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‘Off-Payroll’ Working Just Fine

Treasury satisfied with ‘off-payroll’ arrangements

Back in 2012, tighter rules were introduced for contractors working in the public sector following Treasury recommendations contained in their review of May of that year.

The rules were designed to introduce greater transparency of ‘off-payroll’ contracts by requiring:

  • Government departments and agencies to take a risk based approach when engaging contractors earning in excess of £220 per day and for longer than 6 months. The risk assessment process requires the freelancer to provide the relevant department with satisfactory evidence about their IR35 status; and
  • All senior level appointments, i.e. those at board level or with significant financial responsibility, to be forced onto the payroll within 6 months of the appointment.
  • Departments not observing the rules regarding senior level appointments to be financially penalised.

Cabinet Office guidelines state that where a department is dissatisfied with the quality of a freelancer’s assurance, then they may refer the matter to HMRC for further investigation.

The Treasury have now conducted their first evaluation of the new rules which reveals that 1,815 (94%) of contractors working within the public sector provided satisfactory evidence that their tax affairs were o.k.

Of the remaining 125 (6%) of cases, former government contractors were unable to provide the required assurance resulting in them having their details passed to HMRC for investigation.

The vast amount of public bodies are correctly applying the rules in respect of senior level appointees although two departments were fined as follows:

  • Department for Environment & Rural Affairs (DEFRA) fined £102,080 for a breach at the Animal Health & Veterinary Laboratories Agency (AHVLA), an arm’s length agency. The individual was put on the payroll after the 6 month time limit.
  • Department of Transport fined £398,500 in respect of two senior appointments at the Directly Operated Railway. Again, enforced payroll did not take place until 6 months had elapsed.

So satisfied are the Treasury with this newly created transparency and integrity that the Chief Secretary, Danny Alexander, has asked the Secretary of State for Health to carry out a full investigation into all contractors in the NHS, operating at senior level, to ensure that potential ‘tax avoidance’ is being eliminated.

Mr Alexander said:

“The vast majority of off-payroll contracts are in place for legitimate reasons and those workers are playing an important role by satisfying short term needs for specialist advice and services.

However, it is right that the public sector sets the highest standards in terms of its tax arrangements and that departments continue to assure themselves that all their workers are paying their fair share of tax.

I am pleased that this guidance is working and that compliance has been so high. The minority of cases which do not appear to be consistent with the guidance have been passed on to HMRC who will now investigate these.”

The Treasury will continue to monitor the application of the rules and conduct a similar review for 2013/14.

By Andy Vessey

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