Off-payroll working in the public sector: reform of the intermediaries legislation

HMRC launched the above consultation on 23 May 2016. The consultation period closed on 18 August 2016. The consultation accompanied HMRC’s decision, as announced at Budget 2016, to reform the intermediaries rules for off-payroll engagement of workers who operate through an intermediary, such as their own limited company (PSC), in the public sector. This includes engagement through third parties such as employment agencies, outsourcing companies and consultancy firms who supply workers.

From April 2017, where workers are engaged through their own limited company responsibility for applying the intermediaries rules will fall to the public sector body, agency or other third party (known as the Engager) who is paying the company. The Engager will be liable to pay any associated income tax and National Insurance. Where individuals are working through PSCs in the private sector, the existing rules will continue to apply.

ATT’s Technical Team submitted a response to this consultation which, as a Stage 2 consultation, only sought views on the impact of this change and the detailed design of the policy, including a new process to determine whether an intermediary is in scope of the rules.

In our response, we noted that the majority of our members would be primarily concerned with the impact of these rules on the PSC in terms of the personal tax and corporation tax implications, including any cash flow implications. However, the Consultation document was notably silent on those particular aspects and instead focused on the impact on the Engager.

Within the limitations of the Consultation and the questions it posed, we highlighted what we saw as the three main problems with the new rules as follows:

(1)Where an Agency is considered to be the Engager, responsibility will be placed on them to make decisions for which they will have insufficient information due to problems of information about the exact nature of the engagement passing down from the public sector body. We suggested that HMRC would have to impose statutory obligations on public sector bodies to provide relevant information to Agencies.

(2)Potential financial liabilities will be placed on Agencies who are then likely to make decisions on the basis of protecting their own interests. This could potentially lead to the new rules being implemented across the board so that businesses which are genuinely not within these rules will be subjected to them.

(3)The Government appears to be placing significant emphasis on the proposed new online tool that is intended to enable users to determine the relevance of the IR35 rules to particular engagements. It is difficult to see how a simple online tool will direct users to the correct conclusion when there remains significant uncertainty over the IR35 rules some sixteen years after they were first introduced.

To read our response in click here