Philip Hammond, Chancellor of the Exchequer, has confirmed in the ‘Blue Book’ of the Autumn Statement that suggested off-payroll reforms will go forward as planned.
“Following consultation, the government will reform the offpayroll 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.”
What this means for the recruitment agencies in the UK
This is a big blow to the UK recruitment agencies that offer staffing solutions to the public sector. This means that recruitment companies are now responsible for determining the employment status of the staff they supply – whether they are legitimately self-employed or disguised employees – and paying the correct taxes of these PSC contractors.
This will turn things upside down for recruitment agencies who will have to scramble to implement massive process changes. In less than 4.5 months, agencies will have to set up a whole new way of working, hire more staff, set up new hardware, carry out software implementations & integrations and more.
The announcement that the 5% tax-free allowance for workers that fall within IR35 will be scrapped makes a bad situation worse.
FCSA has condemned the move in a statement released today:
“…we are outraged that the 5% tax-free allowance for business expenses will be removed from off-payroll workers in the public sector. The new complexities around IR35 status means that professional contractors and interims will be forced into making deemed payments throughout the year, which in turn means that they will need more accountancy support going forwards to reconcile their financial affairs, and therefore more justification for the 5% allowance. Once again the hardworking freelancers and contractors who are propping up the UK economy are being penalised.”
Just when the industry is grappling with a legislation that imposes a heavy administrative burden, recruiting workers may get more difficult as some of the key benefits associated with temporary employment are shorn away. If the findings from IPSE, the Association of Independent Professionals and the Self Employed that “over half (54%) of so-called Personal Service Companies (PSCs) working in the public sector would leave the sector if an unfair Government proposal to change how they are taxed is implemented” come true, recruiting staff for public sector might get a lot more difficult.
Actions recruitment agencies will need to undertake
In order to comply with the new reforms, recruitment agencies will have to
- Use the HMRC online tool to determine each assignment for the contractors – whether it falls within or outside IR35
- Calculate, deduct and pay taxes for all the off-payroll workers that fall inside IR35
- Submit RTI reports for all the workers that fall within IR35
- Pay and bill payroll for workers falling outside the scope of IR35, followed by quarterly intermediaries reporting to HMRC
What makes the transition more difficult is the lack of information regarding HMRC’s digital tool for testing the employment status. Most of the responses to HMRC’s consultation exercise highlighted the fact that the processes set up by HMRC inject additional complexity into an already convoluted process. This is what the OTS, an independent office of HM Treasury, highlighted the fact that the online employment status tests may not be binding, which creates uncertainty. Also, the tool has not been widely tested or viewed, the chances of it not functioning perfectly cannot be ruled out.
The other complicating matter is the introduction of the Apprenticeship Levy – just at a time when recruitment agency payrolls will be increased with the PSCs being added and therefore possibly tipping them into the £3 million annual bill.
The way forward: let’s decode the Autumn Statement together
How can recruitment agencies continue to function smoothly while complying with the intermediaries legislation? We have been working hard to find a way and we invite senior level representatives of recruitment agencies on 6th December to our Decoding the Autumn Statement event.