Barring exceptional cases, contractors working for the public sector through their own limited companies are now likely to be subject to a long-standing but controversial tax regime aimed at tackling tax avoidance, say employment tax experts.
This is due to proposed changes around the tax regime known as IR35. The proposed new rules, announced last month in Budget 2016, are designed to crack down on the use of limited companies, also known as personal service companies (PSCs). Contractors operating through PSCs in the private sector are also likely to be affected eventually, experts predict.
John Chaplin, executive director at professional services firm EY, told a seminar in London earlier this week that most public sector organisations will probably now move to a model that assumes they are subject to inclusion in IR35 “unless they can really, really prove otherwise.”
Chaplin’s comments came at an FCSA (Freelancer and Contractor Services Association) seminar at which government officials gave more details on the government’s plans to crack down on the use of PSCs in the public sector. The plans have come under fire from The Association of Professional Staffing Companies (APSCo) as they place an additional burden on recruitment agencies engaging contractors to decide whether a worker sits inside or outside IR35.
The government plans also include the planned introduction in April 2017 of new IR35 tests and a new digital tool that would provide certainty for engagers on whether a worker fell inside or outside of IR35.
Where the worker was engaged directly by the public sector body, that organisation would be required to put them on its payroll, and to account for and deduct National Insurance and income tax.
Stuart Farrow-Smith, head of employment taxes at business process outsourcing company Capita, agreed with comments made by Chaplin that, were the new rules to be implemented in the public sector, it was only a matter of time before they would be extended to the private sector. Although Julie de Brito, senior policy lead at HM Revenue & Customs, told the seminar the government had no plans to do so.
But on the assumption they were, Farrow-Smith went on to argue that the effects would be the same as those predicted by Chaplin in the public sector.
“As a large corporate it is all about risk, and the assumption is that you are going to fail (IR35) unless you can absolutely prove you are not (inside IR35),” Farrow-Smith continued.
Farrow-Smith went on to predict that decisions on individual workers’ cases would be removed from the business and replaced by a more centralised approach “because if you leave it to the business you are going to put the company at huge risk from tax and National Insurance”. He said another factor was the influence of senior accounting officers in large corporates. These are individuals who have a legal responsibility to ensure that an organisation has appropriate tax-accounting arrangements and controls in place, and have to sign this off to HMRC.
IR35 rules specifically challenge those people who supply their services to clients via their own company, often known as a PSC, or a limited liability partnership. These workers, according to HMRC, should be classed as ‘disguised employees’. Disguised employees are contractors holding a permanent position that do not pay the corresponding income tax and National Insurance contributions (NIC) a permanent worker would.
Derren Powell, Business Manager at ePayMe said: “These are extremely interesting views from EY and Capita and ones I wholly share. I’d also question and challenge the shelf life/product longevity of any PSC models within the outsourced payroll space, particularly within the public sector.”
“At ePayMe, we are staying true to our solutions. Whilst the vast majority of workers will fall within SDC, should a worker fall outside, we have a sustainable solution – either way, there is no grey area – Compliance has to be a given.”
Whether a worker or a business owner/influencer, ensure your risk is mitigated and engage a provider you can trust. The landscape is changing, and at pace – ePayMe is on hand to help. To find out more about our extensive offering of payroll solutions –contact us today on 0800 6226119.
Derren Powell
Business Manager
ePayMe
derren.powell@epayme.co.uk
Source: http://www.recruiter.co.uk/