April's off-payroll rules: what a second agency boss thinks
Despite my best efforts in August, we now know that legislation to torpedo the public sector’s limited company contractors is going full steam ahead, so put away your petition and batten down the hatches, writes the REC’s Technology Executive Committee vice-chair, Les Berridge, of contractor jobs specialist Networkers.
Before I map out what the public sector might look like in these unchartered waters, a recap. The taxman has unfortunately ignored most of the responses during the consultation period, except the point that it would be difficult for the liable party (usually the agency) to call an assignment inside or outside IR35 without first-hand knowledge of the organisation, role and working practices.
‘Most PSCs to be called inside IR35’
He has responded to this by saying that the end-client will be responsible for determining the IR35 status, even though the fee-payer is still liable for unpaid tax and National Insurance (NI) if the job is deemed to be outside IR35, but is later deemed to be inside.
The likely consequence of this is that public sector organisations are likely to call most -- or all – PSCs’ roles inside IR35. This fits neatly with the purpose of the legislation. HMRC is convinced that most PSC contractors are paying insufficient tax and it wants to reverse the perception that 90% of PSCs are wrongly outside IR35, to one where 90% are inside and all that entails.
So what will we see after April 6th? HMRC will (hopefully) monitor the gains of extra tax and NI against the disruption to project work in the public sector, caused by losing key people and skills. The tax authority will (hopefully) make this consideration before deciding about any potential extension of the legislation to the private sector.
Contractors’ three options
If history is anything to go by, two things will happen: the Revenue will be happy with the extra tax and secondly, many public sector organisations will just extend the deadlines for delivery on their projects.
As to what contractors look primed to do, their comments to us (at this stage) suggest that if their role is sailing close to IR35, it will be one of three things.
- Close down their limited company down and switch to umbrella/PAYE; or
- Make their limited company dormant and ‘go’ PAYE (as above) just for public gigs; or
- Accept being inside IR35, and administer the deemed payment rules.
We’re recommending contractors consult in a detailed way with their accountant and/or status adviser before deciding which option to pursue. And there may be other options that a qualified adviser can enlighten you about.
What agencies will do
As for the likes of us, well agencies will need to offer a PAYE payroll option, not just enlist an umbrella company’s solution, or the contractors on their books today may go elsewhere tomorrow. Agencies will also from April 6th need to offer deemed payroll, either directly, or via an outsourced provider.
Contractors should see agencies working with clients too, to ensure end-users don’t just make a blanket call that all their PSCs are inside IR35.
How clients will respond (and should respond)
For public sector authorities and end-user bodies, we hope to see a genuine effort on their part to assess each off-payroll role on its merits. If the role is only semi-skilled and there’s direction involved, then an ‘inside’ decision is obviously more than likely. But if there’s no control (or at least a significant lack of it) and there’s the other status factors are pointing away from IR35, such as no mutuality of obligation, then we envisage sensible clients calling such assignments ‘outside.’ Remember at this stage dear end-users; the criteria to determine IR35 have not changed.
On that basis, we expect to see project-based assignments with measurable duration, i.e. with an end date using specialist skills, as being declared ‘outside,’ and therefore unaffected after April 6th. Certainly end-users are within their rights to make such a call on such placements. Those that do so with good reasons will be much more likely to retain their contractors. The same is true when it comes to advertising post-April 6th; call them ‘outside’ and highly-skilled people will be interested in applying. End-users can of course use HMRC’s software tool – the Employment Status Service –(scheduled for launch by the end of this month) to help inform their decision. But the tool is not mandatory, so we expect to see end-users quite legitimately exercising their own judgement instead.
As time goes on, and once April 6th has become a distant memory, there will no doubt be new case law and appeals to help shine a light on the many grey areas in the legislation, which we foresee all parties in the contractual chain coming together to mitigate the effects of.
Editor’s Note: The views expressed in this article are those of the author, Les Berridge, and they do not necessarily reflect the views of Networkers or the REC.
This is part two of a three-part ContractorUK series exploring how the agency sector views April’s off-payroll rules and their reform to IR35. Read part one here.