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26 September 2016
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Welcome to the online news section for everything you want to know about our latest news and events.

26 September 2016
Off-Payroll Reforms

Who should read this? If you supply your services through your own company, known for the purposes of this legislation as a Personal Service Company, or PSC, you should read this. 

As part of the Government’s wide-ranging reforms of tax law, new legislation is being introduced in April 2017 which will affect ‘off-payroll’ contractors working in the public sector who are not paid directly via that public sector body’s own payroll. These workers are considered by HMRC to be ‘off-payroll’, and include contractors working through their own companies who ultimately feed into the public sector, regardless of how many links there are in the supply chain. These changes are likely to affect large tranches of MPI’s PSC suppliers since a large portion of our supplied workforce feeds ultimately into public sector bodies, examples to include but not limited to: 

• Any contractors where the end hirer is the Ministry of Defence 
• Any contractors where the end hirer is Network Rail 

In such circumstances where the contractor’s company is off-payroll and is considered to be in scope of IR35, the legislation intends to ensure that the entity closest to the PSC will assume responsibility for paying all taxes due on behalf of the PSC worker – as if they were employed. Currently the responsibility for determination of IR35 sits with the PSC itself, along with the responsibility to pay associated taxes. 

First introduced in the March 2016 Budget as part of the 2017 Finance Bill, the legislation intends to ensure that those working through their own personal service companies are legitimate self-employed contractors and not disguised employees. The legislation is intended to ensure that the correct amount of tax is paid in all instances. 

The consultation document itself can be found here.

A new employment status test (EST) will be introduced in due course. The EST is intended to ascertain a contractor’s true employment status. This will in turn determine where the responsibility sits for deducting employment taxes and reporting to HMRC. This test will be applied on an assignment-by-assignment basis – and each assignment must be monitored to ensure ongoing compliance. 

If the EST determination is that an assignment is within scope of IR35, then the party (in this instance, MPI) that pays the PSC assumes responsibility for applying PAYE and National Insurance (NI). The PSC will still be entitled to the existing 5% tax free allowance – but HMRC expect the remainder to be taxed as employment income. Therefore MPI will have to deduct tax and NI at source. 

The practicalities for businesses such as MPI of implementing these changes cannot be underestimated and we have made our objections clear in our responses to the consultation, the links to which can be found at the bottom of this page, along with the consultation document itself. 

Practicalities notwithstanding, MPI believes that the proposed legislation is fundamentally flawed. 

The taxation regime suggested is akin to that imposed on employees – but PSC workers are not employees. They are incorporated bodies. PSC workers have no employment rights save those afforded by their own micro-business. Given that HMRC has advised that there is no plan at the moment to align tax law with employment law, it seems grossly unfair to treat PSC payments as employment income. 

Crucially, we fail to see how it can be appropriate to impose entirely different tax regimes on a worker where two concurrent assignments could be absolutely identical save that one falls under public sector status and the other, under the private sector. Indeed, we question the legality of such an imposition. 

MPI intends to continue to fight against these changes, which we believe to be fundamentally unfair to all parties. 

We will keep you updated via the website but in the meantime, please don’t hesitate to contact me should you wish to discuss the matter further. 

Sarah Grant Finance Director 
Email: sarahd@mpi.ltd.uk Tel: 01992 501111

Read Ted Pearson, Managing Director, full response 
Read Sarah Grant, Finance Director, full response