The Spring Budget, held on Wednesday 8 March 2017, shed no further light on the changes to off payroll working in the public sector, which will be coming into force from 5 April 2017. Further guidance was however released following the Budget, which included little changes to the draft legislation other than the optional choice on whether or not to take into account workers’ expenses.
There was, however, more change last week when HMRC finally released its Employment Status Service (ESS) to enable recruiters and engagers to assess whether their workers are deemed to be off payroll workers. The new service can be viewed here.
APSCo, who have lobbied extensively with HMRC is not convinced that the design of the tool is appropriate, and many of the questions are ambiguous. However, HMRC has confirmed that it “will stand by any results given by this version of the tool, and that engagers and recruitment agencies can rely on the results if the correct information has been entered”.
It is the responsibility of the public sector body and the agencies who pay workers to determine whether the employment status test is met and then to make payments to the PSCs after tax and national insurance. This was confirmed in the draft legislation, with the final legislation due to be released on 20 March 2017.
Recruitment companies and engagers who supply workers to public bodies will be affected. These include schools, councils, NHS, BBC and any other public authority. These new rules have to be applied from April 2017.
To assess each of your workers is going to be time consuming and I would imagine the worker would like to know sooner rather than later if their limited company is going to be deducted tax from their April 2017 payment. Also, the engager is going to want to know if they are now going to have to pay an extra 13.8% employers NIC that they had not budgeted for. It is therefore imperative you review your workers’ status now and ensure systems are put in place to deal with this going forward.
This then leads on to whether the worker can review their contract and negotiate a better deal and whether the worker would be better off being employed, in order to obtain the employment benefits and pension contributions they would be entitled to under an employment contract. If you are deemed to be caught by the new rules, and classified as one of the off payroll workers, then all is not lost as you will be entitled to the Agency Workers Regulations (AWR) where you will be entitled to holiday pay and other benefits once you have been working with the engager for more than 12 weeks.
If you are not sure on the work status of your employees, you can review the full guidance HMRC has released here.
It has been predicted that this is the first step towards rolling these rules out to the private sector. It is going to be interesting to see the feedback from April 2017 on the impact this legislation is having on the job market, the profitability of recruitment agencies and whether this is the beginning of the death of the personal service company.
Finally, I have read commentary that basically infers that you should be undertaking your own status checks and not relying on HMRC’s ESS test, however it fails to mention that the responsibility to determine a workers’ status has now moved from the worker to the engager or recruitment agent. Indeed, the public sector body has been given responsibility for determining the worker’s status, but it is the agency that is still responsible for deducting the correct employment taxes. This is a fundamental shift in responsibility and one that should not be taken lightly in view of potential penalties that HMRC will apply if the incorrect status is applied.
More information about these new rules can be read in my colleague’s blog, IR35 Changes: Minor Breakthrough.
If you are concerned about these changes or would like to discuss the best way forward for your agency and how to deal with off payroll workers, contact firstname.lastname@example.org.