Update: Off payroll working in the public sector
Following the Autumn Statement, HMRC (via the draft Finance Bill 2017) have provided more clarity on the operational and financial risk facing recruitment agencies that place candidates through their own Personal Service Company (PSC) in the public sector. The public body is responsible if there is direct engagement.
From April 2017, new IR35 legislation for the public sector shifts responsibilities from the candidate's company to the agency. The agency will be responsible for deciding the IR35 status of PSC candidates. For those that fail IR35, the agency will be responsible for deducting employee PAYE on the PSC contract value (as though the candidate was an employee of the agency) and paying the PSC the net amount plus any VAT on their invoice. Importantly, the agency must pay employers NIC and the apprenticeship levy from their agency margin. Additional administration will include the collection of candidate personal data, RTI reporting, paying HMRC, issuing P45's and P60's.
If the agency gets the IR35 status decision, tax calculations, reporting or payments incorrect HMRC will recover any tax shortfall from them.
On 1st April 2017, HMRC will go live with their new online IR35 status tool. If all the information is entered correctly, HMRC will stand behind the tool's IR35 decision. With significant focus on unconditional substitution and the lack of any supervision, direction and control it would seem that only a small percentage of PSC candidates will be outside IR35, according to the tool.
To help the agency make the IR35 status decision, the public body hirer must provide their view of whether the PSC candidate is inside or outside IR35. However, the agency remains liable for making the correct final IR35 decision.
As with any new legislation it is important to consider resultant behaviours. Some public bodies and agencies may say that they do not want to engage with PSC's in the future. As an alternative, an agency may offer umbrella employment or agency PAYE. However, not all agencies operate PAYE and some of those that do, do not want to have lower margins and add more cost and contingent employment risk.
Many PSC candidates have also said they will want to maintain their PSC status, particularly those who toggle contracts in the public and private sector. Additionally, some want to at least keep their PSC in the short term to see how the new landscape evolves. Agencies are therefore looking at offering a choice of operating options for the workers whilst minimising their IR35 financial risk.
All payments after 5th April 2017, irrespective of when the work was carried out, will be affected by the new legislation. With Christmas and the New Year break, this leaves just two months for agencies to decide what they are going to do and to appropriately communicate with their public body clients and workers.
Join one of the nationwide giant breakfast seminars taking place in January 2017 to explore your options and assess the solutions available. Email firstname.lastname@example.org for more information on dates