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The UK recruitment sector is calling on members of Parliament (MPs) to do all they can to halt the introduction of the IR35 anti-tax avoidance reforms next month, as concerns about the proposals continue to grow.
Adrian Marlowe, chairman of the Association of Recruitment Consultancies (ARC), has written to MPs to question the need to “rush ahead” with the proposals when a “full and proper” review of the legislation is yet to occur.
“We seek a delay while all the issues are fully considered,” Marlowe wrote. “Delay, perhaps to the autumn, will enable all parties to properly engage and resolve a coordinated, positive approach.”
The “issues” Marlowe is referring to echo many of the concerns various public sector stakeholders have raised in the lead up to the roll-out of the reforms on 6 April 2017.
From this date, public sector organisations will assume responsibility for deciding whether or not limited company contractors should be taxed in the same way as salaried workers or off-payroll staff.
This change, in particular, raises the “significant risk” of conflict occurring between contractors, who previously decided for themselves about how they should be taxed, and the organisations now tasked with making those decisions on their behalf, Marlowe warned.
“Where an agency [recruitment] is involved, it will have little knowledge of the relationship between the contractor and hirer,” said Marlowe.
“The hirer will want to take the cheapest and least onerous path, and the contractor will probably press for gross payment to maximise income. It is likely to lead to an unfair outcome.”
Parts of the legislation are also out of step with employment case law, because the public sector organisation is expected to declare a contractor’s tax status before they join the organisation.
“Case law on the employment tests requires all the circumstances to be considered before and during the assignment,” the letter continued.
“This creates legal conflict, potentially leading at best to embarrassment for the public sector hirer obliged to exercise reasonable care, and at worst unlawfulness. Critically, there is no right of appeal against an incorrect decision.”
HMRC tool at odds with ‘legal principles’, says ARC
HM Revenue and Customs (HMRC) released an online tool to help public sector organisations decide how contractors should be taxed under the new-look IR35 rules, which users have previously declared “inaccurate” and “unreliable”.
ARC backs this view, claiming the results it generates are sometimes at odds with “various legal principles”, while the tool itself is not ready to be used yet, with Marlowe saying, “its use could lead to unlawfulness”.
Another long-standing concern is the fact contractors may decide to hike up their day rates to cover the cost of the additional employee taxes they may become liable for if they are deemed to be operating “inside IR35”, or stop working in the public sector altogether.
There has already been at least one instance of this occuring, after it emerged that 30 or so contractors working for a Ministry of Defence agency left in August 2016, following an IR35-related clampdown, resulting in several major IT projects getting put on hold.
Read more about IR35
- Research from recruitment consultancy Harvey Nash highlights contractor concerns about how the forthcoming IR35 reforms will affect competitiveness and talent recruitment in the public sector.
- Several major IT projects at a Ministry of Defence (MoD) agency are on hold after a mass walkout of IT contractors in a dispute about their tax status, Computer Weekly has learned.
Marlowe said the added financial burden the proposals are likely to saddle public sector hirers with should be a cause of concern for MPs.
“The most obvious [problem] is the impact on rates. A public sector hirer will have to meet a 13.8% employer NICs [National Insurance Contribution] charge on top of the contractor invoiced rate,” he said.
“In addition, the hirer or agency is likely to have to pay 0.5% Apprenticeship Levy on the invoice amount because of the increase and the artificial imposition of the tax on the to the employment payroll, thereby increase the financial burden of these charges.”
In light of all of this, Marlowe goes on to question the timing of the reforms, before reinforcing ARC’s view that it could be delayed until these issues are all worked through and sorted.
“Apart from the question as to why the tax law has to be changed in this onerous way, why does this have to be done now? Brexit looms, and there is already great pressure on our public services,” he said.
“If you agree with our concerns, please object to the motion, seek support from your fellow MPs, to whom I have also written, and ask for a delay and a full and proper review.”
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