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Off-payroll working legislation is looming, but confusion still reigns

30 January 2017

On 6th April 2017, the ‘Off-payroll working in the public sector’ legislation will come into force. It sits within the Finance Bill, which is only weeks away but few in the public sector will be prepared or even aware of the changes that lie ahead.

No doubt many will have been looking to the Spring Budget for some respite after another year of austerity and significant political upheaval. However, the legislation threatens to heap further uncertainty and confusion on beleaguered leadership teams across the public sector.

For those new to the matter, we are referring to a piece of legislation that could change the future of the British economy. It aims to reform existing intermediary rules, often known as IR35, which affects the tax treatment of those working primarily for their own, personal service company (PSC).

The legislation set for April will focus on PSCs working in the public sector and considers the liability and responsibility for determining whether an interim or consultant should be considered on or off-payroll for tax purposes.

From April 2017, the burden and obligation to check the tax status of a PSC operating within the public sector will fall on our clients, such as foundation trusts or local authorities.

After a period of consultation, the HMRC’s review document was published at the end of last year and offers some insight into the final form of the legislation.

Given our position at the frontline of recruitment in the public sector, we provided our feedback for the consultation to express concerns. But, taking a deeper look into the findings, it appears that the majority of stakeholders who responded and were named came from the recruitment, professional services and accountancy industries.

Of the 148 named-responses, fewer than a third of respondents were public sector bodies – notably major government departments, NHS Trusts and borough and city councils. The disappointing response rate suggests that some parts of the public sector might not appreciate the implications of the legislation. Or, more seriously, the ‘Off-payroll working in the public sector’ legislation might not have even made its way onto the boardroom agenda yet.

Clearly, the HMRC must do more to educate end-users of interims and consultants on this matter so that leaders can better prepare their organisations. At the time of writing, we haven’t seen the final version of the software tool that will assess whether a candidate falls inside or outside of the legislation. Naturally, this is a real concern.

Now, our clients will need to decide whether a worker should be treated as on- or off-payroll. No doubt, this may catch some organisations by surprise and the administrative burden of compliance will put further pressure on time and financial resources. Therefore, with a reliance on HMRC guidance, public sector organisations that are affected by the changes will need to become experts at quickly defining roles.

HMRC’s review document also notes that office holders and those in statutory positons, should be automatically considered ‘on payroll’. So, beyond the added weight of compliance, the increase in ‘on payroll’ workers will lead to a significant increase in public sector wage bills through the uptick in National Insurance contributions. This will be a double whammy increase in costs for public sector organisations given that we will see the introduction of the Apprenticeship Levy on the same day.

As for interims themselves, they will face dealing with a more complicated tax situation whereby they will have to claim back potentially overpaid tax through self-assessment. Interims will be taxed like a permanent employee but will still be denied the benefits enjoyed by their permanent colleagues, such as sick and holiday pay, employment rights, and pension and potentially face a complicated tax return.

While there are reasonable concerns over the impact of the ‘Off-payroll working in the public sector’ legislation on the public sector and the potential drain of interim talent to the private sector, which could raise costs even further, the immediate challenge must be in raising awareness of the legislation requirements and increase in costs for clients. The Financial Bill is inevitable, but so is the public sector’s need for quality interims and consultants.

Alongside our interims and clients, we will need to work more closely than ever in the coming months to navigate these changes and make sure that public services can continue to access the resource and expertise they need.

We have created a survey that explores awareness and understanding of the ‘Off-payroll working in the public sector’ legislation among our clients and interims. I’d be grateful if you could take a moment of your time to complete the survey using this link.

We hope that the findings will shine a light on the challenges facing end-users in the public sector organisations and interim managers themselves, but also support our call for more guidance to comply with the legislation from HMRC. 

Grant Speed is the Managing Director at Odgers Interim


Comments

John Lewis at 03/03/2017 15:24 said:

It will reduce labour mobility since interims will not be able to charge travel and accommodation expenses without incurring double taxation. It doesn't not impact me because I do not work in the public sector but I expect HMRC will extend it to the private sector.

The tool is now available at

https://www.gov.uk/guidance/check-employment-status-for-tax

but I would advise any contractors to visit using either ToR or a VPN

John Bridges at 31/01/2017 14:34 said:

Hi Grant, I can see how this would work sensibly for very senior and long-term roles, but for most interim managers this is an annoying and poor change, which may well reduce the willingness of interims to work in the public sector, or to expect and demand higher rates. Regards, John

Philip Lloyd at 31/01/2017 14:25 said:

The new guidance is badly misunderstood by the public sector. Recent workshops held for Government bodies have highlighted that the tool will not be ready for April, and HR staff do not believe that they can properly assess each job by that date. The inevitable reaction is one of over caution, or in the case of one public body already a knee-jerk reaction.

This legislation will have dire consequences initially for both the employer and the contractor, until a pragmatic and practical approach emerges allowing PSC interim contractors to exist.

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