HMRC has recently updated its Guidance for tax assurance process for public sector appointees with IR35 in mind, but has much changed from the original document?
In May 2012, the Treasury published its review of the tax arrangements of public sector appointees, which concluded:
- Mandatory payrolling of senior staff, unless there were exceptional temporary circumstances and could not last longer than six months;
- Departments would have to seek formal assurance from contractors about their IR35 risk where the contract exceeded six months and the fee was greater than £220 per day. Where such assurance was not forthcoming then the contract was to be terminated; and
- Assurance process would be monitored and those departments that did not comply would be financially sanctioned.
This was then followed by the Cabinet Office issuing guidance (Procurement Policy Note (PPN) 07/12) in August 2012 to all government departments as to how to go about seeking IR35 assurances from contractors. PPN 08/15 issued in March 2015 by the Crown Commercial Service superseded this to reflect the withdrawal of the Business Entity Tests (BET’s) by HMRC in that same year.
Update of tax assurance with IR35 in mind
The assurance process, however, was kicked into the long grass following the implementation of the ‘off-payroll’ rules on 6th April 2017. However, part of its legacy still lives on in the recently updated Guidance for tax assurance process of public sector appointees, in which the Treasury makes it clear that they expect board members and/or senior officials with significant financial responsibility in central government departments and their Arm’s Length Bodies (ALB’s) to be put through the payroll. Only where there are exceptional temporary circumstances, which will require Accounting Officer sign-off, can this hard and fast rule be relaxed.
Even then, such exceptions cannot last for longer than six months. It is the responsibility of Accounting Officers to decide if such contractors should be put on the payroll, giving consideration to the individual’s level of spending authority relative to their department's budget. Contractors fulfilling such roles may well sound as though they are an ‘office holder’ in which case IR35 will apply automatically in most cases regardless of the length of contract, so it would be interesting to know what the Treasury classifies as “exceptional temporary circumstances.”
Applying the ‘off-payroll’ rules
The guidance makes it clear that departments must assess each engagement by considering the relationship between freelancer and the end client, using working practices information and not just referring to job titles and the contract. No more blanket assessments then, please!
It goes on to say that where there are changes in the arrangements, then periodic re-assessments should have been made from 6th October 2017, preferably on a quarterly basis targeting those areas of greater risk, as recommended by HMRC.
Enforcing IR35 compliance
The Treasury will no longer carry out annual reviews of ‘off-payroll’ workers but they will expect increased transparency of those engaged as board members/senior officials in future reporting cycles, with Accounting Officers remaining accountable for ensuring compliance with the updated rules. Having said this, the Treasury will retain its right to review such arrangements and fine any department that breaches the rules.
Generally speaking, it is probably fair to say that contractors who are taken on to fulfil roles of such key responsibility are caught by the ‘off-payroll’ rules. For all other freelancers, where they have been initially assessed as inside IR35 by the public sector body but there has been a significant shift change in the working practices so as to alter the course of that initial decision, then they should be reminding their end client of their duty to carry out a re-assessment.
Additional IR35 advice
If you’re concerned about IR35, we offer a range of contract reviews with comprehensive advice on how to stay outside the legislation. We also offer IR35 Tax Investigation & Liabilities insurance (TILI), which includes tribunal defence from our resident tax and IR35 expert Andy Vessey ATT as part of the policy. Andy is also available for IR35 training, conferences and specialist commentary on the off-payroll rules. Please get in touch.
You can also read more about IR35 and what you can do to minimise your investigation risk here.