ARC welcomes IR35 changes, but says plan still flawed
ARC has welcomed the Government's changes to IR35 in the public sector, but believes the plan is still flawed.
Today, 20th March, the government published the Finance Bill as being laid before Parliament. The bill contains a number of amendments and, crucially for the agency sector, for the first time makes the public sector hirer liable if it fails to take reasonable care when making a decision as to whether IR35 applies.
Adrian Marlowe (pictured), chairman of the Association of Recruitment Consultancies (ARC), said, “This is very welcome as the entire scheme to make agencies liable for IR35 contractor tax was heavily flawed without this adjustment. Even now the arrangement still has loose ends in that the hirer only has to inform the agency of the IR35 status before the contract starts and there is no mechanism in the event of subsequent adjustments to the arrangements, therefore still leaving the agency exposed in those circumstances. But the inclusion of this care test along with strict time limits, coupled with a transfer of liability in the event of hirer breach, now passes the ultimate liability quite correctly back to the hirer.”
ARC had taken a robust stance on the new IR35 proposals since they were published in December, having been advised that the new HMRC IR35 online tool (the ‘Employment Status Service’), central to the government policy, was deeply flawed so affecting the lawfulness of the scheme itself.
Marlowe added, “We had garnered a great deal of support for our actions including from APSCo, the IOR and many agencies along the way, and had built up a fighting fund to support legal action. However this is a major concession and it lances the primary boil that we and our members were so concerned about. This battle appears to have been won and it demonstrates what can be done if we all work together.”
This does not mean the effort is entirely over, however, as Marlowe explains: “The legislation still leaves much to be desired as it has the effect of charging a 13.8% employer NICs amount onto the agency, and adds on an apprenticeship levy charge where the agency payroll exceeds £3m per annum. These charges are unfair particularly given the potential impact on current contracts, the lack of transitional provisions, and the administrative effort required to address what could amount to a very significant loss for agencies.
“The impact on public sector hirers has yet to be fully seen, as I regularly read reports that contractors are pulling off site and/or are charging higher rates, none of which can be helpful with key government projects that have already been costed, such as HS2. As we progress into the post Brexit era ARC would prefer to see a more joined up approach at government level and what is really critical is the need for government to consult more fully with our industry at the point of policy making, not months or years thereafter.”
The changes to IR35 are set to apply from 6th April.