The Government Digital Service was created way back in 2010 based on the ideas and the report from Dame Martha Lane Fox. It was supposed to be Agile, faster and efficient and cost effective for the UK. Whereas previous big projects eventually cost the tax payers scores of millions of British pounds, if not hundreds of millions, the new GOV.UK allowed smaller outfits and organisations a chance to tender and bring in contractors and consultants to build a better digital service for the UK citizens. This was the grand idea. However, from now on independent contractors, like myself, will not be taking the risk of retrospective taxation.
(For practising professional IT contractors this will be already old news)
Why is this so? This is because the HMRC (Her Majesty’s Revenue and Customs) through the Chancellor of the Exchequer’s Autumn Statement will be introducing changes in the next tax year that making contracting no longer viable for any engagements in GOV.UK and other relevant departments that are indirectly controlled by the government like the BBC.
Here is the summary from QDOS Consulting:
“From 6th April the responsibility for determining IR35 status in public sector engagements will shift from the contractor to the party paying them, which will usually be the recruitment agency. This means the agency will also be liable if they decide a contractor can work outside IR35 and their decision is subsequently challenged by HMRC.”
In a word, the recruitment agency (or consultancy) would be footing the extra bill for paying additional tax revenue, or equally like contractor rates will be forced down, if agencies don’t take the hit. Which ever way you square this, the prognosis is financially unhealthy. Throw in to the fire, the economic uncertainty around the economy, including Britain’s decision to leave the European Union, we can see no nice results.
Given HMRC’s intentions to process more cases inside the public sector against possible consultants and contractors, the result of the rules change will cause additional expenditure, perhaps estimated up to 40% on current contracting rates, if say considering London, and this is represents a conflict of interest.
“HMRC are convinced that there is widespread ‘non-compliance’ in the public sector, estimating that 90% of ‘off payroll’ workers are not paying tax correctly. Given they do not have the resources to adequately police IR35, they have decided a significant change is required.”
Here is a quote from Contractor Weekly:
“The announcement is in response to feedback to HMRC’s consultation document, ‘Off-payroll working in the public sector: reform of the intermediaries legislation’ that closed in August, and reflects the fact that a worker will no longer bear the administrative burden of deciding whether the IR35 rules apply. This is a feeble excuse as the flat rate reduction allows for the general expense of running a business, such as training costs as well as assessing employment status. The more likely reason for its abolition is that it would have made payroll calculations that little more difficult.”
Source: Contractor Weekly
I have now decided not to take on any public sector work for any governmental control departments like the GOV.UK for the foreseeable future.
28th November 2016
+++ UPDATE +++
On the 5th December 2016, the UK government published a technical note about Off Payroll Working in the Public Sector of the Intermediaries Legislation. If you are practising IT contractor, I believe, it is very well worth reading the Rebecca example. The technical note clearly states the IR35 liability of a public service contractor if, indeed, their contract engagement means financial payments on the 6th April 2017 or afterwards.