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Industry bodies welcome finalisation of IR35 legislation

March 23, 2017  /   No Comments

Industry bodies welcome finalisation of IR35 legislationIndustry bodies representing recruiters and umbrella companies have welcomed an amendment to the Finance Bill, passed this week, that transfers ultimate liability of working out whether IR35 applies back to public sector hirers.

From next month, public sector end clients will be responsible for determining the status of a contractor’s assignment to supply services through a Personal Services Company (PSC) or LLP, as outlined in the Finance Bill 2017.

The final IR35 legislation includes a new responsibility on public sector bodies to take ‘reasonable care’ when determining the contractor’s tax status and, consequently, they will become liable for covering taxes and National Insurance Contributions should HMRC decide that ‘reasonable care’ was not taken in making the decision. Under the draft legislation, the recruitment firms were saddled with this burden.

In addition, contractors now have a legal duty to notify recruiters whether she or he supplies services through a PSC, an LLP or through another individual and, in addition, Managed Service Companies now also fall within the Off Payroll rules.

Commenting on the final legislation, Tania Bowers, General Counsel at the Association of Professional Staffing Companies (APSCo), said: “After many months of consulting with Government on these Off Payroll public sector changes and the IR35 legislation, APSCo welcomes the decision that the liability to assess whether an engagement is akin to employment or self-employment ultimately does not fall on recruitment consultancies.

“As we outlined in discussions both inside and outside of HMRC’s IR35 Forum, and in our official responses to the consultations, firms working with professionals in the public sector aren’t tax experts. They also have no visibility of how a role is undertaken on the client site, or indeed how the contractor runs his or her PSC or LLP and so are ill-equipped to determine tax status. The ‘reasonable care’ provision, which was dropped into the legislation at the eleventh hour, puts the onus back onto the client.”

The Freelancer & Contractor Services Association (FCSA)’s Chief Executive, Julia Kermode, said: “The changes appear to be positive and we are pleased that HMRC has listened to FCSA’s concerns and made appropriate amendments to the Bill. It will be interesting to see how the new legislation works in practice, particularly on the onus of the public sector hirer taking reasonable care when it comes to determining status and if any public sector bodies will become the feepayer in reality. Notwithstanding, this provision is good news overall as it should avoid ‘wholesale’ approaches of hirers deeming all contractors to be inside IR35.

“April 6th is only a matter of weeks away and the impact of the legislation is still going to be significant. I would like to remind HMRC that none of these IR35 changes would have been necessary if HMRC had enforced the original IR35 legislation over the last 17 years.”

Adrian Marlowe, Chairman of the Association of Recruitment Consultancies (ARC) welcomed the announcement, “as the entire scheme to make agencies liable for IR35 contractor tax was heavily flawed without this adjustment.”

However, he warned that there were still some flaws that need resolving. “Even now the arrangement still has loose ends in that the hirer only has to inform the agency of the IR35 status before the contract starts and there is no mechanism in the event of subsequent adjustments to the arrangements, therefore still leaving the agency exposed in those circumstances. But the inclusion of this care test along with strict time limits, coupled with a transfer of liability in the event of hirer breach, now passes the ultimate liability quite correctly back to the hirer.”

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