Are PSCs being landed with yet more tax liability?

    Since the introduction of the new IR35 public sector rules in April, we have noticed that agencies have been quick to amend their contract wordings. 

    As a result, more clauses have appeared intending to pass on the liability to the contractor’s Personal Service Company (PSC) for the payment of tax and NICs.

    Contractors now have potential exposure to the off payroll rules; look out for clauses referencing Chapter 10 of Part 2 of ITEPA 2003. They will be found with others – such as the Managed Service Company Legislation (Chapter 9 of Part 2), IR35 Legislation (Chapter 8) and in respect of NICs, usually referring to The Social Security Contributions (Intermediaries) Regulations 2000 – which all make your client and your client’s company liable for any taxes for which the agency might be initially deemed liable.

    It’s the off payroll clauses for public sector engagements that interest us here. The requirement in the public sector for making the IR35 decision rests with the public sector body. Where there is an agency (or more than one agency) in the contractual chain, unless the body has failed to take reasonable care in arriving at its decision, it is the ‘fee-payer’ agency – the one closest to the PSC, which has the liability for any errors. That might seem unfair, but don’t be surprised that the agency includes ‘off payroll’ clauses to pass the liability on. 

    However, even we were taken aback when we saw a clause which stated that the contractor would either be considered as the fee-payer in terms of IR35 Public Sector Rules, or a direct employer of the contractor personnel; and the contractor would undertake to comply with any obligations on such a fee-payer or employer, including for the payment of tax and/or NICS.

    Assuming that fraudulent information hasn’t been provided, we are not sure what the legislative basis for such a clause is. Nevertheless, it is just a question of time before HMRC do pick up on an error and a fee payer agency is landed with the tax/NICs bill; and then seeks to take action against the contractor by using the ‘off payroll’ clause. 

    It will be interesting to see then whether the liabilities will land with the contractor; or where the legislation intended?

    If your clients are unsure about their IR35 position, they can take advantage of our current contract review offer. They will receive a comprehensive review of the contractual terms, along with suggestions for improvement, as well as the working practices – all for only £150 + VAT. This offer is open until 31 December 2017.

    For more information, call 01788 702 869 or email contractreviews@abbeytax.co.uk and quote Autumn Promotion.