IR35 continues to be taxing

This article was first published in Recruitment International.

On 6th April 2017 new IR35 rules come into force applying to payments to PSC workers who provide personal service to a “public sector employer” generating significant problems for recruitment businesses involved in the supply process.

Problem areas

  • The legislation (still in draft form at the time of writing) doesn’t take account the nuances of the recruitment supply chain where there may be more than one employment business involved. The one paying the PSC may not have a direct relationship with the public sector employer (particularly where there is an RPO or a master vendor). Recruiters will need to carefully review each PSC contractual relationship and have systems to collect the necessary information from the parties up the chain, and indemnities where information supplied is simply wrong.
  • The recruitment business paying the PSC appears to have liability if the public sector employer’s determination of tax status is incorrect.
  • The HMRC online “employment status” tool was made available on 8 March, giving scant time for users to test it.
  • The rules appear to apply to payments to PSCs after 6 April – even where these relate to services provided earlier where no tax status determination had been made.
  • Recruiters who have exclusively supplied PSCs may need to set up a new PAYE payroll to deduct PAYE and NICs for PSC workers deemed within the IR35 rules.
  • Advice may be required on VAT payments to PSCs for whom PAYE has been deducted. Given the responsibility for determining the tax status of each PSC worker, some public sector employers may no longer engage contractors supplied through PSCs with such workers having to revert to PAYE status or provide services through an Umbrella company. Contractors may refuse to take work if it means supplying services to the public sector.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.