Chancellor Philip Hammond has said the government is to go ahead with plans to reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company, in a bid to tackle high level of non-compliance with the current regulations
This measure relates to individuals engaged through an intermediary, typically a personal service company (PSC).
The new rules will require public sector employers, and those providing labour services to the public sector, to assess whether they are exercising control, direction or supervision over the worker. If that is the case, they may need to withhold PAYE and/or National Insurance contributions (NICs) from the payments they make to the PSC, essentially moving potential liabilities from the PSC to the engager.
In response to feedback during the consultation held earlier this year, the 5% tax-free allowance available to those engaged through an intermediary will be removed for those working in the public sector. This reflects the fact that workers no longer bear the administrative burden of deciding whether the rules apply.
This change will only apply to engagements with public sector end clients, both direct and through agencies or other third parties. The government proposes to apply the change to public sector bodies as defined in the Freedom of Information Act 2000 and the Freedom of Information (Scotland) Act 2002.
The measure will be effective from 6 April 2017 and HMRC analysis suggests it will bring in an additional £20m to £25m of tax annually.
In its Autumn Statement commentary, BDO points out that making an assessment of the status of someone engaged via an intermediary ‘may be a subjective and complex exercise, and while no detailed legislation has been issued yet, this change is likely to add to the administrative burden and operating costs of public sector organisations.’
The firm also cautions that the definition of the ‘public sector’ is much wider than many may think. It says for workers with skillsets that are in high demand, the new rules may result in an increase in their day rates, while for other workers this may negate the potential benefits of operating via a PSC. However, it points out that in some sectors it is quite common for workers not to be able to obtain work unless they have a PSC.
Mark Groom, tax partner at Deloitte, said: 'This shift in liability will require significant systems and operational changes by public sector bodies in order to comply. They are also waiting for guidance from HMRC and a simplified approach to test whether it’s employment or self-employment. With four months to go, engagers with large numbers of contractors through PSCs now have a lot to do.
‘Although there was no indication that the rules will extend to the private sector, most employers in the private sector expect this will follow in due course.’
