Plans by HMRC to consult on taxing public sector contracting professionals as employees and placing them onto the payroll have been challenged by the Freelancer & Contractor Services Association (FCSA).

The FCSA was moved to act following a study reported by the Public Accounts Committee (PAC) in order to “ensure that temporary staff pay the right tax.”

The study refers to research conducted by Government departments seeking assurances on the tax status of temporary staff. During a recent FCSA-organised compliance seminar, a senior HMRC policy adviser asserted that only ten per cent of public sector contracting professionals who should apply IR35 rules actually do so.

However, the FCSA has drawn attention to the new research, which clearly demonstrates that, of 2505 Government department respondents surveyed, an overwhelming majority (2,248, or 90 per cent) satisfied the HMRC that they were fully compliant from a tax perspective.

PAC does in fact acknowledge that the Government relies on temporary contract staff as a valued resource to plug skills gaps. As a consequence, the FCSA is now questioning why the Revenue appears to be seeking to penalise this valued group when its own research shows exceptionally high levels of compliance. The trade body, which represents contracting Umbrella Company Employees and other freelancers, says that the public sector’s regulatory administration and burden, as well as costs, would increase as a direct result of placing temporary workers onto payroll.

FCSA CEO Julia Kermode said: “With such stark contradictory figures in the public domain you could be forgiven for not knowing which to believe. The Public Accounts Committee data is credible and evidence-based, and the results clearly prove 90 per cent compliance. By comparison, there does not appear to be any substantiated data to support HMRC’s 10 per cent compliance claim, or at least none that they are able to share publicly.”

She went on to say that proceeding with a consultation that seems to have no supporting evidence is inappropriate and appears to be based on a fundamentally incorrect rationale. The Government’s own findings, she noted, suggest there is no justification for reform, but if it proceeds, the implications of the proposed changes “will be significant.”

At the FCSA compliance seminar last week, the new IR35 rules planned by HMRC were discussed. One expert, John Chaplin (Executive Director of EY), predicted that they would have the effect of reclassifying virtually all contracting professionals working through their own Personal Services Companies as subject to the rules, “unless they can really, really prove otherwise.”

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