Under a recently reported leaked proposal *, employers will be required to determine whether their staff are full-time employees, and not temporary workers, and put on the payroll accordingly. Translating this, the idea appears to be that this would apply to any employer/hirer using a contractor as opposed to an employee for work, the objective being to stop personal service companies being used as tax avoidance vehicles. It is thought that this would affect many IT contractors supplied through the recruitment industry.
“There are a number of points here” says Adrian Marlowe, chairman of the Association of Recruitment Consultancies (ARC). “First the industry should be careful not to overreact. We may well learn tomorrow in the budget whether the leak is genuine. If it is and it is targeted at the PSCs supplied by recruitment businesses, which it may well not be if the purpose of the proposal is to be believed, then we should look at the principles behind it. If it is not then all well and good, at least for now.
However in any event there is a bigger problem. This is the government’s predeliction with tax avoidance and the sticking plaster approach it keeps applying in one form or another to this issue. The current “we must plug this hole or that hole” approach, whether an attack on PSCs, IR35, employees or otherwise, is not helpful to the recruitment industry as a whole and we have all seen as an example the government’s latest attack on travel and subsistence expenses paid through employment intermediaries which is divisive and confusing as well as unfair.”
Referring to the fines imposed upon some government departments when they have failed to follow similar rules in the past, Marlowe added “asking a hirer to determine a tax or employment status, with potential sanction against the hirer, is hardly going to appeal to hirers and will obviously deter the use of the PSC model. In other words the issue of tax will get in the way of hirers engaging with contract workers. This is unacceptable and is plainly damaging for the flexibility of the workforce. Unfortunately it stems from the malaise that exists because the government is making tax policy decisions that are based on tax recovery, not on what would be good for the country, the economy, employers and the health of the agency supply industry. To be fair, that in turn is based upon the seeming reliance by certain parts of the industry upon tax avoidance, which we should all accept is not only now playing out against the best interests of those involved but threatens to drag the recruitment industry down with it.”
Pointing to ARC’s newly announced ‘fairer tax relief campaign’ which seeks to persuade government to settle a level playing field for travel and subsistence (T&S relief) for all agency workers, whether PSC, self employed or otherwise, Marlowe commented “We believe the time is right for change. The government should step back and ask itself why it allows one type of worker tax relief because he/ she operates through a £25 off the shelf PSC or is not subject to complicated tests relevant to how services are delivered, but does not do so for another class of worker. All seek their work through agencies and both could be doing precisely the same job sitting next to each other.
He continued “There should have one rule for all, and every agency worker should get some tax relief without class distinction. At the same time those that actually seek more reliefs, e.g. PSCs and otherwise self employed, should be able to do so in their tax return not through payments from intermediaries. Then there would be no need to involve employers or hirers, agencies would know exactly where they stand, no one would be exposed to unnecessary liability and contractors can get on with arguing their case without potentially bringing about damaging change to what is otherwise a highly regarded supply industry. HMRC could also then focus on direct engagements if it wants to, so distinguishing direct hires from agency supply and allowing the agency sector to get on with doing what it does best, supply workers and contractors of every kind shape and denomination for the benefit of all.”
*Sources
Computing.co.uk – IT contractors the ‘collateral damage’ in Chancellor George Osborne’s attack on stars’ and civil servants’ tax avoidance
APSCO – APSCo responds to budget ‘leak’ on supposed income tax loophole
