Tax rule for off-payroll staff hasn't stuck, claims Hodge

The effectiveness of the government’s complex rules for its ‘off-payroll’ IT workers has been thrown into doubt by a leading MP closely associated with bringing them about.

Margaret Hodge, chair of the Public Accounts Committee, yesterday confirmed to a national publication that the framework to stop individuals who work for the state from paying less tax by being a personal service company (PSC) was put into place last year.

Speaking to a broadsheet paper, the Labour MP signalled that Danny Alexander, chief secretary to the Treasury, was right in May 2012 when he moved to prevent people being hired with public money, only for them not to have to pay full national insurance and income tax.

“It seems to be that we are drifting back to that position,” Ms Hodge told The Times on Monday, apparently upon seeing new staffing data for Whitehall, reportedly revealing most interims to still be “self-employed consultants.”

In the same article, which quotes 130 days of billable work paying an interim £91,500 (seemingly and only explained by the project being “difficult” or “failing”), the PAC chair states: “We have repeatedly said that if the government wants to deliver on its projects it has to get the skills in-house.”

Underneath the published comments of Ms Hodge, who has already been accused of coming ‘dangerously close to suggesting that all freelancing across the public sector should be outlawed,’ a Cabinet Office spokesman features.

Attempting to clarify the government’s stance on ‘off-payroll’ workers, revealed at the latest IR35 Forum to be "inconsistent" across the public sector, the spokesman reportedly advised:

“Spending on such [business critical] roles is only authorised where the skills are not readily available within the Civil Service and [where] using temporary labour is better value for taxpayers’ money than hiring full-time staff.”

And the Cabinet Office’s existing guidance adds that the most senior public sector workers for state-run bodies should be on the payroll as employees unless there are “exceptional circumstances” – which would require approval from a departmental accounting officer.

The guidance, currently being interpreted by state hirers as they see fit, continues: “Departments must be able to seek formal assurance from contractors with off-payroll arrangements lasting more than six months and costing over £220 per day that income tax and national insurance (NI) obligations are being met.

“Departments should terminate the contract if that assurance is not provided. Departments also have the option of extending this requirement to other contractors as they believe appropriate.”

Last night, and contrary to the implied disapproval about high pay for off-payroll IT specialists in The Times article (- “most interim managers are paid a daily rate and do not pay NI…those working in IT can command the highest daily rates”), a government staffing supplier was sympathetic to such freelance computer professionals.

The supplier believes that by imposing the potentially severe ‘off-payroll’ tax rules on the very workers whose pricey and hard-to-find skills they need to secure, the government has effectively made a rod for its own back.

“Contractors have increased [their pay] rates to cover the increased tax obligations,” the senior IT recruiter in the public sector told ContractorUK. “This is unlikely to happen in a public post where the spotlight’s on costs, but new starters are understandably upping their rates.

“[If they haven’t upped their rates], the other reaction contractors have had - also since September last year - is to simply leave their [government] post to return to the private sector, where they don’t have the same level of scrutiny.

 “[It’s a shame but] this closer scrutiny on the tax arrangements of individual contractors in the public sector with end-clients seeking evidence of tax and NI paid…has led to skilled contractors leaving to operate in other markets.”

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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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