Further warning against planned public sector IR35 changes

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Contractor accountancy firm Pocket Accounts LLP has submitted its formal response to HMRC’s consultation paper “Off-payroll working in the public sector: reform of the intermediaries legislation” – and warns that the proposals will impact all public sector organisations using PSCs. This will place vital public services, such as the NHS, at an unfair disadvantage with the private sector, compounding already pressing staffing shortages.

The Revenue proposes to transfer responsibility for determining a PSC contractor’s IR35 status from the individual contractor (who currently carries this duty) to the engager (recruitment agency or public sector end client).

This, the accountancy firm predicts, will not result in the intended outcome of increasing tax revenues but instead will drive up the price of labour. The costs of administering assessments and payroll will consequently increase and render the public sector a less attractive proposition for contracting professionals, who are likely to migrate to the private sector in droves.

End clients and those further up the supply chain are, the accountants note, too remote from the actual day-to-day work of the PSC contractor to provide sufficiently accurate information or to provide it in a timely fashion.

The response takes issue with HMRC’s assumption that determining IR35 status can be established with certainty on day one. Firstly, there is often a need to contact a third party to request additional information to respond accurately, and this may not be received before work commences. Secondly, determining whether the engager has control over how a contractor’s work is undertaken often simply cannot be answered accurately on day one, as it frequently only becomes clear once the assignment is already in progress.

A key statement in the response underlines the fact that the transfer of responsibility for tax status from the contractor to another party will make the latter, by default, integral to the process, thereby influencing the decision on a matter that does not directly affect them but has a large impact on someone else – the contractor.

The passage continues:

“… the IR35 status result only affects the worker undertaking the assignment, but the recruiter or end client will assume the low risk approach, of placing all workers within the scope of IR35, to protect their own interests and irrespective of the true status. This will, in turn, force the contract price up unnecessarily to cover employer’s NIC and the additional cost of administration. Skilled workers, whom should be able to operate outside of IR35 but for the risk adverse approach of agencies, will begin to reject public sector placements in favour of private sector work and better pay.”

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