Reply to: The death of Public Sector contracting

[jamesbrown]

That's what I thought I'd read, so agency pays employers NI. They are clearly going to deduct this sum from what the client pays them - so the contractor effectively ends up paying employeers NI as well.

Yes, absolutely, there's no ambiguity about what they're trying to do, even if some of the details are unclear. The principles were stated upfront in the IR35 Discussion Document, and I believe they will achieve this. They want to implement something equivalent to an IR35 deemed payment (for a majority of cases), avoid employment rights, and create a disincentive for the engager to conduct a superficial analysis (i.e. to achieve the majority of cases). The first is achieved, fairly straightforwardly, by requiring the last party in the chain to operate a deemed payment to the contractor's company when the conditions are met; these conditions will not require any changes to IR35 (at least for the public sector), simply a contractual change to require the application of an ESI. The second is achieved by interposing/retaining a company between the contractor and the last party in the chain (or so they believe/hope, but it may be contested in law). The third will be achieved by creating a liability on the engager, probably a straightforward liability for the Employer's NI.

At a high level, this is all mechanically doable. What they don't yet appreciate, I believe, is that it will lose far more money through poorly delivered gov't projects than it will make in tax. However, the problem/risk (for private sector contractors) is that, if they (HMG) want to present it as a success for PR purposes, there's a relatively low bar. It's easy to cite new compliance figures. It's difficult to show what the indirect impacts might have been on public sector projects. I also suspect that HMRC and HMT are not entirely on the same page about this, specifically that HMRC are far more wary about the impacts.

[Lewis]

Yep it moves Responsibility for employer NICs to the agent or public sector body i

Responsibility for paying employer NICs on the deemed
employment income will also shift from the PSC to the relevant engager

but this line move this to the agency

Where the public sector organisation engages the worker indirectly through the
third person (the agency) that third person is responsible for operating the new rules
and collecting and paying the relevant tax and NICs. The public sector body will
need to inform the agency that they are contracting with a public sector body within
these rules. The public sector body will also be required to check that the agency
operates the rules correctly

That's what I thought I'd read, so agency pays employers NI. They are clearly going to deduct this sum from what the client pays them - so the contractor effectively ends up paying employeers NI as well.

[sharky]

Yep it moves Responsibility for employer NICs to the agent or public sector body i

Responsibility for paying employer NICs on the deemed
employment income will also shift from the PSC to the relevant engager

but this line move this to the agency

Where the public sector organisation engages the worker indirectly through the
third person (the agency) that third person is responsible for operating the new rules
and collecting and paying the relevant tax and NICs. The public sector body will
need to inform the agency that they are contracting with a public sector body within
these rules. The public sector body will also be required to check that the agency
operates the rules correctly

[TheFaQQer]

It's just the end of PS contracting. These are well thought our rules to stop it, end of.

I disagree with the intention completely - the intention is to prove that this is NOT the end of contracting as we know it.

There has always been a desire within HMRC to get the client / engager / someone other than the contractor to do the assessment - they tried it at the start of IR35, and they tried it again last year. This is an attempt to show that everyone who said that it would never work is wrong - and if they can get it right then that can be rolled out into the rest of the world.

The intention isn't to stop public sector contracting, it's to show that getting the client to do the assessment can be done everywhere - and that then leads us all down a very dangerous path.

[eek]

And how will they know what your tax affairs are? Will you need to submit your last 3 SA returns and annual accounts to them? How long would that take when they want you to start on Monday?

It's just the end of PS contracting. These are well thought our rules to stop it, end of.

We just have to pray to the contracting gods that this is where he stops.

They are well thought out rules. Unfortunately as I scan various buildings I refuse to work in they don't seem to have worked out the consequences of those rules.

It's going to especially annoy those people who have spent the last two years trying to extract their departments from disastrous contracts with large suppliers and brought stuff in house

[MarkT]

I'm fortunately not affected by this, but curious how it might work.

I thought I read somewhere, where an agency is involved they must make the assessment - will the agency make the deductions and pay the employers NI or the public sector body? If the agency, then the employers NI will come out of the contract rate as the agency is not going to pay it for you.

Adjusting your salary to match receipts, to avoid corporation tax, sounds like a right pain and with the potential for a mistake to be costly (failing to take enough salary at the right time resulting in company profit).

If someone is paying employers NI would that make it reasonably to fight for employee rights?

And how will they know what your tax affairs are? Will you need to submit your last 3 SA returns and annual accounts to them? How long would that take when they want you to start on Monday?

It's just the end of PS contracting. These are well thought our rules to stop it, end of.

We just have to pray to the contracting gods that this is where he stops.

[Lewis]

I'm fortunately not affected by this, but curious how it might work.

I thought I read somewhere, where an agency is involved they must make the assessment - will the agency make the deductions and pay the employers NI or the public sector body? If the agency, then the employers NI will come out of the contract rate as the agency is not going to pay it for you.

Adjusting your salary to match receipts, to avoid corporation tax, sounds like a right pain and with the potential for a mistake to be costly (failing to take enough salary at the right time resulting in company profit).

If someone is paying employers NI would that make it reasonably to fight for employee rights?

[mudskipper]

Unbelievable, they actually think people are going to pay corporation tax too?

This is the end of public sector contracting. Watch the public sector crumble over the next few years!

No, because Grace will take all the already taxed money as salary and get credit for the tax already paid. So corp tax on that money will be zero.

[SueEllen]

Unbelievable, they actually think people are going to pay corporation tax too?

This is the end of public sector contracting. Watch the public sector crumble over the next few years!

All that will happen is when they realise they can't get contractors in 12 months time they will up the rate then change all the contracts so people are outside IR35.

[LandRover]

this HMRC Example Grace

1 Gov dept just paid up the employer NIC not Grace. ER public sector budget over spend coming in 2018 <<<
2 Why would Grace have the payroll that already been taxed paid to a PSC if it's been taxed at source it goes to straight to personal bank accounts right ? why pay corporation tax on £££ already been taxed as PAYE ???


Example 1 – Central Government – rules apply
Grace works through her own PSC and is appointed as a at the Ministry
when the post holder leaves. She is a locum appointed to a project for 5 months while the
job is advertised. Human Resources uses HMRC’s online tool to see that Grace is
working in the same way as an employee and the new off-payroll tax rules apply. Payroll
are informed and tax and NICs are deducted from payments made to Grace’s PSC. The
Ministry pays the secondary NICs and accounts for the tax and NICs liabilities under RTI.
Grace’s PSC invoices the Ministry monthly for £2400, which includes £400 VAT. The
Ministry treats £2000 as Grace’s earnings and deducts £223 tax and £159 employee NICs,
which it pays to HMRC via RTI with £183 employer NICs. The Ministry pays Grace’s
company £1618.*
Because Grace has paid income tax on income going into the PSC, she receives a credit
against employment and dividend income drawn out of her PSC so she does not pay tax
twice. The corporation tax liabilities of Grace’s PSC will remain unchanged by the
measure.

Unbelievable, they actually think people are going to pay corporation tax too?

This is the end of public sector contracting. Watch the public sector crumble over the next few years!

[sharky]

https://www.gov.uk/government/upload...FINAL_V3_0.pdf

HTHBIDI

this HMRC Example Grace

1 Gov dept just paid up the employer NIC not Grace. ER public sector budget over spend coming in 2018 <<<
2 Why would Grace have the payroll that already been taxed paid to a PSC if it's been taxed at source it goes to straight to personal bank accounts right ? why pay corporation tax on £££ already been taxed as PAYE ???


Example 1 – Central Government – rules apply
Grace works through her own PSC and is appointed as a at the Ministry
when the post holder leaves. She is a locum appointed to a project for 5 months while the
job is advertised. Human Resources uses HMRC’s online tool to see that Grace is
working in the same way as an employee and the new off-payroll tax rules apply. Payroll
are informed and tax and NICs are deducted from payments made to Grace’s PSC. The
Ministry pays the secondary NICs and accounts for the tax and NICs liabilities under RTI.
Grace’s PSC invoices the Ministry monthly for £2400, which includes £400 VAT. The
Ministry treats £2000 as Grace’s earnings and deducts £223 tax and £159 employee NICs,
which it pays to HMRC via RTI with £183 employer NICs. The Ministry pays Grace’s
company £1618.*
Because Grace has paid income tax on income going into the PSC, she receives a credit
against employment and dividend income drawn out of her PSC so she does not pay tax
twice. The corporation tax liabilities of Grace’s PSC will remain unchanged by the
measure.

[TheFaQQer]

What is this about, there will be no Personal Services companies in Public sector allowed ?

https://www.gov.uk/government/upload...FINAL_V3_0.pdf

HTHBIDI

[2uk]

What is this about, there will be no Personal Services companies in Public sector allowed ?

[sharky]

All most all public sector bodies use contractors to get around a number of Issue from Unions and Worker Rights, Restrictive Pay Banding and to address skills shortages.

Bit of NIC-avoiding was maybe not the top of the list for public sector bodies.

Only thing this will do is move some public sector contracts placements for the Likes of IT/PM work to with Direct Fixed-term contracts with Tulip pay / T&C's.

How this will impact the likes of the NHS who have real problems with getting the right people for roles with it's restrictive Low Pay and Union Issues. the NHS has seen a rise in the use of Limited company "locum" doctors and nurses who may have just been hit by Gideon as favor to Jeremy the hutt.

[LondonManc]

But the liability lies with the agency, so they are the one's on the hook - can't see them being happy if there is an assessment done by someone else which is then challenged by HMRC and they lose and have to pay out because of it.

Assessment is likely to end up being through HMRC's ESI tool anyway - no doubt the consultation will clarify how to appeal the decision if it turns out to be "wrong"

I suppose it very much depends when the assessment is done too; if the public sector decide that the role has to be assessed as part of it being funded before it is advertised, it makes it much simpler.