Budget 2017 not due to change IR35 liability

Budget 2017 might contain much more for the contractor industry than just a finalising of the new IR35 legislation for the public sector, wishlists to Philip Hammond suggest.

In fact, although the April off-payroll rules are expected to be settled on March 8, the chancellor could use his first Budget to address concerns about who’s liable, and in what circumstances.

But an about-turn in liability is not likely. “[As to] any change to the draft legislation…on the liability,” said Lawspeed, “the answer [from HMRC] was a categorical ‘no change at all’.”

‘Won’t change the liability’

The recruitment law firm yesterday welcomed this fresh clarification by HMRC, in light of “various” public sector sources claiming that end-users will be the “sole arbiter” of contractors’ IR35 status.

If the sources were correct, it would mean December’s draft is going to be changed so that agencies would be forced to adhere to whatever conclusion the client gives on IR35 status.

But a senior recruiter also believes the sources are wrong. “The final legislation won't change the liability point,” said Andy Hallett, commercial director at SThree.  

‘Duty of care’

However, posting on ContractorUK’s Forum, Hallett said that the final legislation -- which he expects to be published alongside the Budget -- may introduce a ‘duty of care’ provision.

In a statement last night about his post, he explained such a duty is necessary because if the draft goes ahead without amends, agencies will be liable for what end-users decide.

For example, an agency would be liable if HMRC deemed a PSC ‘inside’ IR35 if the agency paid the PSC as ‘outside’ IR35 because the end-user told it to, on the basis of its decision.

‘No defence for agencies’

It is why the rules have been called “nonsensical” – by Seb Maley of IR35 advisory Qdos, and “brain-scrambling, convoluted and Twister-like” -- by Adrian Marlowe of Lawspeed.

The law firm’s Theresa Mimnagh reflected yesterday: “There is [currently] no defence for an agency that it relied upon the public sector hirer’s advice that IR35 does not apply.

“If HMRC later claims that IR35 did apply to the arrangement and that employer and employee NICs and PAYE are therefore owed to HMRC, the agency would still be liable unless the agency can show itself that IR35 did not apply.”

‘Disappointed’

Mr Hallett at SThree, parent firm of Real IT and Computer Futures said: “I’m disappointed that we will carry liability for others decisions, and would question the overall legality of that”.

The recruitment group might be more upbeat on March 8th if the wish of the CBI is granted by Mr Hammond, as it wants the Apprenticeship Levy to have a ‘soft landing’ from April.

Specifically, the first two years of the levy – which has the potential to sting £3million-plus agencies and the contractors on their books, should be treated as a “transition period.”

‘Open to listening’

The employers’ group also asked the chancellor in a submission yesterday for 'STEM' students to be offered grants to become teachers, and for pupils “core” digital skills to be funded.

Yet ‘digital’ appears more likely to be mentioned by Mr Hammond as the target of a clampdown, not only due to its economy being populated by ‘gig’ workers suspected of paying not enough tax, but also due to its largest companies ducking their ‘fair share.’

A Treasury source told Tuesday’s Daily Mail that the chancellor is “opening to listening” to how online giants can be made to share the burden of business premises rate rises -- one “challenge of the digital economy”.  

The source’s wording is more suggestive of a consultation than immediate action, in line with the view before Autumn Statement 2016 that Mr Hammond is cautious -- but seemingly at odds with the heap of measures that his statemet foisted on contractors.

Editor’s Note: Related --

PSCs to abandon NHS IT project over IR35 changes

April’s off-payroll rules: what one agency thinks

Tackling the IR35 review quandary – an attempt

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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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