A packed APSCo meeting last week saw members voicing frustration at what was deemed as a lack of clarity and information around the proposed public sector IR35 reforms from key members of HMRC’s employment status policy team.
Following the Government consultation over the summer on proposals which will give recruitment firms and other engagers liability and responsibility for defining the employment status of Personal Service Company (PSC) contractors for tax purposes, HMRC policy team members, Neil Chattell and Julie De Brito took questions on the reforms including the proposed new digital tool which will be used to define a contractor’s employment status.
However, members were left frustrated at the lack of concrete answers around a number of issues including the time frame in which recruitment firms would be expected to implement the changes, the scope of the reform in particular whether it covers placements into contractors delivering services to the public sector and HMRC’s opinion on the risk to the public sector of losing access to talent.
“You have had a good 2-3 years to prevaricate and procrastinate on this issue”, said one member. “And yet we probably won’t have any real detail on the guidance until the March budget which gives us a matter of weeks to implement any changes.”
There was also frustration over the new digital tool with members asking if there would be a legal defence if they were to input information which they were given by a client or contractor in good faith but which later turned out to be incorrect – or if something had changed about the nature of the assignment to which the recruitment firm was not party. The only answer HMRC could give was that: ‘they were looking at it’.
When asked specifically whether they had looked at the access to talent issue in terms of the almost inevitable flight of in demand skills – and specifically whether a cost assessment of how that would impact on the public sector had been completed, HMRC had no substantive answers.
Tania Bowers, APSCo’s General Counsel, who was at the meeting, said:
“HMRC were unwilling to give any steer on their approach to the reforms following consultation. Our members were left frustrated at the number of fundamental issues on which they are still awaiting answers, not least how they will accurately determine firstly who is in scope, then the correct employment status of workers, a complex legal decision in itself and lastly calculate the correct tax computation. They are very concerned they will be left with no more than a matter of weeks to implement changes in Spring 2017.”
“Further, the access to talent question is key. In fact a report last week in Computer Weekly revealed that there had been ”a mass walk out of IT contractors” from a Ministry of Defence agency which has left several major IT projects on hold as a result of the agency seeking to enforce PAYE taxes on contractors. If these reforms go ahead, the cost to government for flexible labour will increase. The cost of the additional PAYE tax and National Insurance Contributions will either be passed on to the public sector end-client, along with other statutory costs or be borne by the contractor. Our members are telling us that skilled, independent contractors are likely to leave the public sector rather than see their rates reduce significantly, potentially leading to a talent drain from central government and the broader public sector just as the UK triggers Article 50.”