giant warns of financial risk for agencies placing PSCs after budget announcement
Budget announcement: From April 2017, there will be significant financial risk for agencies that place PSCs in the public sector, says giant group.
After the recent consultation, yesterday's budget has confirmed that the Government will present new legislation (expected 5th December) detailing the reform of the intermediaries legislation known as IR35 for all public sector engagements. As part of the Finance Bill 2017, the legislation will ensure that contractors working through their own Personal Service Company (PSC) will, from April 2017, only be able to pay dividends if they are legitimately self-employed contractors. The considerable financial risk of non-compliance will sit firmly with the party contracting with the PSC. Generally, this is the recruitment agency but could be the hirer where there is direct engagement.
The proposed changes have the following implications:
1. The PSC will no longer decide on their IR35 status. Instead, responsibility will shift to the agency.
2. For PSCs that the agency decides fail IR35, the agency will be responsible for calculating the amount of PAYE due (on each remittance) and pay this amount to HMRC as well as including it in an RTI submission. Additional information will be required from each PSC director to enable this.
3. Intermediaries reporting will also be affected.
HMRC will have financial redress against the agency if the agency makes the wrong IR35 decision, miscalculates the PAYE liability or does not make the payment to HMRC.
Matthew Brown (pictured), managing director of giant group, commented, "This is a very significant financial risk for agencies that place PSCs in the public sector. It is not their core competency to make tax compliance decisions yet they could be faced with financial ruin if they get it wrong. The additional administrative burden will also be significant, including gathering more information from the director of each PSC. Even the PAYE calculation will be complicated and most agency systems will not have been amended to facilitate it."
HMRC will be introducing a new online tool to enable an employment status (IR35) decision to be made. They are suggesting that if all the information entered is correct then they will stand behind the online tools decision on whether the assignment is inside or outside of IR35. It remains to be seen how effective this tool is but HMRC are expecting those in the public sector to use it and for it to be useful for those operating in the private sector. HMRC expect the tool to be the new standard for IR35 decision-making.