The Treasury has launched a consultation on reforming the intermediaries legislation (IR35) governing off-payroll working in the public sector.
The rules apply to workers who operate through an intermediary, such as their own limited company, in the public sector. It includes engagements through third parties such as employment agencies, outsourcing companies and consultancy firms who supply workers.
In the consultation paper the Treasury said: “From April 2017, where workers are engaged through their own limited company, often known as a personal service company (PSC), responsibility to apply the intermediaries rules will fall to the public sector body, agency or other third party paying the worker’s company. The public sector body, agency or other third party will be liable to pay any associated income tax and National Insurance. Where individuals are working through PSCs in the private sector, the existing rules will continue to apply.”
The consultation paper said the Government believed the public sector had a duty to ensure those working in the public sector paid the correct amount of tax and National Insurance.
It noted that many public sector bodies were already required to check some of their off-payroll workers were paying the correct taxes. “Procurement Policy Note 08/15 requires that for any individuals engaged for more than six months and paid more than £220 a day departments and their arms-length bodies must include a contractual provision that allows the department to seek assurance that the worker is paying the correct amount of tax and National Insurance and to terminate the contract if assurance is not provided.”
The paper added: “Departments and their arms-length bodies are then required to take a risk-based approach in deciding which contractors to seek formal assurance from. Departments are also asked to provide HMRC with the personal details of any workers where the engagement has either been terminated, ended as a result of assurance, or ended before the assurance process has been concluded.
“These guidelines also specify that, regardless of their tax arrangements, board-level officials and those with significant financial responsibility must be on the payroll of the department (or other employing body). This applies unless there are exceptional circumstances and this must not last longer than six months.”
The Treasury said the latest reform - announced at Budget 2016 – would further strengthen this responsibility as it would apply across all public sector bodies and to all the workers they engaged who worked through PSCs.
“This means that where an individual provides services to a public sector engager through a PSC and is doing a similar job in a similar manner to an employee, both they and their engager will be required to pay broadly the same tax and National Insurance as if they were an employee,” the consultation paper said.
“This will be the case whether the individual is engaged directly or through a third party such as a recruitment agency. Taxes will be reported through the Real Time Information system, and paid using HMRC’s accounting procedures which public sector organisations and agencies will already be using for any individuals they employ directly.”
HM Revenue & Customs is to provide a new interactive online tool “to make the process of determining whether or not the intermediaries rules apply as simple and certain as possible”.
This tool would provide a real-time and definitive HMRC view on whether or not the rules applied to a particular engagement, the consultation paper said. “This will support the decision making process not only for public sector employers, but also for individuals working through PSCs in the private sector.”
The consultation closes on 18 August 2016.