PAYROLL INSIGHT
Helen Hargreaves
public sector body agreeing them is not an automatic default position. Public sector entities have tight financial constraints and can ill-afford to bear the additional costs. They will be hit with employer’s NICs costs under this regime at a time when other employee-related costs are rising because of pensions, national living wage and the apprenticeship levy and so paying increased rates to service suppliers is being resisted wherever possible. There is little sympathy for those contractors who may not have paid the correct tax under IR35 previously and are now seeking recompense for having tax withheld at source. However, we are hearing of cases where completion of projects is at risk because contractors are moving en masse to the private sector. Where a contractor has unique skills or knowledge or undertakes a role for which there is a skill shortage each case will be considered on its own merits and commercial decisions made on whether higher rates are agreed. If the expected high numbers of contractors are redeployed in the private sector the bargaining power for higher rates will inevitably increase under the supply and demand principles. Karen Beckett: As this is new legislation, there is a general acceptance of the changes. We have had to take into account the increased cost through employer’s NICs and the apprenticeship levy. Duncan Groves: There has been an extremely negative reaction from workers using PSCs in cases where the end client deems the arrangements are ‘in scope’. Some have threatened to ‘walk’, many have actually ‘walked’. The workers seem unable to understand the logic that, if they are deemed to be within IR35 from 6 April 2017, they almost certainly should be within IR35 pre 6 April and, therefore, their ‘savings’ achieved through being paid in dividends, was only available to them through non-compliance with existing law. We believe that workers’ inability to appreciate this is partly caused by the way that Agencies communicate with them,
giving them false expectations around the application of IR35 and the savings that can be achieved through the use of PSCs. As regards increased rates, this seems inevitable in the medium term, even in cases where rate increases are currently considered out of the question. Ian Hodson: I think we are in the early days of understanding the impact of the changes. We have seen some suppliers very proactive in respect of telling us that they fall under the new regulations but on the flip side of this we have had some suppliers where the legislation being applied seems to be a showstopper to them engaging with our business. I am sure over a period of time we will see more issues around increasing costs because of cash flow needs along with some individuals not wishing to engage with the perceived further complexity of working in the public sector. As a university this could leave us with some real challenges and skills shortages in respect of those we engage with to fill vital aspects of our operations. Are you/your clients content to continue accepting and using invoices or is there likely to be a move to timesheets going forward? Are you/your clients required to identify and specify the earnings period for Class 1 NICs when entering a payment? Jas Jhooty: There will be an inevitable shift towards the use of timesheets for those contractors deemed to be within IR35. It makes no sense to have to devise and maintain a workflow from the accounts department to the payroll office for these contractors. It would be far simpler to take them off the accounts payable and for then to submit timesheets directly to the payroll. This would also negate the payroll office having to calculate complicated earnings periods for Class 1 NICs relating to the period that the invoice relates to. David Paul: We are in the unusual situation where income could be taxed at source but VAT (value added tax) would also be payable where a contractor is VAT registered. This, along with additional costs such as materials and expenses may necessitate the continued use of invoices. Many contractors already provide some form of timesheet/record of their hours,
MSc FCIPPdip , associate director of policy & membership, CIPP
new legislation. Staff have been trained in the new off-payroll regime and are aware of the processing obligations. Over the course of time, it remains to be seen whether any increased administration and processing costs will lead to these having to be passed onto clients. For employers that do outsource their payrolls, there has to be an awareness that more people on the payroll may lead to more administration costs, especially if they are charged by the payslip or by the form P45 that is produced. However, I believe that there is general lack of knowledge of this new legislation UK-wide. This is, possibly, because it is new, complicated and the guidance has not been issued in the timely way that HMRC would probably have preferred. I do not believe that any employer has fully digested the consequences, let alone revised budgets. Jas Jhooty: We conducted an analysis of the anticipated increased daily contractor costs with IR35 applied: ● £250 daily rate increases to £332 – 33% rise ● £300 daily rate increases to £397 – 32% rise ● £400 daily rate increases to £498 – 25% rise ● £500 daily rate increases to £650 – 30% rise ● £700 daily rate increases to £828 – 18% rise ● £1,000 daily rate increases to £1,229 – 23% rise Contractors falling within the new regime will have to increase their rates by between 17% to 33% to be no worse off than they were before. Most cash- strapped budget holders simply will not be able to afford these additional costs. The only way that they will be able to keep their contractors and their vital skills without substantial costs is by establishing their status using independent compliance solutions before taking the necessary steps to ensure they stay outside IR35. David Paul: A number of service suppliers are wanting to increase rates but the
Ian Hodson MCIPPdip , head of reward, University of Lincoln
| Professional in Payroll, Pensions and Reward | July/August 2017 | Issue 32 22
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