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UK – Row over intermediaries’ legislation sparks concern among contractors

24 July 2014

A sudden increase in demand for their services has been attributed by ClearSky Contractor Accounting to the fresh controversy over the use of “off-payroll” arrangements within the National Health Service (NHS).

An investigation by Monitor, the body that regulates health services in England, found that 86 executives working at NHS foundation trusts could face an investigation over their use of Personal Service Companies (PSCs).

PSCs are recognised as an intermediary, and are therefore subject to regulation under the Intermediaries Legislation (IR35). The aim of the legislation is to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries in circumstances where an individual worker would, but for the existence of their limited company:

  • For tax purposes be regarded as an employee of a client; and
  • For NICs purposes be regarded as an employed earner by the client.

The officials in question reportedly failed to give the necessary assurances that they were paying the correct rates of employment tax.

Mairi Bowen, Compliance Manager at ClearSky Contractor Accounting, said: “National media coverage of Monitor’s findings seems to have jolted many public-sector contractors into action. We’re at the point of the year when a lot of assignments in the public sphere are reaching the six-month point.”

“Contractors in this situation, who earn more than £220 a day and work at a non-board level, should be looking to provide assurances to the government department or public body that is engaging them. Failure to do so could see the contractor being investigated by HMRC (Her Majesty’s Revenue and Customs) or having their assignment terminated.”

She added: “Growing awareness of the new rules, which is thanks in part to the high-profile cases highlighted by Monitor earlier this month, means more and more contractors are being pro-active. Indeed, many are seeking assistance and advice from specialist contractor accountants in order to provide the relevant assurances to their clients. This willingness to get on the front foot shows that public-sector contractors are getting to grips with the new rules, and are willing to do what’s necessary to protect themselves.”

HM Treasury published the rules in a Procurement Policy Note applicable to all Government departments in August 2012. This followed a review by the Chief Secretary to the Treasury, Danny Alexander, into the tax arrangements of public appointees, which found over 2,400 appointments were made ‘off-payroll’ and that 85% of these appointments were for longer than six months, leading the Government to be concerned about the “scope for artificial tax minimisation”.