A series of amendments to the finance bill were laid before Parliament on the 20th March 2017 with one particular amendment making significant alterations to the IR35 legislation coming into effect from the 6th April 2017.
The new IR35 legislation makes public sector hirers responsible for determining if workers utilising personal services companies or other intermediary vehicles are caught by IR35 or whether they are genuinely self-employed. When a worker is caught by IR35, the party who makes payment to the worker, usually a recruitment agency, would be responsible for deducting all necessary tax and national insurance contributions.
A key proposed change now passes ultimate liability of working out whether IR35 applies back to public sector hirers. This will mean that the hirer will be liable if they do not take reasonable care when making a decision as to whether IR35 applies.
A diverse range of industry bodies that represent recruitment agencies, umbrella employers and accountancy service providers have broadly welcomed the IR35 legislation amendments with some remaining concerns however. Some of the standout reactions were as follows:
The Association of Recruitment Consultancies (ARC) chairman Adrian Marlowe welcomed the amendment, making clear that without the amendment the IR35 legislation was “heavily flawed”.
Marlowe went on to state “Even now the arrangement still has loose ends in that the hirer only has to inform the agency of the IR35 status before the contract starts and there is no mechanism in the event of subsequent adjustments to the arrangements, therefore still leaving the agency exposed in those circumstances. But the inclusion of this care test along with strict time limits, coupled with a transfer of liability in the event of hirer breach, now passes the ultimate liability quite correctly back to the hirer.
“The legislation still leaves much to be desired as it has the effect of charging a 13.8% employer NICs amount onto the agency, and adds on an Apprenticeship Levy charge where the agency payroll exceeds £3m per annum. These charges are unfair, particularly given the potential impact on current contracts, the lack of transitional provisions and the administrative effort required to address what could amount to a very significant loss for agencies.
“The impact on public sector hirers has yet to be fully seen, as I regularly read reports that contractors are pulling off site and/or are charging higher rates, none of which can be helpful with key government projects that have already been costed, such as HS2 [high-speed rail project].
“As we progress into the post Brexit era, ARC would prefer to see a more joined up approach at government level, and what is really critical is the need for government to consult more fully with our industry at the point of policy making, not months or years thereafter.”
Julia Kermode, the CEO of the FCSA (umbrella and accountancy trade association) additionally provided her thoughts on the amendment. She stated “It will be interesting to see how the new legislation works in practice, particularly on the onus of the public sector hirer taking reasonable care when it comes to determining status and if any public sector bodies will become the feepayer in reality. Notwithstanding, this provision is good news overall as it should avoid ‘wholesale’ approaches of hirers deeming all contractors to be inside IR35.
“6 April is only a matter of weeks away and the impact of the legislation is still going to be significant. I would like to remind HMRC that none of these IR35 changes would have been necessary if HMRC had enforced the original IR35 legislation over the last 17 years.”
Source: Recruiter (http://www.recruiter.co.uk) March 21st 2017 - Industry bodies welcome IR35 amendment