One of the UK’s largest group of Umbrella Companies, Unitum, have submitted their response to HMRC’s consultation on “Off-payroll working in the public sector,” highlighting a number of measures in the Revenue’s proposed reform of employment intermediaries legislation that are likely to result in unintended damaging effects.

The responses contain a stark warning that the reform of IR35 rules for public sector contracting professionals operating through their own Personal Service Companies (PSCs) will significantly impact all public bodies, placing them at an unfair disadvantage against the private sector. The NHS has already suffered from fee caps and price bands. The new IR35 reforms could, the respondent warn, “once again prevent the supply of workers to the NHS.”

Unitum agrees that addressing the issues of “mutual obligation” and “control” would be the optimal way of quickly excluding engagements that obviously fail IR35. However, they consider the first question (concerning the right to personal service) insufficient, as it simply asks if the engaged workers are undertaking the work themselves. The answer would, of course, be affirmative for the majority of PSCs. Instead, they propose that the first question should be: “Is the worker required to complete the work themselves?”

HMRC’s assumption is that it will be possible to simply and immediately determine whether there is control over the manner in which work is challenged. The respondents explain that “the reality is that this usually becomes more clear once the assignment has started and is well underway.” A better way of addressing this would be to have a predetermined assignment that incorporates the IR35 status, thereby managing expectations from the outset.

The Revenue’s proposals to transfer liability for income tax and NIC payments from the contractor onto the recruiter or end client comes under heavy fire. This will have the effect of making the engager or end client integral to the assessment process, even though they will not be directly affected by it (the contractor will).

Engagers or end clients will be encouraged to adopt the lowest-risk approach if this comes into effect, placing all contracting workers within IR35 – a move that will drive up the contract price, as most placements will become caught by IR35 irrespective of proper assessment.

Skilled contractors, who should be able to operate outside IR35 were it not for the low-risk approach of engagers and end clients, will start voting with their feet and rejecting public sector placements in favour of the better pay available in the private sector.

Colin Howell, CEO of Unitum, has been invited by HMRC’s Treasury team to attend a review meeting next week.

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