New IR35 rules, which from 6th April will affect thousands of contracting professionals working in public sector bodies (PSBs), have come under further fire, this time from the Association of Taxation Technicians (ATT).
The ATT has urged the Government to clarify ahead of the rule changes how contractors affected by the new regime may embark on an appeals process if they disagree with their hiring PSB’s decision.
Such a scenario would arise if a contracting professional is required to pay more tax because an NHS or other PSB hirer has designated him or her as an employee rather than a genuine contractor. As matters stand, there appears to be no mechanism for permitting that contractor to appeal the decision.
The Co-Chair of the ATT’s Technical Steering Committee, Michael Steed, said that urgent clarification from the Government is needed on the new rules where they involve people contracted to work for a PSB via an intermediary (typically a recruitment agency).
He said: “Shifting the liability to assess whether an engagement is akin to employment or self-employment to the public sector body may lead to some decisions that workers find arbitrary, inaccurate and unfair. It is disconcerting at this stage that there has been little debate or guidance on how such a worker can contest or appeal decisions of the public sector body.”
Currently, should a contract be designated as inside IR35, an employment intermediary must operate PAYE income tax and National Insurance Contributions (NICs) at the close of the tax year on any income received that has not already been passed on to the worker in the form of pay during the tax year.
However, from 6th April, PSBs will be responsible for the IR35 status of contracting engagements. Should the contract be deemed inside IR35 by the PSB end-client, the recruitment company or PSB that pays the contractor’s personal service company will be required to deduct tax and NICs in a similar fashion as for employees.
The draft legislation currently includes no provision for contractors who believe that they should not be treated as employees to have recourse to appeal the PSB’s designation.
Contracting professionals who worry that they may be affected by the rule changes and mistrust HMRC’s just-released online Employment Status Service, which has been sharply criticised by contractor tax specialists Qdos and contracting expert Dave Chaplin, may wish to take up the latter’s suggestion and seek an alternative IR35 status test.
Umbrella Company group Unitum offers a free online IR35 questionnaire for contractors. Devised by tax experts and approved by a barrister, it is available here.