Second MoD body threatens to axe PSCs

A second MoD body has threatened its PSC contractors with outright termination if they fail to abide by a new policy pre-emptively put in place to comply with April’s off-payroll rules.

Defence Equipment & Support, an arm’s length body of the MoD, says it is “unlikely” to accept a contract review as the proof of compliance that its PSCs now need “as a condition of your appointment.”  

While a memo by the body adds that such strict criteria is reserved for PSCs whose placement is “manpower substitution,” this term simply refers to those PSCs on Capita’s CL1 contracts, which at DE&S is the vast majority.

‘Obliged to terminate’

Disliked by contractors due to their ‘employee-style’ terms, PSCs on these contracts that smack off ‘inside’ IR35 are effectively being forbade from having a review stipulating them ‘outside’ IR35 as acceptable proof of compliance.

But DE&S’s memo then fails to stipulate any form of evidence that manpower-substitute-PSCs can submit to get accepted as proof of compliance (in contrast to employees and sole traders, for whom the compliance criteria is offered and straightforward).  

And “where we [DE&S] do not receive satisfactory assurance of compliance with tax legislation, we are obliged to terminate the contracts of those off-payroll appointees”.

‘Tree-shaking exercise’

Worse still, the body says that it would then inform HM Revenue & Customs of the identities of the non-compliant PSCs who it terminates, specifically for “investigation” by HMRC.

“This feels like a tree-shaking exercise to get contractor staff to resign before the new legislation comes in,” said one PSC at DE&S, referring to the April 6th framework.  

“What is most disconcerting is the[ir] assertion [to me] that despite having had an IR35 review and the contracts being let through the capita contract that, as manpower substitutes; we are automatically non-compliant.”

‘Aggressive, so submit anyway’

In this sense, DE&S’s edict to its contractors entitled ‘Tax Assurance Audit for Public Sector Appointees,’ seems to be the most “aggressive” yet, according to egos Ltd.

The contracts advisory was referring to a similar policy in place at another MoD body, the UK Hydrographic Office. It was also referring to DE&S’s edict hitting all contractors, not just a sample.

Failing to make it less aggressive is DE&S chief of staff Tom Tiner, who signs the audit.

He omits any details on how PSCs on CL1 could potentially comply and effectively rubbishes the idea of submitting a contract review. Mr Tiner did not respond to a request for comment.   

“If you believe you have the evidence [of compliance with the off-payroll legislation], submit it anyway,” advises egos’ legal consultant Roger Sinclair.

“There may well be circumstances [for those on CL1] in which the reality departs from… [the contract’s IR35 unfriendliness] and nevertheless justifies an ‘outside’ IR35 conclusion.”

‘I will leave my contract’

Asked how he intends to respond to the policy, one DE&S contractor said he was still “considering my options”, partly because the body has not said when replies must be received.  

However, “the likelihood is that I will leave my current contract,” the contractor said. “My fear is the threat of HMRC investigation, despite assurances from my agent and accountant that my contract [and working practice] is compliant.”

The contractor signalling that he will simply quit the body that manages projects behind all the equipment and services for the entire UK military comes as TfL, which floated a similar policy last month, says it has “reconsidered”.

‘TfL Backtrack’

“Lots of contractors must have said they did not like any of the [staffing] options originally given so TfL had to backtrack,” claimed one PSC still at TfL, which manages London’s vast transport network.

“[My agency], I think, might have suggested the new option [but] nothing [detailed] has been put in writing about this option,” said the contractor, outlining a model where the PSC is apparently compliantly retained, seemingly thanks to a third-party’s presumably ‘outside’ IR35 review run via the agency.

The upshot of TfL reconsidering its blanket ban on PSCs is that PSCs no longer have to respond to the policy by Jan 20th, and no longer have to “leave early” -- self-terminate before their contract naturally ends, TfL stressed in an internal memo.

‘People starting to go’

Another contractor at TfL isn’t’ so sure that the local government agency’s ‘reconsideration’ is across the board. “There hasn’t been a widespread follow-up,” he said.

“My understanding is that some individuals are being talked to by their hiring manager… [but] others are just being told the original options apply.”

Either way, one PSC contractor says TfL’s rethink is too late to stop the rot. “There are lots of leaving drinks taking place for…contractors [already],” he said. “People are starting to go.”

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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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