Off-Payroll Public Sector and IR35

As you are more than likely aware, last week saw the publication of draft legislation and guidance in relation to the treatment of ‘Off-Payroll’ workers in the public sector, reforming the Intermediaries Legislation known as IR35.  This follows a public consultation earlier in the year, and we were not surprised by Chancellor Philip Hammond’s announcement in the Autumn Statement confirming the Government’s intention to proceed with the unpopular proposals.

In summary, this means a significant shift in arrangements which will impact upon both recruitment companies and contractors operating within a PSC come April.  It is expected that from this point, the ‘engager’ paying the PSC will become responsible for assessing IR35 and accordingly deducting all necessary taxes and submitting RTI to HMRC.   Typically, the ‘engager’ will be the recruitment company, but could also be the end user where the contract is direct between that body and the PSC.

HMRC have promised to introduce an online tool to assist with assessing IR35 status, however, it is widely anticipated that around 90% of workers will be inside the new IR35 rules.  We are already seeing suggestions that recruitment companies are proposing a risk averse approach and making a mass assessment that IR35 applies, whereas others are awaiting the publication of the ‘online tool’ and will attempt to verify the status with the end user of each and every contract.

Whilst we wait for further details, at a minimum, we suggest the changes to recruitment companies’ practices will be as follows:

  • Recruiters will need to review all their contracts and actual working arrangements with public sector bodies
  • Recruiters will need to amend their contracts, including the rates offered for the assignments to reflect their obligations to make payments of Employer’s NI above the agreed pay rate
  • These negotiations and amendments will need to happen asap for those on existing contracts
  • New assignments offered where payments will be made after April will also need confirmation of the situation post April
  • Employers NI and apprenticeship levy needs to be paid by the ‘engager’ over and above the rate offered
  • Contractors are required to provide information to the ‘engager’ to enable setup on RTI without this payment cannot be made

Our suggestion is that recruiters immediately commence reviewing their arrangements for their Public Sector contracts.

Lyndsay Shimmin of Green Lantern comments ‘These changes will inevitably lead to a much more financially accountable position for recruitment companies when supplying contracts to the Public Sector.  Their principal activity is fulfilling requirements and yet the Government now expect them to assess tax status and be responsible for collecting accordingly, as well as an increased administrative burden with the gathering of information and reporting.  Additionally, funding the deemed employer’s costs will either result in even tighter margins for the recruitment company or a reduced rate for the resource, which could potentially mean a shift away from the public sector for the contract market.  Whilst we encourage responsible IR35 assessments and the appropriate taxes being paid by all, we understand that the expected changes will be complex to implement, and encourage our recruitment company partners to discuss how we can assist them with the transition to a safe working practice post April 2017.’

Please give us a call on 0207 164 2116 if you’d like to discuss how we can help you with these changes in plenty of time.