The provision of workers in the public sector - a summary of the proposed changes
The draft legislation on the provision of workers to the public sector is not included in the 2016 Finance Bill, rather the Government has issued a Technical Note (TN) with a view to introducing legislation in 2017.
There seems to be an acceptance that the current “IR35” provisions requiring people operating through Personal Service Companies (PSC’s) to self-assess on PAYE is not working. HMRC has neither the resources nor I suspect, after a number of failures in the courts, the appetite to challenge the contracts via the PSC as being akin to employment. In any event on most PSC’s the tax take would be relatively small for a lot of effort.
If the law changes as outlined in the TN, one of the key issues will be the imposition of the responsibility for deciding if PAYE is due on either the agency supplying the worker or the public sector user. The TN states that it is the body closest to the PSC in the supply chain that has to sort things out. If you are acting as agent, you would be the responsible body. Any failure to deduct PAYE would then be the fault of the agent and not the PSC or indeed the public sector user.
There is a promise from HMRC of clear guidelines and digital tools that will operate in real time. This needs to be a significant improvement on the current test on status, the Employment Status Indicator.
There is concern that that for some people the outcome of the tests would be different for different contracts. This would then present a very confusing situation for all parties and particularly for the PSC owner.
Looking forward, for the PSC and its owner, if the position is treated as employment and PAYE deducted, there is little tax benefit in operating through a company.
Public Sector is widely defined in the Freedom of Information Act and includes many organisations. It may be time to consider whether and how this might impact on your business model.
If you would like to discuss this or other matters that might affect your business please get in touch.
Date: 14th July, 2016
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