At the Budget earlier this year it was announced that, from April 2017, the government would make public sector bodies and recruitment agencies responsible for determining whether IR35 applies to an assignment in the public sector. To ensure that new rules are complied with the government proposed that tax should be deducted at source by the paying party (the public sector body or agency). A consultation on the subject was issued and has now closed and, despite opposition from virtually all those that took part in the consultation, there does not appear to be any softening of the government's position. This is because the government believes:
So, in order to save HMRC the trouble of enforcing the legislation, it is proposed that recruitment agencies and their public sector clients will make the assessments for HMRC, and will be on the hook for the tax if they get it wrong. HMRC has however promised a new digital tool to help the public sector to a decision.
As stated above there has been widespread criticism of this approach, most recently by the UK's Office for Tax Simplification (OTS) which has called on the government to rethink its plans. A full copy of the OTS opinion can be found here but briefly the headlines are:
It is uncertain whether the OTS opinion will carry sufficient weight with government to initiate a change to the proposals but at present this seems unlikely.
What does this mean for recruitment agencies working in the public sector?
Recruitment agencies will want to continue to work with PSCs since many highly skilled contractors work this way. So what are the options:
Are the rules the same for the private sector?
No. And HMRC has said that it does not intend to (at this point) to extend this to the private sector. So the risk of IR35 lies with the PSC and contractor and not with the agency or client.
When will we know for certain that legislation will be introduced?
There is likely to be an announcement in the Autumn Statement (late November) so we won't know for sure until then but I think it is reasonable to begin educating staff around what might happen and to plan with public sector clients how you will deal with any changes.