Professional November 2016

MEMBERSHIP INSIGHT

On your behalf

Policy team update

Diana Bruce MCIPPdip, CIPP senior policy liaison officer , provides an update on two topics Off-payroll working in the public sector consultation time, and where they do the decision flow chart and tests may need to be revisited.

by the engager to enable the correct decision to be made. If clearly defined and consistent rules don’t exist then the impetus to deliver/disclose information will not happen. The digital tool (see below) should be backed by clearly defined expectations of what information needs to be gathered and provided and by whom. Guidance should be unambiguous to enable engagers to adapt or establish processes and a clearly defined policy which should include reference to the digital tool. ...support for private companies carrying out public functions to be included... ● Making the decision – The decision flow chart appears to ask the right questions with the right priority and to rule out engagements that are out of scope and to be simple to understand and use. The reality, however, is rarely straightforward, and so we hope that guidance is being developed that adds more depth and includes more examples that an engager may encounter. There should be a recognition that IR35 guidance will, in the future, be accessed by a far greater number of practitioners than in the past as the onus shifts from the small number of PSCs (and their professional advisers) to a wide range of engagers/employers with teams working in payroll, human resources, finance and procurement departments. If all facts are known, the two parts of the decision flow chart have the capacity to provide engagers with certainty on day one of the hire – in an ideal world. Processes will need to recognise that situations and answers may change over the course of

Budget 2016 announced proposals to reform the off-payroll rules for personal services companies working for a public sector engager. This consultation, which is about reforming the intermediaries legislation to improve its effectiveness in the public sector, sought views on the impact and on the design details of the policy, including a new digital process to help determine whether an intermediary is in scope. The Institute’s policy and research team submitted their formal consultation response to this consultation at the end of August. We reiterate that we respond from the viewpoint that use of a personal service company (PSC) simply to gain a tax or National Insurance contributions (NICs) advantage is unacceptable. We continue to support increased enforcement by HM Revenue & Customs (HMRC) that results in increased protection of vulnerable workers employed inappropriately through PSCs. Our findings, see below, have been gathered from a mix of survey results and anecdotal evidence. ● Definition of the public sector – The Freedom of Information Act 2000 and the Freedom of Information (Scotland) Act 2002 provide a definition that will result in a clearly recognised and consistent approach to defining and recognising public sector engagers. There is overwhelming support for private companies carrying out public functions to be included within this definition; in fact, we go further and say that subject to a satisfactory timeline for implementation (see below) no sector or size of engager should be excluded. Evidence suggests that all sectors and engager/employer sizes are at risk of non- compliance with IR35; to exclude sectors adds complexity. We believe that there should be a legal duty to disclose the information required

Also in an ideal world, this information and data will be collected as part of the procurement/pre-employment checks, so robust processes based on clearly defined and mandated rules will be needed. ● Digital tool – A robust, reliable and consistent mandatory digital tool will be fundamental to successful delivery of this proposal so we welcome HMRC’s encouragement for expressions of interest. Working in collaboration with all stakeholders to design a robust digital tool is the way to ensure every possible view and experience is captured in the end product. We are concerned, however, at the delivery timeline. We do not believe that a robust tool will be delivered and fully tested against all possible situations by 6 April 2017 when it will be needed. ● Transfer of liability – We agree that when the rules have not been applied liability for tax and NICs (and penalties and interest where appropriate) for the incorrect operation should fall to the engager/ agency. However, where the PSC has given false information to the engager liability should transfer to the PSC and its directors. We are likely to see a greater volume of individuals’ pay being processed via PAYE ‘just to be safe’. We predict greater use of the appeal process where the PSC and/or engager disagree. This has disadvantages, but the most critical for the purpose of the response are: ❍ increased administrative costs and burdens to the engager and PSC ❍ increased costs to HMRC to process appeals. ● Costs – There is a strong belief that there will be significant additional costs, both for administration and by way of contract sums. The latter are predicted to increase to account for the impact of IR35 being operated ‘just to be safe’ by risk

| Professional in Payroll, Pensions and Reward | November 2016 | Issue 25 6

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