There is much concern about the new public sector IR35 rules, which are proposed to apply from 6th April 2017, for a host of reasons. One such reason is that where an agency or third party is to be the fee payer, there is no provision for the hirer to be liable if the fee payer relies upon the hirer's conclusion that IR35 does not apply, and pays the contractor on a gross basis.
"Under the rules published on 5th December 2016, there is no defence for an agency that it relied upon the public sector hirer's advice that IR35 does not apply" says Theresa Mimnagh, associate director of the legal and compliance recruitment specialist, Lawspeed. "If HMRC later claims that IR35 did apply to the arrangement and that employer and employee NICs and PAYE are therefore owed to HMRC, the agency would still be liable unless the agency can show itself that IR35 did not apply. This requires evidence over and above the hirer's conclusion. The rule here therefore is that the agency cannot rely on the hirer's determination in itself, which seems very unfair given that HMRC has consistently said that it is the public sector hirer who should determine the IR35 status."
This point has been raised with HMRC by various representatives, including the Association of Recruitment Consultancies (ARC), whom Lawspeed advises. "A defence should be provided to agencies in these circumstances,” says Mimnagh, "but we have been given no indication that this has been taken on board".
Now ARC has been informed by several sources that various public sector bodies believe that they are to be sole arbiter of contractors' IR35 status, with liability to follow, meaning that the legislation is to be changed and agencies will then need to follow whatever conclusion their hirer gives on the IR35 status of any contractor supplied to it.
Scotching the rumours about changes to liability, Mimnagh said: "They are not correct. This is nothing more than speculation, and agencies should be careful to discount it. There is a great deal of misinformation and indeed misunderstanding about the new rules and how they will apply. We have asked HMRC directly whether there is to be any change to the draft legislation as published in December 2016 whether on the liability or the defence point or at all. The answer was a categorical "no change at all". The conclusion therefore is that some public sector hirers themselves may not understand the rules, and that agencies should be careful not to be misled by their view."
Referring to action by ARC to challenge the rules Mimnagh said "There is no reason to slacken the pressure on government to change the rules, to make them more acceptable to agencies, and indeed contractors.”