The government has confirmed that it intends to press ahead with new legislation that will affect workers operating within the public sector.
The draft legislation is due out on the 5th December 2016 although we already know that any contractor using a limited company will face changes to how they are assessed, taxed and receive their money.
REMIT is a new service launched by Professional Passport to help and support workers that will be affected by the new legislation when it comes in to effect in April 2017.
The Autumn Statement Announcement
4.11 Off-payroll working rules – Following consultation, the government will reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company. The government believes public sector bodies have a duty to ensure that those who work for them pay the right amount of tax. This reform will help to tackle the high levels of non-compliance with the current rules and means that those working in a similar way to employees in the public sector will pay the same taxes as employees. In response to feedback during the consultation, the 5% tax-free allowance will be removed for those working in the public sector, reflecting the fact that workers no longer bear the administrative burden of deciding whether the rules apply.
This announcement and confirmation follows formal discussions and consultation carried out by HMRC.
Some points to note:
1. The removal of the 5% tax-free allowance
Removing the 5% tax-free allowance effectively means that a payroll charge on the whole amount of money, ex VAT, will be required to be made by the organisation that pays the contractors PSC and where the PSC is assessed as within IR35.
We await the detail on this as always the devil will be in the detail and we will provide an update to the site once this has been released and considered.
2. New ESI Tool
HMRC has confirmed that they intend to launch a new status assessment tool that can be used in making the decision and where that has been completed correctly they will not seek back taxes if they disagree with the outcome, although you will have to apply the appropriate tax requirements going forward.
3. The person paying the PSC will be required to make the assessment of status and deduct the required levels of tax before paying the PSC.
In the current environment this would mean either the recruitment company or, for direct engagements, the engager.
The recruiter will have to assess the IR35 status and where it was assessed inside deduct taxes. Only where they assess the assignment as outside would they be able to pay the gross amount across to the PSC.
If HMRC successfully challenged the status it would be the recruitment company that becomes liable for the unpaid tax.
In essence the worker is removed from the assessment. We believe that this could result in many workers being considered as caught as the recruitment companies would not be prepared to carry the risks.
There are many unanswered questions that we hope the draft legislation will clarify such as:
- How the tax to be deducted is calculated?
- What tax code will be used?
- Will a RTI return be required?
- How will over payments of tax be recovered by the PSC to prevent cashflow issues?
- To name but a few.
REMIT has been designed to sit between the recruitment company, or engager for direct engagements, and the contractor's PSC resulting in REMIT taking on those assessments and liabilities.
The key difference is that REMIT are experts in the sector having spent most of their working lives in contracting roles and will make real and accurate assessments of the assignments status. This means that the contractors can be sure they will only be assessed as under IR35 where they are genuinely caught and if we assess the status as outside IR35 we will be prepared to put our money where our assessment is and defend our assessment to HMRC if required.