the Treasury paper.

“This is a calculation that requires the worker to consider all the income for the year from a particular contract that is within IR35; make a ‘deemed payment’ to HMRC for employer NICs and pay employee NICs and PAYE on the remainder of the income.”

As the law requires an individual to make such a payment at the end of the tax year, “it will not be possible [for the worker] to provide assurance until this point,” adds the document, unlike those workers who emerge as low risk, or medium/high-risk but feel they are outside IR35, for whom the assurance will be sought six months into the job.

But crucially, and with all four of the above positions, if the end-user - a public body or government department, “is not satisfied with the evidence they receive [from the worker they have engaged] they may send [the worker’s/individual’s] details” to HM Revenue & Customs (HMRC).

Having previously warned that the incoming framework around off-payroll staff is “potentially catastrophic”, the PCG reflected yesterday: “The ‘worker’ [if medium/high risk] is given the option to provide assurance regarding their tax obligations in some other way. It is not clear what would be acceptable as a ‘different way’ of providing assurance”.

According to the group’s disclosures from the Treasury document, officials plan to accept “a contract review by HMRC’s independent IR35 helpline” as a ‘different way’ for a worker at medium/high-IR35-risk to provide the necessary assurance.

Yet “understandably,” PCG says, affected freelancers, contractors and interims “will be reluctant to seek assistance from HMRC to verify their IR35 status.”

Moreover, with different departments already reflecting the rules differently (some are said to be ignoring the six-month timeframe), the group says key questions remain.

On behalf of freelance workers, it raised another concern: “It’s still not clear whether limited company contractors working through a prime contractor…will be affected.

“In a situation where the freelancer has a contract with Capita [and the likes of], but is ultimately providing services to a public sector body, will the government force Capita [and other prime contractors] to impose the rules?”

Either way, off-payroll workers won’t have time to hesitate. PCG explained, “It is noteworthy that the guidance document suggests that departments will give contractors just 20 days to provide the assurance once it has been requested.”

Trying to reassure affected freelance workers and contractors, including those in the private sector where the government is consulting on forcing all ‘controlling persons’ onto the payroll - including those using personal service companies, the lobbyist also outlined its strategy and meetings timetable.

But problematically, the mainstream press is a no-go area. “[We’ve] spoken to… the Financial Times, the Daily Mail and the Daily Telegraph. They are not prepared to attack the government on bringing in these measures”, PCG regretted. “They would be more interested if we could show the consequences would harm the delivery of public services but they want hard evidence and case studies”.

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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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