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At a recent meeting with HM Revenue & Customs (HMRC) and the Treasury, the Association of Professional Staffing Companies (APSCo) expressed its concern about the effect guidelines on off-payroll arrangements will have on the stability of the public sector supply chain.
“We are particularly concerned by the use of HMRC’s ‘Business Entity Tests’ as the method by which limited company contractors can prove that they are paying the correct level of tax, as these are disproportionately weighted against personal service companies,” said Samantha Hurley, APSCo’s head of external affairs.
The guideline’s new contractual terms for the public sector will, in some cases, give the hiring client the right to pass onto HMRC all information provided by contractors if they feel that they have not received sufficient evidence that the appropriate amount of tax will be paid.
APSCo is concerned that public sector hiring managers will be faced with difficult decisions regarding the tax status of off-payroll contractors, something which could potentially see a “huge” amount of information flowing into HMRC.
At the meeting, HMRC made it clear that it will be the responsibility of departments to assure that tax obligations are being met. “HMRC have assured us that the guidelines are definitely not a sampling exercise,” said Samantha Hurley.
“Additionally, The Treasury made the point that while the guidelines require that all departments include contractual terms within their agreements that give them the right to seek assurance – they are not necessarily expecting hiring managers to do so in every single off payroll situation.”
“While we are encouraged by the fact that there is a clear understanding within HMRC and The Treasury that not all off payroll arrangements amount to tax avoidance – and that there are legitimate situations where a PSC is a correct supply chain model, the findings of the recent Public Accounts Committee report show that some misconceptions remain, particularly in the political arena,” added Ms Hurley.
APSCo will meet with the Chair of the Public Accounts Committee, Margaret Hodge, later this month. The Treasury has also asked APSCo to provide feedback from members working in the public sector regarding any unintended consequences of the guidelines.
Earlier this month, MPs criticised tax schemes used by some employers in the public sector which could lead to lower tax and national insurance contributions on their part.