HM Treasury Releases Details of Arrangements for Tax Review of Public Sector Contractors
CHESTER, England, September 7, 2012 /PRNewswire/ –
Following a spate of high-profile cases in the media, HM Treasury has been considering
how to review the tax arrangements of public sector contractors and has released details
of its proposals.
Under the measures released, all public sector client organisations are required to
obtain certain information about the tax affairs of certain contractors that they engage.
This can be directly and also applies to contractors who are engaged through third parties
(such as recruitment agencies), to public sector clients and to contractors who:
- Are engaged in the most senior positions within the department, or - Are paid more than GBP220 per day by their public sector client, and are engaged for more than six months (commencing on 23 August 2012).
These measures will also interest contractors who are considering undertaking work
with a public sector client in the future, as they may affect key considerations for the
contract (such as the length of engagement or the role to be fulfilled).
These new developments require Government departments to:
1) Ensure that people engaged in senior positions are on payroll (unless there are exceptional circumstances lasting no more than six months), or 2) Ensure that all other contractors earning more than GBP220 per day, on a contract lasting over six months, can provide the department with assurances that they are complying with their tax obligations.
Any Government departments who fail to implement these requirements will face
financial penalties and any contractors who do not provide information requested by their
client may face having their contract terminated. They can ask for this information either
directly, or approach third parties such as recruitment agencies.
Each department is likely to put their own specific emphasis on these requirements.
However, the guidance from HM Treasury sets out the following framework for compliance:
The Government department engaging the services of the contractor must assess their
employment status, to ensure they are truly engaged on a self-employed basis. This is
consistent with the obligations on other businesses within the UK. So nothing will change
for contractors engaged directly with a department.
Limited company contractors will be required to either:
- Provide assurances that they have considered if IR35 applies to their assignment, or - Demonstrate that they operate PAYE on their whole income from the company for the length of the assignment.
There are several ways to ensure compliance with IR35. However, contractors who use
the services of an accountant, who specialise in providing IR35
[http://www.brookson.co.uk/services/limited-company/ir35 ] advice (such as Brookson) need
not worry, as long as they take appropriate advice as to their employment status before
the six months review, when departments will start asking for this information.
The best advice for customers working with public sector clients is to ensure that an
Employment Status Review (IR35) is carried out early in the assignment to avoid unpleasant
surprises when your employment status is reviewed by the client six months into the
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