The (un)intended consequences of Off Payroll changes in the public sector!

Taxes 1015399 1920

The (un)intended consequences of Off Payroll changes in the public sector!

It’s likely that if you are reading this, you have some comprehension of the changes taking place in the public sector regarding ‘Off Payroll’ workers. 

Now that things are becoming clearer (or perhaps less clear as time goes on!), and public bodies are starting to appreciate that changes are taking place, they are starting to react and communicate with their agency suppliers / contractors / temporary workers. Unfortunately, this communication is not always clear, fair or correct. This is not the fault of the public body, but rather the insanely late ‘guidance’ and complete lack of the ‘tool’ promised by HMRC to make the decision as to who is inside and who is outside the rules.

The (un)intended consequence of this is that almost all public sector bodies are making the sweeping assumption that ALL contractors are caught by the rules. I am being a little facetious with my use of brackets as the sceptical part of me thinks that this is the completely INTENDED outcome as far as HMRC are concerned.

Generally, communication from the public sector, goes something like this:

We have already undertaken some work in this respect.  Initial assessments of placements have indicated that they are all deemed to be caught under the new IR35 rules. We, therefore, consider the most prudent approach to take post April 2017 would be to treat all engagements/placements as falling within the scope of the new rules.  This will significantly reduce the level of administration and communication between us.

Logical you might think, a sensible approach. Yes, it will save a little admin, reduce need for communication and discussion around individual assignments. But it will come at a huge cost to the public sector, the worker, and to fairness as a whole.

Public sector – by implementing this sweeping change, anyone who is a true contractor in their own right (taking the risks and costs of self employment, no employment rights, no paid holidays, no sick pay, no maternity pay, no pension contributions etc etc) will experience a unjust reduction in their take home pay. The result – they will either leave or become far more expensive (both might not be immediate, but they will happen). Either will be very painful for the public sector.

Contractor – if genuinely a contractor in their own right, and genuinely falling outside of the Off Payroll rules, they will be treated as an employee (without any rights or benefits) and taxed accordingly. (a note – HMRC says that the employment rights and benefits are provided by the contractor’s own ltd company – yet they are taxing that company as an individual - the additional cost of a contratcor should cover these 'employment rights' their ltd company needs to provide)

Unfairness – HMRC claims that these rules will make the tax situation fair, with ‘deemed’ employees paying the same as actual employees. However, with the sweeping assumptions shown above, is there not an equal but reverse issue with genuine contractors paying far more tax than they should.

There has been a vast amount of opposition to these changes, and not just from the contractor community. Many public bodies and representative groups have publicly opposed it, but the concerns continue to be ignored and HMRC plough on regardless.