The Association of Professional Staffing Companies (APSCo) has decried Budget proposals to reform IR35 legislation in the public sector as “unworkable, disproportionate and unreasonable.”
APSCo’s Head of External Affairs, Samantha Hurley, also believes that the new rules carry a risk of legal challenge. Her organisation has today launched an intensive lobbying exercise to amend the proposals.
At present, the legislation places responsibility and liability for determining whether an assignment lies within IR35 upon the individual worker. For Revenue-compliant Umbrella Company Employees, the task is relatively straightforward. Independent professionals working via Umbrellas have all due tax and NICs deducted on a PAYE basis. However, from April next year, the new proposals will transfer the responsibility for determining an assignment’s IR35 status to recruitment companies for all workers they place in the public sector. The recruiters will additionally become liable for any unpaid taxes.
Ms Hurley pointed out that there is no statutory test to establish employment status for IR35, with the result being that a number of factors are used to determine status. She said: “HMRC says it will introduce a simple test to help engagers decide whether or not IR35 applies. Given the large body of case law relating to this question, if there were a simple answer, I think the Courts would have found it. As it is, if HMRC is intending on producing an over-simplified test in line with the ‘supervision direction or control test’ which HMRC has introduced for other intermediary tax legislation, we are extremely sceptical that it will be appropriate.”
APSCo believes this is an unreasonable burden that is open to challenge in the law courts.
Ms Hurley explained that recruitment consultancies do not have close operational relationships with either the worker or end client, both of which would be necessary for them to determine tax status.
Typically, recruitment companies do not attend an end client’s site and would therefore have no direct overview of the work carried out or how services were performed. For recruiters to be able to apply the Revenue’s proposed test, they would have to obtain the necessary information from both the worker and the end client.
But, Ms Hurley asked, what if the worker or end client refused to supply the required information or gave inaccurate information? Recruiters would be liable when they lacked the means to verify any information, which “leaves the proposals wide open to legal challenge.”
Tax law holds that it is unreasonable to give parties obligations when they have no way of gathering the information needed to fulfil them, and the European Convention on Human Rights obliges all tax systems to be reasonable, proportionate, predictable and public.