Freelancers engaged on contracts within the Civil Service for more than six months and earning more than £220 a day will be forced to operate IR35 as part of a clamp down on tax avoidance in public offices, which the Government believes is unacceptable.
The Professional Contractors Group (PCG) obtained copies of leaked memos which were despatched between the Treasury and the Department for Business, Innovation and Skills, and which set out the new rules.
These hurried plans, which are due to come into play on 15th September 2012, follow the ‘Review of the tax arrangements of public sector appointees’ in May of this year after it emerged that over 2,400 engagements in central government departments and their arms length bodies (including NHS Trusts) involved off payroll arrangements.
If the rules follow the policy proposals as set out in the review document then Government departments will have the right to seek an assurance from contractors, earning approximately £58,000 per annum (contract over 6 months and over £220 per day) that they are meeting their income tax and NICs obligations. To ensure that departments adhere to the assurance process, implementation will be monitored after one year, reporting to the Chief Secretary to the Treasury and the Minister for Cabinet Office. Sanctions, in the form of a fine to the departmental resource budget of up to five times the salary in question will be applied to any department that fails to apply the new rules.
The PCG has warned that the leaked documents ‘declared outright war‘ on freelancers and making it impossible working in the public sector. John Brazier, MD of the PCG stated ‘The harsh reality of this move will be to remove public sector access to freelance expertise and bluntly threatens to destabilise many Government Departments.
This has gone way beyond Ed Lester the head of the Student Loans Company who was clearly a case of false self employment; this is now attacking legitimate contractors who have done nothing wrong and are taking the brunt of a panic stricken Government and an HMRC who have launched a witch hunt.
These people are essential to delivering public services and they are being treated in a scandalous way. The repercussions for operation of Government are potentially catastrophic.’
The PCG predicts that if thousands of experts engaged on short term projects are forced to quit, the likes of the NHS and MoD could be left ‘without access to vital resources such as IT contractors and healthcare professionals‘.
According to the Daily Mail there, ‘has been a surge of support from Britons, feeling the ill-effects of austerity, for the government to crack down on tax avoidance‘. Perhaps if Joe Public were presented with the whole truth rather than half-truths and properly informed about what is tax avoidance and what is tax evasion, citizens of the UK would be able to draw rational conclusions rather than get caught up in the ridiculous media fed frenzy.
Whilst the May 2012 review did not cover Local Government, the Department of Communities and Local Government were to write to the Local Government Association to encourage them to follow the Government’s policy and approach. Neither did the review cover arrangements in public corporations, public broadcasting authorities or the publicly owned banks but given the Coalition’s propensity to kowtow to media McCarthyism then it may only be a matter of time before these organisations are brought within the new rules too.
Surely in any team where there is more than one contractor, they could resign together and offer their services as a consultancy? This would neatly side-step IR35.
Perhaps if the PCG had sorted this mess out properly in the first place this would not be an issue. Trying to get it repealed so that they can pay no NI at all is just plain dumb.
Get a solution that pays employee level of NI but not the employers part (which contractors pay because they are forced to own the company that has to pay it).
Surely they should be putting these people on term employment contracts then? Why the fuddle and duddle middle way?
Joe – the reason this can’t be done is because the public sector gives multiple people contracts to big companies and the small contracts on a person by person basis. It’s the only way they think.
If I have understood correctly, this edict only applies if the government department engage the contractor directly.
It seems obvious what will happen. Either contractors will demand higher compensation to offset additional tax, or, more likely, to work around this edict departments will ‘out source’ to larger suppliers like Logica, who will in turn engage contractors to provide the necessary flexibility. This will shield departments from engaging contractors directly, but at the cost to the tax payer of incurring higher charges for the same services as the intermediate supplier make their margin.
Put another way, this edict will force government departments into further out-source arrangements, removing any economic or management benefit currently available.
Given that these costs are all being paid for using money raised from taxes, this all seems counterproductive overall. The additional costs, under either solution, will surely outweigh any additional tax revenue.
#2 – yes, this would be welcome or a system like Holland where a minimum salary is mandated but beyond this the company is independent to operate as it wishes?
We will end up with a two-tier system where the private sector gets the best contractors and the public sector gets what is left. We will end up with more cock ups like RBS that tried to recruit a shed load of people (including myself) on half the going rate.
We will then end up with more outcry about a lack of trained IT specialists and an influx of overseas nationals.
Someone needs to set out the case for using contractors and point out the truth about how much tax we pay, rather than the lies peddled by the likes of rather odious Labour MPs.
So if they are employees as opposed to contractors will they get paid holiday. 5-6 weeks a year is typical in the civil service. Also will they entitled to a civil service pension?
What about a test case using some obscure european rights law? Does any government body have the right to enforce rules on how people run their own companies?
I don’t understand. This is supposed to be about disguised employee status, it has nothing to do with earnings. How does £220 makes you a genuine freelancer but £220.01 a disguised employee?!?
Utter rubbish.
(Incidentally, £220 a day doesn’t generate revenue of anything like £58k a year let alone “earn” you that)
I wonder how this will work in practice? They ask for assurances about your company’s tax situation after 6 months, you refuse and tell them it’s none of their business, and then they terminate your contract?
Also could they not just give you a six month contract, allow it to expire, and then rehire you a day/week/month later, thus “resetting the clock”? Or will there be a “cooling off” period where you cannot do any more business with that company?
As others have said, all they will achieve is the public sector having to pay much higher rates for the most skilled freelancers or they will simply have to put up with the left overs that the private companies don’t want.
I would have thought that a potential appeal to the (European?) courts on the grounds of discrimination would be possible due to the specific, targeted nature of this legislation.
How will expenses work in this brave new world? I often see public sector jobs advertised in Wales. I guess many incumbents will be working away from home. Will they be entitled to claim expenses prior to PAYE or should they now be treated as permies and fund from their own pockets? Maybe not appropriate to this rule but certainly for controlling persons.
What a joke.
Will this apply to companies who provide services for government departments?
Will this apply to companies who have a contract with government departments?
Can’t wait to see what is issued on the 15th September.This seems the wrong way round surely it’s under £220 that should operate within ie inside of IR35 and gain the associated permenant benefits and those ove £220 are more likely to be genuine indepenant consultants/contractors who will operate both inside and outside IR35 dependant on the contract. I actually really like being independant and limited hopefully outdide ir35 but god knows with all this shi… and would hate to be treated like a permy!while trying to bring independant advise and guidance on a project.This is a stupid war please someone grow up see sense.
Have to add to my previous comment.I wish I was a lawyer as this will now provide lots of work for the legal profession as contractors will now feel obliged to pay for ir35 contract review.
on top of all the other costs e.g. insurance, accountancy, banking,travelling, education to name a few.