At Budget 2015, Chancellor George Osborne stated that from April 2017 personal service companies (PSC) who contract in the public sector will face investigation by their clients to ensure their tax affairs are in order.

The Chancellor reported that inappropriate use of off-payroll arrangements by the public and private sectors is rising, resulting in around £440m a year in lost tax. George Osborne announced that from April 2017, all public sector bodies will be responsible for determining whether off-payroll arrangements should apply, and for deducting tax and National Insurance at source.

Documentation published at the time said: ‘From April 2017 the government will make public sector bodies and agencies responsible for operating the tax rules that apply to off-payroll working through limited companies in the public sector. The rules will remain unchanged for those working in the private sector. The government will consult on a clearer and simpler set of tests and online tools.’

Osborne said: ‘Public sector organisations will have a new duty to ensure that those working for them pay the correct tax rather than giving a tax advantage to those who choose to contract their work through personal service companies.’

He also announced plans to develop a simpler set of tests and online tools to provide a clear answer as to whether off-payroll arrangements should apply in a particular case. Treasury forecasts suggested that the new measures will raise an additional £555m in tax by 2020–21.

In March, HMRC said a formal consultation would be published on the proposals, although this has not yet been issued.

Now the PAC has published a report on government’s use of consultants and temporary staff which says that since 2012, the number of temporary staff employed by departments has increased and 94% of specialists engaged through the Contingent Labour One agreement were contracted through PSCs on an off-payroll basis.

However, FCSA says that PAC’s report also records that in 2013–14, departments sought assurance on the tax affairs of 2,505 temporary staff and received satisfactory assurances from 2,248. The pressure group claims this implies 90% of temporary workers are compliant from a tax perspective. 

FCSA says the PAC report also acknowledges that the government relies on the temporary workforce as a valuable resource to fill a skills gap, and argues the impact of putting temporary workers on the payroll will increase regulatory administration and burden, increase costs and effectively discriminate against freelancers working in the public sector.

Julia Kermode, CEO of the FCSA said: ‘I would argue that it is inappropriate to persevere with a consultation which appears to have no supporting evidence, and where the rationale seems fundamentally incorrect.  The implications of the proposed changes will be significant, and based on government’s own findings there seems to be no justification for reform.’

HMRC’s information note on Off-payroll working in the public sector: reforming the intermediaries legislation is here

PAC’s report on the use of consultants and temporary staff is here