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What impact would the extension of the “IR35” off payroll rules being extended to the private sector have on your business?

17 Nov 2017

IR35 and the “off payroll rules” are once again hitting the headlines, with HMRC giving its biggest indication yet that the rules may be extended to the private sector.  Mel Stride, Financial Secretary to the Treasury, questioned the fairness of applying rules to the public but not private sector in an interview with the Financial Times. This is viewed by many as a sign that the chapter 10 off payroll rules, which make determining status and accounting to HMRC for PAYE for contractors, the responsibility of the party paying a PSC, rather than the PSC itself, will soon be applicable to all. 

At this stage, there is neither any formal announcement nor proposal. However, the same article also suggests a degree of success for HMRC in achieving its objective of increased tax revenues. The article asserts that in the three months after the new rules were implemented in April 2017, an additional 90,000 public sector workers were taxed as employees, although there was no indication as to whether this was due to these workers having incorrectly assessed status previously, or whether instead it was simply a case of public authority hirers and recruiters making cautious assessments. 

Under the new rules, responsibility for assessing whether “IR35” applies, and if so, for deducting PAYE tax and NICs at source, rests with the public authority Hirer and/or recruitment company rather than the contractor. Although some assessments are made on a case by case basis, there have been reports of discontent at blanket assessments, most notably the reported judicial review against blanket decisions by the NHS.  

Theresa Mimnagh, associate director at Lawspeed said “as responsibility (and therefore liability) for the assessment, as well as the PAYE and NICS, rests with the Hirer or recruiter, it is natural that a more cautious approach may be taken and risk avoided, especially given the well publicised flaws in HMRC’s employment status tool. After all, if PAYE and NICS is being accounted for, the risk of tax liability for the hirer under these rules is nil, although the availability of specialist contractors, and attracting the right talent could be an issue”.   

Mimnagh continued, “if these rules were to be flowed through to the private sector, the impact on recruiters is likely to be significant. The feedback we have from our clients is that contractors working for public authority Hirers are in most cases seeking an alternative engagement options rather than see PAYE deductions made at source. Moving to umbrella, or PAYE, and gaining additional worker or employee rights, such as holiday pay are proving popular with contractors”  

The next budget is scheduled for 22nd November 2017, so we will wait to see if there is any announcement, or indication of a future extension of these rules to the private sector. 

Lawspeed can assist with IR35, different engagement options and rights, and ensuring that the right contractual terms are in place. For more information on our services, contact us on 01273 236 236 or info@lawspeed.com

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