IR35 PS - So anyone had the discussion yet?

[teapot418]

I'm not in the PS myself but I am paying close attention because I guess its likely to transfer to the private sector shortly.

Anyway I was reading HMRC Guidance "Off-payroll working in the public sector: reform of the intermediaries legislation - technical note" published on 5th December and there is an example for "Rebecca IT Ltd" which has the following sections:-

Responsibility for secondary NICs
The Ministry will pay secondary NICs related to the engagement, as it does for directly employed people.

Payments and deductions made by the Ministry (all figures are illustrative)
Each month, Rebecca IT Ltd invoices the Ministry £7200 which includes £1200 VAT.

The Ministry treats £6000 as Rebecca’s earnings and deducts £1400 tax and £400 employee NICs which it pays to HMRC via RTI with £700 employer NICs.

Each month, the Ministry pays Rebecca IT Ltd a total of £5400, which is £4200 for the services provided plus £1200 VAT.

Now as I read it (and the calculations seem to support it) the tax and employee NICs are taken from your contract rate and the government department is going to pay the employers NIC (secondary NICs) which is an additional payment that the PS client is going to make over and above your contracted rate.

£6000 contract income + 20%VAT = £7200
They take off £1400 tax and the £400 employee NICs and pay your company £5400 .... and then in addition the government dept pays £700 employers NIC.

I originally thought that the tax, employee NICs and employers NICs would be taken from your rate but the above suggest you are only going to lose the tax and the employee NICs ... effectively you are having a rate increase because they are now paying the employers NIC.

Have I missed something?

The article in question is at the following link:-

https://www.gov.uk/government/public...g-tax-and-nics

https : // www . gov . uk / government / publications / off-payroll-working-in-the-public-sector-reform-of-the-intermediaries-legislation-technical-note / off-payroll-working-in-the-public-sector-reform-of-the-intermediaries-legislation-technical-note#deducting-tax-and-nics

The payer is responsible for Employer NICs. Where there is an agency involved, this will be the agent. So the agent will either need to renegotiate contracts with the PS to cover the NICs, or renegotiate contract with the contractor to reduce the rate.

[BackupBoy]

"They take off £1400 tax and the £400 employee NICs and pay your company £5400 .... and then in addition the government dept pays £700 employers NIC."

Pay your company?

[Andy Hallett]

The payer is responsible for Employer NICs. Where there is an agency involved, this will be the agent. So the agent will either need to renegotiate contracts with the PS to cover the NICs, or renegotiate contract with the contractor to reduce the rate.

Correct.

[psychocandy]

He is - but he needs to stop faffing and vote with his feet. If he can persuade his colleagues to do the same, all the better.

They've all decided its better to keep the contract and see how it goes. Not in my book.

[psychocandy]

The 'payer', in this example the agency, takes the hit for PAYE and the NICs.

I was discussing this today, agents need to understand who they are supplying and asking the question otherwise they are in the tulip when the music stops.

But my agency who currently have under 10% margin are not going to suddenly pay all this tax and NI for the fun of it.

[psychocandy]

The payer is responsible for Employer NICs. Where there is an agency involved, this will be the agent. So the agent will either need to renegotiate contracts with the PS to cover the NICs, or renegotiate contract with the contractor to reduce the rate.

Which is going to be great fun to watch when an agency realises they've got to pay 12% employers NI out of their 10% margin!

[malvolio]

Which is going to be great fun to watch when an agency realises they've got to pay 12% employers NI out of their 10% margin!

Or, rather more likely they take their fees from the client, pay off the ErNICs then give you your margin of the balance...

You get a percentage of their income, not the other way round. However agencies already offer two rates to clients to cover umbrella users' NIC overheads, no reason they won't simply switch to the higher rate fee.

[SlipTheJab]

Seeing a lot of PS roles at the mo, agents go quiet when I ask about the elephant in the room!

[Lurker101]

Which is going to be great fun to watch when an agency realises they've got to pay 12% employers NI out of their 10% margin!

I'm just starting to have these discussions at the moment (been hassling them for a while now). I think that a lot of agencies will probably have a liability clause in their contract to pass that cost onto the contractor in some way.

[daemon]

Which is going to be great fun to watch when an agency realises they've got to pay 12% employers NI out of their 10% margin!

They wont.

They'll just take it out of the contractors day rate.

My agency is Reed and their proposal was that if i was deemed inside IR35 that i go "on payroll" with them and

(a) i'd be on a lower day rate (before PAYE tax) as they would keep a percentage in a "kitty" to pay my 20 days holiday per year. What I didnt use i'd get paid to me when the contract ended - just like if you were an FTE and getting paid owed holiday days when you were leaving

(b) their employer NI would come out of my day rate too.



I think thats going to be the standard proposal from agencies when the dust settles. Whether or not there an uplift in rates to offset, i dont know.

Also, from what i am hearing, the PS client i am with are going to adopt an approach similar to TFL.