Osborne 'to overhaul public PSC contracting'

Budget 2016 will contain a £400m overhaul of public sector PSC contracting by making the engager liable for the tax and IR35 status of ‘off-payroll’ staff, it was reported on Sunday.

So rather than just the current process for such staff to assure clients of their compliance, new guidance will be issued to clarify when they become employees, the Sunday Times reported.

The guidance is needed as “demands for change across the public sector have not worked,” the paper said in “Budget to end stars' 'off-the-books' pay,” citing 20,000 PSCs each avoiding £3,500 in tax.

A “government source” was quoted: “Personal service companies can be legitimate, but we estimate that 90% of people who should comply with the rules don’t.”

The estimate is at odds with official statistics. In fact, in March 2015 the Treasury said that 95% of public bodies were “broadly complying” with the off-payroll rules.

Yet it is not the first time that the Ed Lester-inspired framework has been accused of failing. In July 2013, Margaret Hodge MP said engagers were “drifting back” to non-compliance.

However, it is also not the first time that the future of contracting has been thrown into doubt by an anonymous “government source.”

And like the piece on the ‘one month then payroll’ plan, which featured in the Guardian before Autumn Statement 2015, the source makes no mention of the plan directly.  

The source’s only other statement reported by the Sunday Times is: “Some [PSCs] may not understand the rules but it’s clear others are using them as a way to minimise their tax bills.”

In a further echo of November’s ‘one or two-month contracting cap’ story (subsequently picked up by the Daily Mail), the ST’s story is now elsewhere - in the Mail and Independent.

But it is the wording in the Times’ article – specifically the headline -- that irks Julia Kermode, chief executive of the Freelancer & Contractor Services Association.

“Suggesting that the workers are ‘off the books’ implies something underhand,” she said. “In reality, most freelancers and contractors work legitimately and compliantly off-payroll. 

“By definition, freelancers and contractors are not employees, but are procured to provide services to the business and therefore would not be part of an organisation’s payroll.”

Aware of these facts or not, the two Times’ journalists behind the article claim that PSCs – described as “private” service companies, give the exchequer £70m less than they ought.

The two claim the chancellor will “order all public sector bodies including the BBC and Channel 4 to make those employed ‘off the books’ to pay full employment taxes.”

Shifting the liability from worker to engager is a potential reform that the government has expressed interest in, notably at last year’s IR35 discussion document which is overdue for the government’s response.

The government’s thinking may be what Ms Kermode yesterday pointed out – that such workers already have “no job security or benefits” and are already “taking significant personal risk in choosing to work this way.”

She hopes the government will recognise this on Wednesday, rather than proceed with the clampdown expected by the Times, projected by the paper to net £400million.

Kermode said: “We must redress the balance and change the perception that all temporary workers are tax avoiders and evaders. We should be nurturing these workers not penalising them.

“I would urge the chancellor to be sure of all the facts before he makes any broad sweeping changes in Wednesday’s Budget that will affect all contractors, many of whom are working compliantly and within HMRC’s rules.”

The Association of Independent Professionals and the Self-Employed said it would oppose the reported changes to how the public sector uses PSCs.

IPSE’s chief executive Chris Bryce warned: “Making the public sector client decide the employment status of freelance workers will lead to confusion among workers and added costs for the taxpayer.”