Off-payroll shakeup threatens role of interim finance officers
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Photo; HMRC, Flick
The government is pressing ahead with tax changes which public sector bodies warn could make it more difficult for local authority finance departments to hire interim staff.
HM Revenue & Customs this week published its response to a consultation on proposals to pass responsibility for policing compliance with rules on off-payroll working.
It said the new rules – due to be introduced in April – are necessary because poor compliance with the IR35 rules across the public sector is costing the Treasury lost revenue.
The government’s response said: “The government is not increasing the numbers of people who should be subject to the off-payroll legislation: the changes are intended to improve compliance with the current rules where they are not being operated correctly.”
However, the Local Government Association response to the consultation, seen by Room151, said: “The bureaucratic nature of the proposals will also slow down the engagement process for workers that need to be engaged quickly to meet unexpected peaks in demand.
“Interim workers play a vital role in the delivery of services, enabling councils to manage peaks and troughs in what are often urgent demands in a cost effective and speedy way.”
The LGA added that failing to apply the new rules to the private sector workers will make the public sector less attractive for interim workers and agencies.
“This will therefore impact on recruitment and retention in areas in which there are in many cases skills shortages, such as social care,” it concluded.
The proposal moves responsibility for deciding if the off-payroll rules for engagements in the public sector apply to staff. From next year, responsibility will shift from an individual worker’s personal service company to the public sector body, agency or third party paying them.
It will also remove the 5% allowance currently available to those who apply the off-payroll rules.
The LGA called for any additional costs caused by the move to be funded by central government under the New Burdens doctrine.
Richard Harbord, former chief executive at Boston Borough Council, said: “This is a major change because it takes away the flexibility and independence of interim finance officers.
“It may affect their pension or they may have to start making pension contributions again. Many of them will be paid less than they are as an interim.
“The authorities will be involved in employment law on dismissal and discrimination, while the recruitment agencies will lose a huge amount of revenue.”
He said that there were indications that many interims will just retire rather than bother with the new rules.
Chris Buss, director of finance at Wandsworth Borough Council, said that if authorities have been following previous guidance received by HMRC, it shouldn’t cause them a headache.
But he added: “I suspect that many local authorities have, over time, got lax on this and ignored the guidance, as it is clearly beneficial to the local authority to employ interims without a national insurance or pension bill.”
Julia Kermode, chief executive of FCSA, the trade association for freelance employment service providers, said councils face a “large administrative burden” to put contractors onto their payroll.
She said: “There is zero support for the changes and the reality of IR35 responsibility being with the public sector hirer is going to be complex – it means that every single contractor needs to be assessed for every single role they take on, and their IR35 status might change partway through the assignment.
“HMRC is ploughing ahead with an ill-thought through move and has ignored the very many stakeholders in our sector who have raised some clear and common-sense concerns. Clearly, those voices have fallen on deaf ears.”
HMRC said that it will attempt to make operation of the new system easier by developing an online tool to help authorities determine whether or not the off-payroll rules apply to particular individuals.
It has also published a technical note this week on how the new system will operate.
This is an unnecessary piece of legislation which is putting an additional bureaucratic burden on local authorities. Ultimately, it is born out of the politics of envy. Interim managers are likely to reflect any increase tax liabilities in there fee rates so ultimately it will move money from local government to the treasury.
Just a nudge to all S151s, this change happens on 1st April 2017. It will apply to all off payroll services, whether a contract is already running or starts post the change.
If you employ interim staff / consultants / contractors directly, you do risk a material fine if (when) HMRC investigate, it is likely to be broadly the value HMRC consider should have been paid, so if one assumes 40% Income Tax bands, NI contributions etc and that the payment made to the contractor was ‘net’. The fine could soon add up. (do think of where you might have hidden ‘off payroll’ resources (Social Workers, Building Control, etc).
Going forward, agencies are as yet unable to assess the impacts, the HMRC model/guidance is not likely to be available until mid February.
However S151s with their HR colleagues, might start considering new models. How to create temporary posts/grades that allow for the direct employment of ‘Interims’ for period appointments, with a ‘recruitment/finders’ fee to agencies.
Many Interims ‘stay away from home’, HMRC are inferring that travel and accommodation costs will not be permitted as valid to interims. So there may be a need/scope to consider how the package/contract is structured, ie you appoint, but state the role is ‘homeworker based’ so allowing agreed costs to be brought back into the mix (which can be predetermined as an allowance).
The market will no doubt find its balance and models will get produced, however time is short to assess both financial and service risk for roles already running and will cross 1 April 2017, or due to commence immediately after. For Finance Functions it will impact on those who traditionally use an external resource to deliver Year End, but there are many other service areas that regularly use off payroll individuals.
So perhaps there is a need to instigate a swift survey of all off-payroll services/individuals, which may also throw up some additional interesting conversations (also worth remembering that services that capitalise costs, may also be hiding some pseudo employees!).