New IR35 public sector proposals could make agencies responsible for contractor PAYE tax

HMRC’s latest consultation “Off-payroll working in the public sector: reform of the intermediaries legislation”  announced on 26th May 2016 relates to IR35 and once again puts agencies squarely in the firing line, this time for agencies supplying into the public sector. Public sector bodies include the NHS, educational establishments, local and central government, the BBC, and Channel 4.

For most agencies, IR35 is currently a commercial consideration relevant to the contractor with no tax consequence for the agency.  However the proposals in the consultation, intended to apply from April 2017, would make IR35 a significant concern for public sector suppliers. The agency which contracts with the personal service company (PSC) will be responsible not only for assessing whether IR35 applies, itself a far from straightforward issue, but also for deducting PAYE and NICs from payments it makes to the PSC and accounting for employers NICs where it concludes that IR35 applies.

Theresa Mimnagh, Associate Director at Lawspeed, said “the effect of this proposal, if implemented, is likely to be significant, adding additional administration and risk into supply arrangements. This proposal along with changes to travel and subsistence, agency tax rules and the introduction of reporting requirements, effectively makes recruiters liable for the tax affairs of others in the recruitment chain. It is vital that recruiters understand the risk that they may face, steps that can be taken to minimise this risk, and the other models or options which may be available”.

Lawspeed will be discussing this consultation, and a whole range of other tax-related issues, at its forthcoming “Taxing Times” seminar in London on 16th June 2016. “Agencies face a particular number of potential threats as a result of the recent tax changes and we will be reviewing all of these, clarifying the actual position and advising upon practical steps that can be taken to avoid losing out”, says Mimnagh. The HMRC’s consultation closes on 18th August 2016. 

For more information on this subject please call Lawspeed on 01273 236236