Public sector fines given to charity
Both the Ministry of Defence and the Department of Health have been fined a total of £1.5 million for failing to seek adequate assurances that contractors were operating outside of IR35 during 2012-13. This follows the Treasury’s recent second evaluation of the ‘off-payroll’ rules. Furthermore, according to the Telegraph, 100 NHS bosses and civil servants have been axed as a result of the transgression of the rules.
The MOD copped for the lion’s share of the fine of £1 million but all monies have been donated to military and health charities.
The health department’s fine of £471,000 was levied for two breaches at NHS England, where 2 contractors were board members for over a year.
Back in 2012, tighter rules were introduced for contractors working in the public sector following Treasury recommendations. 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, ie, 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.
A total of 94 freelancers working in the public sector had their contracts terminated last year due to them not being able to provide satisfactory assurances that they were not within IR35. Their details were also passed to HMRC. The majority of those, 79, were engaged by NHS England, 12 by environment department, 2 by the Office for National Statistics and 1 by the British Library. These contractors represented 4% of a total of 2,505 people that government departments sought assurance from.
Although not fined, the Department for Works and Pensions (DWP) made errors in its reporting but did not breach the guidance, and UK Export Finance is to be subjected to further investigation following concerns that were identified during the review.
Danny Alexander, Chief Secretary to the Treasury, is also carrying out a witch hunt in local government and is working with Eric Pickles, the Communities Secretary, and Boris Johnson, the Mayor of London. He told the Telegraph, “I also want to make sure that we don’t just have a zero-tolerance of this open-door to tax avoidance in central government. I think local government also need to be applying the same level of scrutiny.”
In reaction to the financial punishment handed out to the MOD and Department of Health, Andy Chamberlain, Deputy Director of Policy and External Affairs at IPSE (formerly the PCG) said,
“We believe the current tax rules for public sector contractors are flawed and that they could force contractors out of the public sector altogether, putting at risk projects which are vital to national security.”
Critical of the ‘off-payroll’ rules, Mr Chamberlain went on to say, “The public sector tax rules are a sledge hammer to crack a nut. What was designed to prevent clear tax evasion by board level staff has now destabilised the position of specialist contractors and the projects they are working on. Government has a responsibility to ensure that the specialists with the right skills, who are very often independent professionals, are not driven out of the public sector by these rules. In the case of the Ministry of Defence, this is a matter of national security.”
Chamberlain correctly points out that departments are still using the discredited and soon to be scrapped Business Entity Tests (BETs) as part of their assurance process, causing him to comment that, “The next government should as a matter of urgency undertake a full review of the need for this unnecessary burden on independent professionals in the public sector.” Here, here Mr Chamberlain.
Your IR35 status is about the relationship between you and your client, which in just about all cases is dictated by the client, so how would a freelancer provide evidence to their client?
It’s up to the client to take on freelancers and not make them work such that they’re a disguised employee, not the other way round.
This is smoke and mirrors to make it look like they’re cracking down on tax avoidance deflecting interest from the guys at the top on stupid money.
If employers want to stay on the right side of the law, they must take steps to do that themselves, not pretend their service providers didn’t do enough to force their own working conditions.
I assume the article was meant to end with:
“Hear! Hear! Mr. Chamberlain”.
First, I agree with #1 Si. Putting the onus on someone to confirm status or be fined means that they will be predisposed to place people inside IR35 for safety. The only good news in that is that contractors should demand more money, but then… we all know how that works in practice. Sigh.
Where *in legislation* does it say that any of these things can happen? Strangely, the Finance Act of 2001 says nothing about any of this, including even HMRC’s contention that “the working arrangements are paramount”.
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And lastly… the aforementioned Mr. C didn’t mention that… the PCG proposed the BE tests in the first place!!!
Yes, sad to say, they went to the IR35 review without telling their members that, instead of putting the case for repeal, they were going to propose these silly tests.
At the time I warned them that HMRC would twist them into what they wanted them to be and… that’s exactly what happened.
I don’t say this to claim personal credit – I would very much prefer that I had no reason to mention it, but… in doing that, the PCG not only scored a massive own-goal, but also missed the best opportunity they’ve had to kill off IR35 since it was introduced.