Off-Payroll: So What Next?

As recruiters and contractors assess yesterday’s Autumn Budget, there will be more than a little relief that there has been no firm commitment to pushing forward with the introduction of off-payroll working in to the private sector. For a government very short on cash, with little wriggle-room, and given the disturbing rumblings and leaks that have emerged on the subject in recent weeks, this is perhaps a little surprising. However, it would be na?ve to believe that this is the end of the matter.

What the Chancellor failed to mention in his speech, but sitting in the small print of the Budget notes is a commitment to ‘carefully consult’ on the matter of IR35 non-compliance within the private sector, and reference to research on the topic that is already underway and scheduled for publication at some point in 2018.

Few would contest the notion that there are abuses within IR35, but where there is considerably less consensus is on the extent of it, and whether the ‘sledgehammer to crack a nut’ approach of off-payroll is the correct vehicle to address it.

One of the biggest concerns with off-payroll when it was introduced to the public sector in April 2017, is that it shifted the onus for determining IR35 status from the contractor to the client and/or agency. The consequence of this is that it ‘bottles up’ exposure and risk which, in the case of the recruitment agency at least, is with a party that has the least visibility on the actual day to day nature of the commercial relationship. This in turn naturally leads to a cautious approach, where it seems safer to band all contractors in to the ‘within scope’ category, thereby penalising many (perhaps even the majority of) contractors who are in fact operating outside of IR35. The lack of clarity within the online testing mechanism hasn’t helped either. Finding a viable solution to this depends upon working very closely with end clients to carefully assess and address IR35 risks and the knowledge and appetite for this amongst end clients isn’t always available.  

This has led to a swathe of limited company contractors within the public sector either switching to less attractive PAYE pay-rolling solutions, or leaving the public sector altogether. The murmuring from Government that this newly created inequity between public sector and private sector should be addressed, is ironic to say the least.

So what next? Well APSCo (Association of Professional Staffing Companies) has already surveyed its membership and concluded that since April 2017 the effect on public sector projects, in terms of talent shortages leading to delays in delivery, has been severe. APSCo however, representing as it does the interests of recruitment agencies, may be considered somewhat partisan.

Surely what is required is an in-depth independent study, that looks at the entire process of the public sector off-payroll roll out: from the clarity and practicality of the information, processes and testing mechanisms available, to the genuine effects on public sector staffing and projects. If it transpires that the extra tax raised for HMRC is being nullified by rising delivery costs, as contractors seek rate increases to swallow their losses, or projects fall behind schedule due to talent shortages, then surely this must have a strong influence upon whether it is viable to roll out off-payroll to the private sector.

Whether the current Government research in to the subject will focus on this, or whether it is even intended to, is anyone’s guess at this stage.