How off-payroll rules affect PSCs at the public sector’s private consultancies
Got a so-called “April 6th-proof” contract? Been told IR35 doesn’t apply? Well you’re not alone, if you’re a PSC contracted by a consultancy, where the consultancy has a managed service contract with a public sector body, writes Kate Cottrell of status advisory Bauer & Cottrell.
Verbal assurances are unreliable
Furthermore, your new contract in place since the off-payroll rules took effect makes detailed reference to Mutuality of Obligation, Control, Direction and Substitution, all to indicate IR35 does not apply. You’ve even been told -- verbally -- that the public sector client has taken legal advice and the client believes the engagement model (PSC contracted by a consultancy in turn contracted by a public body) is outside IR35. Happy days, right?
Unfortunately not, because contractors (and there is a fair few PSCs in the scenario described above), you cannot rely on verbal assurances as to the IR35 status of your engagement -- as a PSC, in the public sector, either before April 6th of indeed since.
Your consultancy being outside doesn’t mean you are ‘outside’
Generally-speaking, the consultancy in the chain outlined might well be outside the scope of the new rules, but HMRC has made it clear that if you are working alongside employees doing the same or similar work then, regardless of how you have been engaged, an IR35 assessment should be made by the public sector body and passed to the consultancy, as the ‘fee-payer.’
To be outside the scope of the rules, the consultancy would need to be considered to be a private company undertaking a public function. However, this has all become extremely complicated by the fact that many suppliers of services to the public sector have been engaged on incorrect frameworks and call-off contracts, so are in fact simply supplying people, as opposed to services, which is why HMRC is taking this position.
PSCs in the chain described should note that even if the consultancy they supply and have their contract with, is outside the scope of the rules, this does not necessarily mean that their engagement -- the PSC’s -- is outside IR35. The public sector body has a duty to inform the consultancy (as the fee-payer) of the result of its IR35 assessment, and the body should pass this on to the PSC.
Where your gig is both pre and post-April 6th
And where the PSC has an engagement that straddles the ‘old’ IR35 rules for the public sector and the new ones (introduced on April 6th), the position is as follows:
- If the consultancy is out of scope of the new rules, the PSC should get this in writing. Then, the PSC can continue, as before, with the IR35 position being theirs to decide.
- If the consultancy is not out of scope of the new rules, the PSC should have already received an IR35 assessment undertaken by the public sector body -- in writing.
- If it transpires that the consultancy is not outside of the new rules, then the responsibility and liability to deduct tax and NIC rests with the consultancy and not the PSC.
- If the public sector body gives an inside IR35 assessment, then the PSC is highly likely to see a significant decrease in the PSC’s headline pay rate.
- The PSC should be asking the consultancy and the public sector body for clarification of the PSC’s position urgently (and where possible, before signing the new April 6th contract).
- In any event, the PSC should review very carefully the terms of its new contract and the day-to-day reality of the PSC’s working practices.