Members of the Association of Professional Staffing Companies (APSCo) have made stinging criticisms of HMRC for what they perceive as its seemingly obstinate refusal to provide clarity and further information about its planned public sector IR35 reforms.
The proposed changes will transfer responsibility for determining the tax status of personal service company (PSC) contractors in the public sector from the individual contracting professionals to their engagers, whether these are recruitment agencies or end-clients.
During the consultation on the proposals this summer, the reforms were roundly condemned as unfair and unworkable by a wide range of industry experts. These included the Recruitment and Employment Confederation (REC), the Association of Independent Professionals and the Self-Employed (IPSE), Umbrella Company trade associations PRISM and the Freelancer and Contractor Services Association (FCSA), Umbrella Company group Unitum and APSCo itself.
All of these groups warned that the reforms would drive engagers into designating PSC contractors as employees for tax purposes in order to avoid the risk of liability. This would result in contractors being taxed as employees but receiving none of the statutory benefits enjoyed by actual employees, including employer pension contributions, paid holiday leave, maternity leave and sick pay.
Research conducted by both the FCSA and IPSE strongly suggests that most contractors will stop working for the public sector rather than be taxed in this way.
Last week, HMRC policy team members Julie De Brito and Neil Chattell took questions about the proposed reforms from APSCo members. These included questions about the Revenue’s new digital tool for determining a contractor’s employment status (i.e., inside or outside IR35).
In particular, APSCo members wanted clarification on whether there would be a legal defence if they input data into the digital tool that had been supplied in good faith by a contractor or client but which later turned out to be incorrect. However, no concrete answers were forthcoming: HMRC simply stated “they were looking at it.”
Other questions involved concerns about the timeframe within which agencies will be expected to implement the reforms and the scope of the changes. HMRC’s views on the risk posed to the public sector by the loss of talent were also sought but were not substantially conveyed.
Clearly frustrated by HMRC’s refusal to give any steer on its approach to the fundamental issues of the reforms, APSCo’s General Counsel, Tania Bowers (who was at the meeting), said that access to talent was key. She went on: “Our members are telling us that skilled, independent contractors are likely to leave the public sector rather than see their rates reduce significantly, potentially leading to a talent drain from central Government and the broader public sector just as the UK triggers Article 50.”