Osborne's IR35 proposal 'open to legal challenge'

George Osborne’s proposal at Budget 2016 to shift IR35 liability in the public sector from the worker to the ‘paying agent’ is at risk of legal challenge, a staffing body warns.

Citing the European Convention on Human Rights (Article 1, Protocol 1), APSCo reminded that all tax systems have to be ‘proportionate, reasonable, public and predictable.’

Principles of tax law further dictate that it is “not reasonable to give parties obligations when they have no means of obtaining the information to fulfil them,” said APSCo’s Sam Hurley.

But under the chancellor’s proposal, she says recruiters will be liable from April 2017 in the instance where they cannot verify whether details from worker or engager are accurate.

“Recruitment firms will be responsible for determining the status of an assignment under IR35, of any workers they supply to the public sector,” APSCo said.

“[But where the firm] is unable to verify any information [about that status] it has to rely on other parties to provide it, which leaves the proposals wide open to legal challenge.”

Hurley believes the proposal is therefore “unjust,” as it could leave recruiters “bearing penalties attributable to other people’s conduct” over which the recruiters have no control.

“This is an unreasonable burden which we believe is open to legal challenge”, said APSCo – the Association of Professional Staffing Companies.

“Recruitment firms do not have a close operational relationship with either the end client or the worker, both of which they would need to be able to ascertain tax status.”

The association thinks it should only be engagers who are liable for the decision on PSCs’ status and tax payment, and will be making this point during the April-May consultation.

It said: “It should not be the job of the recruitment firm to determine that individual’s status when the public sector employer itself has ready and immediate access to the necessary information.

“The government is effectively treating recruitment firms as its pay-rolling service, whilst ensuring that the public sector users have no similar burdensome responsibilities or liabilities.”