The Government’s final guidelines for regulating off-payroll staff will drive many vital contractors currently working through limited companies out of the public sector and possible out of contracting altogether, undermining the Coalition’s pledge to award more contracts to SMEs, the PCG has warned.

The freelance body has obtained a Treasury document purporting to be final guidance, which suggests that public sector off-payroll rules will be determined by the outcome of the HMRC’s business entity tests. The Revenue’s version of these tests came under heavy fire from industry experts for being unfairly weighted – most non-PAYE umbrella contractors would end up designated as at medium to high risk of IR35 liability.

If the test results suggest that a public sector contractor is not a low IR35 risk, he or she must provide “assurance in a different way” or face a hefty bill for PAYE and NICs after the designated six-month period for all contracts deemed to be within IR35. Those affected can opt for an HMRC contract review.

There is a big fault with this alternative, the PCG believes. Most interims and contractors “will be reluctant to seek assistance from HMRC to verify their IR35 status.” This is code for saying that people might be inclined to turn to a Mother Theresa figure for help, but not Genghis Khan.

The PCG has pledged to do everything in its power to reform the measures, but there is no prospect of preventing them – they will be implemented. The ranks of umbrella companies could be about to swell.

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