The recruitment trade bodies are set to take a pro-active role in Off-Payroll consultation
The Recruitment and Employment Confederation (REC) and the Association of Professional Staffing Companies (APSCo) have committed to taking a leading role in the recently launched Government consultation on extending the Off-Payroll rules to the private sector.
The Off-Payroll rules will make end-clients responsible for determining whether a contractor working through a personal service company (PSC) or other intermediary is caught by IR35 or genuinely self-employed. However, where the contractor is caught by IR35, the responsibility for deducting PAYE will fall on the “fee-payer”, which in many cases will be the contractor’s recruitment agency.
Recruitment agencies have resisted payrolling their contractors since at least 1988 when section 134 of the Income and Corporation Taxes Act attempted to force recruitment agencies to deduct PAYE from workers “subject to, or to the right of, supervision, direction or control”. Essentially a precursor to IR35, s134 was easily avoided by forcing all contractors to work through limited companies, which the recruitment industry duly did, arguably contributing to the problem IR35 seeks to solve, as the limited companies came with significant tax advantages for the one-man-band contractor.
31 years later, the extension of the Off-Payroll rules to the private sector represents a similar administrative burden to agencies, and one which they are keen to eschew, especially given the complexity of IR35 determinations, the unreliability of HMRC’s online status checker CEST, and the amount of false “employed” determinations that the Off-Payroll rules have caused in the public sector so far. The lack of time with which to prepare the industry has also been criticised, even after Chancellor Philip Hammond announced a 12-month delay to the implementation in his 2018 Autumn Budget.
The recruitment industry is therefore keen to take an active role in the Off-Payroll consultation launched on Tuesday.
Tom Hadley, director of policy and campaigns at the Recruitment & Employment Confederation, said: “The clock is ticking on getting the rules around IR35 right so that they work well for individuals and recruitment agencies, so we are glad to finally get sight of the Government’s consultation.
“We have consistently argued that agencies should not bear responsibility for the client’s decision on who falls into IR35 status. We are therefore pleased to see some movement on this, with the Government saying that liability for unpaid tax and NICs will rest with the party that did not fulfil its obligations. However, the proposals may well add additional complexities, which is why we will continue to engage with HMRC and Treasury to find workable solutions and ensure a level playing field for compliant businesses.
“The government’s timeline doesn’t leave business the recommended 18 months to prepare for the new rules and REC members are telling us that their clients are largely still unaware of the changes. Recruitment businesses will play a pivotal role in raising awareness throughout their client base and in helping to improve the government’s CEST tool designed to help people check if they are considered in or out of the IR35 rules.
“The proposal that small companies should be exempt from having to determine the IR35 status of individuals will create its own challenges as agencies supplying the contractors will need to systematically check the status of the client they are providing services to. We want to avoid the unintended consequences of a significant burden being placed on those supplying recruitment services.
“Overall, these changes will not be easy to implement by April 2020, but the REC will be working closely with our members and government to ensure the changes are workable, and that compliant businesses are not penalised. The stakes are high at this difficult time for the economy, but it is encouraging to hear government explicitly recognise the contribution that contractors make to businesses and public services across the country.”
Also commenting on the consultation, Tania Bowers, legal counsel at the Association of Professional Services Companies (APSCo), said: “It is important to note that the aim of the consultation is to understand how best to extend the implementation of this IR35 reform, which was introduced into the public sector in April 2017. This consultation will not decide whether the reform should go ahead – the government announced that it would in the 2018 Autumn Statement.
“However, following the concerns raised by APSCo members and other stakeholders, HMRC is also, concurrently, reviewing its CEST [Check Employment Status for Tax] – a tool which the majority of stakeholders feel is not fit for purpose. In fact, in 2017, after the CEST tool was introduced for determining tax status in the public sector, 43% of APSCo’s members said that ‘the HMRC tool does not generally produce reasonable status decisions in light of the factual realities of placements’.
“HMRC is undertaking some user research during March/April 2019, which APSCo members will be involved with. Any enhancements to the CEST tool will be available before April 2020.
“As co- chair of the IR35 Forum, APSCo will of course be engaging with HMRC, which is planning to hold a series of round table events to listen to the views of stakeholders – round tables which we will be very much part of.”
Seb Maley, CEO of IR35 consultancy Qdos, commented: “As part of the IR35 consultation, the government promised to review the true impact of public sector reform. However, it still sees increased tax revenues as a sign of success and increased compliance. The thousands of contractors who have been forced inside IR35 without a fair assessment of their working arrangements and have therefore been overtaxed no doubt beg to differ.
“Aside from making small companies exempt from private sector reform and the promise of making one or two other tweaks, incoming changes do – at this point in time – look very similar to the ones introduced in the public sector in 2017.”
The consultation process will be of great interest to contractors, as the future framework for engaging agencies and end-clients starts to become clear. For example, if umbrella company workers will not be subject to PAYE at the agency, it’s possible that agencies may want to force all contractors to work through umbrella companies to avoid their own PAYE obligations. The active involvement of the recruitment industry in the consultation should at least give some assurance to private sector contractors that the roll-out will be less chaotic than in the public sector in 2017. The consultation ends at 11:45pm on 28th May 2019.
Phil Nicholson
7th March 2019.
Sources:
https://www.recruiter.co.uk/news/2019/03/consultation-opens-payroll-rules-private-sector
https://www.legislation.gov.uk/ukpga/1988/1/section/134/enacted
https://www.gov.uk/government/consultations/off-payroll-working-rules-from-april-2020
