In an astonishing act of brevity, the Autumn Statement has reduced the proposals contained in the first five chapters (34 pages) of the Off-payroll working in the public sector: reform of the intermediaries legislation consultation to a mere 136 words found at paragraph 4.11 on Page 36:
“Off-payroll working rules – Following consultation, the government will reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company. The government believes public sector bodies have a duty to ensure that those who work for them pay the right amount of tax. This reform will help to tackle the high levels of non-compliance with the current rules and means that those working in a similar way to employees in the public sector will pay the same taxes as employees. In response to feedback during the consultation, the 5% tax-free allowance will be removed for those working in the public sector, reflecting the fact that workers no longer bear the administrative burden of deciding whether the rules apply.”
So, we’ll be brief as well. We now know the fate of the 5% general expense allowance: it’s going for contractors in the public sector if the engagement is deemed ‘caught by IR35’, although don’t be surprised if the expression caught by IR35 slowly disappears from common parlance – everything that the government proposes seems to be trying to by-pass the intermediaries legislation.
This means the responsibility for operating the rules and payment of the correct tax will move “to the body paying the worker’s company”. This is the moment that agencies and other intermediaries must have been dreading: the bitter pill which is the transfer of liability to the organisation closest in the contractual chain to the PSC.
Despite the fact that it seems bizarre that an agency might somehow be better placed to determine the status of an engagement than the public sector body which has identified the need for assistance, an agency or intermediary might become liable for an incorrect decision made by another party!
Paragraph 4.11 still doesn’t address the raft of other changes that have been proposed – including the Online Status Indicator Tool, software provision to ensure interaction between procurement and payroll, how the contractor avoids being taxed again on income received net. There are also questions about the disappearance of mutuality from the status tests, how contractors and intermediaries might appeal against decisions or why HMRC believes that contractors will simply accept the changes lying down? Surely the recent waves created at the British Hydrography Office suggest not.
The next stage will be the publication of legislation and what HMRC describe as ‘customer guidance’, together with a summary of responses to the consultation. This is all expected to be available from 5th December; when we hope that HMRC will move from brevity to clarity.
Author: Paul Mason, National Contractor Manager
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