Under the new off-payroll rules the Government has decided to implement processes within its own departments that 12 years ago HMRC said “would be inappropriate and burdensome” – a move which will damage public sector service delivery.
The new off-payroll rules being introduced this month apply to contractors working for a government client and earning over £219 per day on assignments lasting longer than 6 months. These contractors must demonstrate that they are genuinely self-employed and outside the IR35 legislation, or else go on the payroll. This latest unworkable legislation demonstrates that the one element of common sense from the original IR35 legislation has just been thoughtlessly dumped by a coalition government that does not get it.
In November 1999 when IR35 was first mooted HMRC stated that “it would be inappropriate and burdensome to require a client to check” when speculating on how it might tackle the thorny problem of disguised employment. It added that “what is required is a system to allow clients, or potential clients, to check (quickly, easily and at minimum cost) whether or not they can make payments gross.” HMRC even proposed that workers caught by the legislation would find that “the client will account for PAYE/NICs on relevant payments made to the intermediary or to the worker – broadly following existing PAYE/NICs rules.”
Prior to the legislation going live in April 2000, lobbyists worked to have these proposals removed and contractors were expected to self-certify. HMRC then tried imposing the rules without much success for 12 years and recently created three new specialist teams to help.
So imagine our surprise and shock when we learned that the Government is imposing a new set of rules on its own departments that its own tax-gathering team decided 12 years ago would be “inappropriate and burdensome”!
The reality is that there will be as many implementation strategies as there are government departments – some managers in the public sector will accept contract reviews by external agencies, retain genuine contractors and keep their departments running smoothly. Others may take a more cautious approach and refer all their contractors to HMRC.
The result will see many contractors being deemed as inside IR35 and wrongly so, many contractors leaving public sector roles, voluntarily and involuntarily if their public sector client or HMRC deems them as such. This could then lead to contractors taking legal action of breach of contract if they subsequently prove in court that HMRC was wrong about their IR35 status.
So the brain drain continues as an important resource to the public sector dwindles. Those departments accepting non-HMRC yet perfectly legitimate contract and working practices will attract the best and those operating more anachronistic policies will be left with the rest, or be charged a 20%+ premium to make up for the loss of net income for those highly competent contractors prepared to work on the payroll.
The result of this extra unnecessary red tape – higher costs, less qualified workers and poorer public service delivery. Cameron and Clegg just don’t get it!
About the author:
Dave Chaplin is the founder and CEO of ContractorCalculator.co.uk, www.contractorcalculator.co.uk, an online resource for freelancers and contractors that has become the expert guide to contracting. Dave has recently published the second edition of The Contractors’ Handbook which provides all the advice freelancers and contractors need whether they are new to contracting or experienced old-hands.