Responding to COVID-19: insight, support and guidance
Really great to see some excellent preparatory work from Penna on scoping and interpreting how the latest changes to IR35 will affect public services and their relationship with the interim staff market (paid typically to a personal service company, PSC).
CIPFA is delighted to be one of many voices in its current advisory board, which is tasked with helping to clarify what, to many, remains a very subjective assessment framework – due to come into force from 6 April.
Caught or exempt by the IR35 HMRC toolkit? This is the key question for thousands of Interim staff currently and their public service paymasters, with the most common answer at the moment probably being ‘could go either way – depending on who you ask and their interpretation of the questions themselves’.
But make no mistake. This is set to be a big deal for the sector and could add significant costs to an organisation who concludes that their interims are caught by the ‘off payroll’ status, where previously the PSC’s own self-assessment may have kept them outside of its reach; especially if charge out rates subsequently increase to mitigate the reduced ‘net’ day rate payment that an employer will typically land on – having deducted and paid the Tax & NI element straight to HMRC at source.
However you slice it, and whoever is ultimately responsible for calculating and paying over an interim’s tax and NIC contributions, the government is convinced that this switch in emphasis to make the employer or employing agency liable for these payments, is set to cover more people and bring in more revenue to the Treasury. By extension, this will mean that somebody somewhere will be paying more within an already stretched sector.
It’s still early days to model how this will all play out. How many people will IR35 now affect? What will this do to daily charge out rates quoted to public sector employers? What will the new administrative burden of complying with these new regulations look like for an employer and will these changes make the public sector less attractive to PSCs in favour of the private sector (who don’t have these equivalent requirements)? All tough questions just now.
Certainly the potential impact on the interim talent pool for councils could be significant from IR35. If roles are deemed inside its catchment or client employers apply it to all interim roles regardless, then it may reduce the financial viability for interims to take on assignments and therefore could shrink the pool of potential interims. In areas like chief accountants, s151 officers, finance business partners within social care, this is already small enough. If it were to get smaller then it may in turn restrict an authority placement client’s ability to hire the resources needed and push up daily charge out rates to the sector, something that it can ill afford in the current financial climate.
Penna’s work (and that of its advisory board) are committed to help consider these issues and find answers to some of these questions to help manage and mitigate; starting with more detail and advice to the sector on how best to prepare for IR35 operationally. CIPFA welcomes any such initiatives that will ultimately bring greater clarity and transparency to a very complicated area of employment.
Our ‘call to arms’ at the moment, then, would be for you to make sure that you/your employing organisation fully understand the implications of IR 35 and to seek suitable advice and counsel about these impending changes, where you feel you do not. Because ignorance will be no excuse to HMRC – post April 6 (this year!) and this could easily become something that proves very costly if you either get the baseline assessments wrong for interim staff (your new organisational liability) – or simply assume that everybody is automatically caught by IR 35 (and the employment market subsequently punishes you with higher day rates across the board).
Final legislation on IR35 will not be confirmed until late March, which will leave a very short period of time to get everybody ready.