On the 2 June 2016 we reported on the March 2016 Budget’s effects on Contractors. In this article we commented on proposals to make public sector bodies responsible for operating tax rules that apply to off-payroll personnel from April 2017.
In this article we take a closer look at the full implications of this proposal.
The basis of the proposal is that where a contractor works for the public sector through their own limited company then the business that pays that company will assess the contractors status and may class them as an employee and will therefore deduct income tax and national insurance prior to transferring their salary.
The proposal has come under attack for its ‘glaring anomalies’ which many consider are not answered within the HMRC’s technical note, these include:-
- The employer’s liability must be assessed and reflected in the contract and therefore the contractor will need to be assessed before being offered a contract and not after as is currently the case.
- Contractors will now have to take into account non-public sector work versus public sector assignments which flies in the face of repeated calls for simplification of the current system.
- There is confusion as to how retained funds will be taxed. If the company is subject to corporation tax in the normal way then this will lead to double taxation.
- This will put contractors working in the private sector as opposed to the public sector on a completely different footing and may lead to an imbalance in skills due to preferential contracts being taken.
- There is some contention as to the paying agent’s ability to assess the contractor and fully understand any repercussions of that decision. It has been raised that only a specialist would be able to comprehend the full scope of the rules and consistently apply the correct status.
One of the issues that has also been raised that has not been addressed at this time is whether or not there will be an appeals process and how this will apply. It has been noted that as the income tax and national insurance will be paid up front then any appeal will raise numerous financial and legal issues.
Contractors are also opposed to the measures citing that if they are labelled as employees then they should also expect the same benefits such as holiday pay and sick leave to name but a couple of the numerous advantages employees have over contract work. This may potentially cause vast problems for the government as to the exact classification of ‘employee’.
The proposals are to be subject to a consultation in particular to determine with certainty the status. It is hoped that all the above is to be given serious consideration as part of this consultation before any implementation.