The HMRC ahead of the 2021 IR35 roll-out, republished two 2017 research studies that investigated the effects of the payroll working rule in the public sector on education sites and employment agencies.
In 2021 the HMRC commissioned IFF Research and Frontier Economics to gather evidence of longer-term effects of the off-payroll working reform implemented in the public sector in 2017. Findings for both reports combined were gathered from 51 quantitative and 40 qualitative interviews. Insights also include the anticipated impact of the reform in 2021.
EDUCATION SITES
The data concluded that the reform did not have any significant effects on education sites over the longer term and that there was no decline in PSC (Personal Service Company) engagement following its implementation.
Further findings revealed that education sites still felt reluctance around making status determinations. Respondents at education sites felt that the rules were complex and confusing to comply with and feared making incorrect status determinations and repercussions thereof.
The overall sentiment regarding the usefulness of the HMRCs website was that it could be improved. Particularly how the rules should be applied. Over 57% of respondents felt that the new CEST tool (Check Employment Status for Tax) launched in 2019 was very helpful. Some respondents raised limitations of the tool where inconclusive results were given; and lack of guidance on what to do in these circumstances.
Vast majority of education sites that engaged off-payroll contractors via PSCs in 2019 related no change in the number of off-payroll contractors. Whilst 58% of education sites found complying with the reform fairly easy, 40% found the transition to be difficult. Reasons for this included: vague and difficult to understand information, trouble using the CEST tool and lack of legislation familiarity.
Many education sites felt that they would be able to comply with the upcoming 2021 reform whilst others anticipate an increase in the number of disputes with contractors due to lack of understanding of the off-payroll working rules.
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AGENCIES
Agencies reported that although the numbers of contractors on their books overall remained stable, there was a decline following the implementation of the 2017 reform. Some attributed the decline to UKs exit from the EU and the COIVD 19 pandemic whilst others assert the decrease to the 2017 reform. According to their experience, PSC contractors, due to the perceived effect of the rule on their working relationships and net pay, would leave the contractor market and transition to 1) working on the payroll of agencies and 2) working through umbrella companies.
Some agencies reported an increase in rates paid to PSC contractors in the public sector following the implementation of the 2017 reform. The reason is that contractors demanded higher gross pay from clients to compensate the reduction in net pay due to tax deductions.
Many agencies encountered an increase in administrative burden around placing contractors, ensuring client compliance and updating contracts. They also made internal changes to process to accommodate the management of the 2017 reform. These changes included: introducing payroll systems, compliance checklists, arrangements with umbrella companies.
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If you have any questions or concerns about your IR35 status then please do connect with us on 01252 863700 or email info@epayme.co.uk. ePayMe are one of the UK’s leading providers of compliant payroll and accountancy services to contractors, temporary agencies and small businesses. Our bespoke systems utilise the latest software and link directly to HM Revenue & Customs using RTI (Real Time Information) system, ensuring that pay calculations are always based on the correct tax code.