TfL bans PSC contractors ahead of IR35 change

Transport for London has become the first public sector body to react to April’s IR35 reforms by imposing a blanket ban on workers who operate through their own limited company.

Under the reforms, such bodies will -- for the first time -- become responsible for the difficult decision of assessing whether their limited company staff (known as ‘PSCs’) are inside IR35.

But TfL is heading off both having to use an IR35 digitial tool due to be released by HMRC to help end-users reach such a decision, and the decision itself.

It is also heading off the prospect of penalties for a ‘wrong’ decision (one that HMRC disagrees with), as it will simply no longer have any PSCs to assess.

“We won’t allow limited company workers to continue working for us,” TfL said in an internal memo, sent to some of its 2,300 off-payroll staff, but obtained by ContractorUK.

“The risk prohibits anyone who might be considered to come under IR35 continuing beyond 6th April”. The local government body added that “converting to PAYE or Umbrella worker status” is required to continue beyond April 6th.

‘Stop working for TfL’

In fact, only “critical” staff will be exempt from three PAYE options that Tfl outlined (the term “critical” is not defined in the memo). However a fourth option was listed -- “stop working for TfL.”

A TfL insider says half a dozen PSCs will do just that -- quit the body that runs London’s transport network. “Of the six or so people I’ve talked to, they are [all] tending towards leaving,” he said.

The insider knows that the number of PSCs due to leave is likely to be much higher, and only partly because his “guess” omits those PSCs whose contracts will naturally end before the April rules bite.

A request by ContractorUK for TfL to comment on its changes, including how its off-payroll workforce has reacted, was not responded to yesterday.

'Recruitment and replacement’

Yet TfL’s memo does explain why a deadline of February 17^th has been set for PSCs to change status, even though the rules are still more than four weeks away from taking effect.

“TfL cannot exit and replace temporary workers overnight. We are planning a two month period to ensure compliance and to allow for recruitment and replacement [of workers]”.

Still sounding aware that its ‘non-PSC’-policy will impact resourcing -- and potentially service levels to London's transport users, TfL added: “We may need to consider how teams can continue working effectively in future.”

And despite promising them “as much support as we can,” it reiterated that all temporary workers can “no longer be able to operate through Commercial arrangements…or TfL risks being fined by HMRC.”

‘Clarification’

Yesterday, a recruitment lawyer who is the chairman of an agency staffing body said that the April rules were in need of “clarification”, specifically as to which party will be held liable.

The clarification does seem necessary because despite the steps that TfL has taken, to both avoid being fined and to “meet our legislative duties,” it now appears agencies -- not end-users -- will carry the can.

In fact, HMRC has reportedly said that the agency becomes the employer for tax purposes (where it pays the PSC), so is liable if HMRC deems PSCs decided to be ‘outside’ IR35, as ‘inside’ the legislation.

Due to be confirmed shortly by a status adviser in an article for ContractorUK, this about-turn in understanding means end-users would not be liable if HMRC investigated in such a scenario.

However, it still seems to be the case that the decision about whether IR35 applies is always going to be the end-user’s, regardless of agency involvement, from April 6^th 2017.

And end-users must also account for PAYE if they fail to reply within 31 days to requests from the agency (or the PSC) about questions about their IR35 decision.

'Brain-scrambling'

“[These rules are] brain-scrambling, convoluted, [and] ‘Twister-like’”, reflected Adrian Marlowe, the recruitment lawyer who yesterday called to have the framework clarified.

“Why should a third party be liable for the tax of a company?” added Marlowe, the chair of the Association of Recruitment Consultancies, starting a long list of questions to FE News.

“Why should anyone other than HMRC determine tax status, with decisions foisted on to public sector hirers? Why should individual PAYE rules apply to a service provided by a company?

“Why should the implication of tax liability affect the simple engagement for a job to be done? [And] how can an online tool, which HMRC claims will help with assessment, ever be determinative?”

‘Very little additional information’

While lawyers, status experts and accountants will press HMRC for answers over the coming weeks, whatever clarity emerges is unlikely to offer much comfort to TfL’s off-payroll professionals.

“[My] options explicitly exclude continuing to contract via a ‘Ltd’ company,” said one, who TfL has invited to be a PAYE sole trader, an umbrella worker, a Tfl employee or just jobless.

“It appears that the employers’ NI, as well as employees’ NI and income tax, will be deducted from the fee rate, not paid by TfL,” the worker added. “[Other than this detail, and the memo] there has been very little additional information made available.”

Editor's Note: One contractor shares the TfL communication regarding IR35 on the ContractorUK forum, read more here: TFL communication re IR35.