As we begin 2017, I wanted to wish you a Happy New Year and to thank you for your support during 2016.

The last few months have been a very busy time for us at almost every level, building on our commitment to supporting recruitment and improving services to members. Whilst we have been challenging the apprenticeship levy, HMRC has been busy issuing new IR35 rules and the government has begun several enquiries on employment status and the gig economy, to which we are contributing. On top of that, we have been devising a new method of operation for membership, building a new website (to be ready very shortly), and organising a conference for 9th February 2017. I see no let up in the coming months, as we engage on all these issues on your behalf.

I am pleased to report that in addition to the above, Theresa and I have met with with HMRC to discuss the proposed new IR35 rules and its planned online employment status tool. We have also met with government officials on the apprenticeship levy, and I am now writing to you about these two developments.

IR35

The meeting, which took place on 6th January, was attended by a good number of agencies and we were the only recruitment trade association present.

The proposed new public sector IR35 rules require an agency supplying a contractor to a public sector hirer to pay the deployed individual under the PAYE rules, unless the IR35 rules do not apply. Towards that end, the rules require the hirer to state whether it concludes that IR35 does or does not apply, but the hirer is not set to face any liability if the information it provides, or conclusion it reaches, is incorrect. Furthermore, there is no provision for the hirer to provide evidence to support its conclusion, leaving the way open for hirers to make blanket decisions that could affect how the contractor is paid.

The tool in itself is not much more than an online checklist question and answer (yes/no) facility, which records and saves the input and output for future reference. HMRC said that it will stand by the decision generated by the tool but qualified this by saying it will only do so if the information is input correctly. This of course means that HMRC could always allege that answers given were incorrect, and so avoid standing by a result that doesn’t suit it, namely that IR35 does not apply.

There are no provisions in the proposed legislation for considering a change of status part way through an assignment, nor is there provision for voiding an invoice from the contractor company concerned. In addition, the tool seems to conflict with general principles of employment status, which emphasise the need to look at the relationship in the round, rather than taking a checklist approach.

The result, we believe, will pave the way for conflict. Hirers who choose to say that IR35 applies will be met by claims for higher pay rates and the risk of employment status claims, whilst agencies will be forced to negotiate with a disgruntled contractor and pay on a PAYE basis. Some contractors may decline jobs in the public sector as a result. Those agencies that pay gross will run the risk of an HMRC claim some way down the line if there is even the slightest uncertainty over whether IR35 applies.

The issues are many and we will be responding to the current consultation on IR35 public sector to this effect by 30th January, the date on which the consultation closes. If you have any comments to add please do let us know as soon as possible by emailing Ben (ben@arc-org.net).

Apprenticeship levy

This will affect any recruitment business that has a combined payroll (own employees and agency workers), in excess of £3m in a year. As you will be aware, we have taken legal advice and challenged the government over its method of aggregating pay by writing formally to it, and many thanks to those of you who supported our efforts to investigate the options and who have given us feedback.

We duly received a response which rejected our proposition that the recruitment sector had not been consulted, but nevertheless offered us the opportunity to meet with government officials. Short of government agreement to abandon the levy charge on agency payroll, this was the result we had hoped for, and I am pleased to report that last week I had a lengthy meeting with officials from HMRC, HM Treasury and the government lead official from the skills department responsible for delivering the levy.

We have devised a plan for the levy to be capable of being passed on to your hirers transparently (if you want to do that), so that they can access the value of the levy through their own apprenticeship schemes. I duly explained this scheme at the meeting and am pleased to be able to confirm to you that our proposal has been well received and, critically, that the government has agreed to consider it.

So what is it? If accepted, the proposal would mean that you would have the option of passing on the levy applicable to your agency worker payroll to your hirers openly, so avoiding the impact of the levy on your profits. The hirer would obtain a credit for use against apprenticeship training. It would also mean that you would then only pay the levy on your remaining regular employee payroll, and if that is less than £3m then you effectively pay no levy from your profits.

The proposal is that passing on the cost would be optional, rather than compulsory, as you may feel that your hirers would find it unacceptable. Your options in that case would be either to accept the reduced margin, or increase it in a concealed way. A point we have made to government is that agencies are likely to want to recover the cost of the levy, so the question is whether it is better hidden or transparent; if transparent then hirers can actually use it.

It would be a tremendous success if this plan is ultimately accepted, but there is still a lot of work to be done, including getting support for the plan on a wider scale. For now, the government has not been able to confirm that anything would be done before 2018, or give any guarantee that the plan would be adopted. Nevertheless, the initial indicators are positive.

Some of you have asked that we try to prevent the government from charging any levy on agency payroll altogether, or that we campaign for a lower rate. I am afraid that this will be impossible to achieve and our best chance of success is aiming for a position where we can openly pass on the cost.

ARC conference

Do let me know if you have any comments on this. In any event ARC is holding an all day conference on the 9th February in London to discuss this and the IR35 issues – see details here. Our legal supplier Lawspeed will be providng a practical seminar on IR35 as part of the event. You are entitled to a 20% discount, so if you haven’t already booked your place, please call to reserve 01273 777997.

Our team and I look forward to working with you and wish you every success for the coming year.