The furore in in 2012 and 2013 over public sector limited company contractors has resulted in an investigation that showed only a tiny number – just 125 people – may have been ‘disguised employees’. And even those are subject to further investigation by HMRC. So, with HMRC’s investigations of contractors so rarely resulting in successful outcomes, it seems likely that no, or hardly any, off-payroll contractors will be found to be acting outside the rules.
94% of contractors working off-payroll in central government departments of the public sector have “provided satisfactory assurance that their tax affairs were in order”. This is according to an evaluation of the off-payroll rules, which were introduced in September 2012 by HM Treasury. The report confirms the details of the remaining 6%, or just 125 contractors, have been passed “on to HMRC for investigation”.
Chief Secretary to the Treasury Danny Alexander has added a note of common sense to the debate: “The vast majority of off-payroll contracts are in place for legitimate reasons and these workers are playing an important role by satisfying short-term needs for specialist advice and service.”
Had he made these remarks two years ago, it might have calmed the fevered political and media coverage that helped drive some highly talented contractors from the public into the private sector.
“I am pleased that this guidance is working and that compliance has been so high,” Alexander continues. “The minority of cases that do not appear to be consistent with the guidance have been passed on to HMRC who will now investigate these.”
The high level of compliance suggests that the exercise has consumed a huge amount of time and resources for little gain. Alexander has asked the NHS to undertake a similar exercise, which is likely to result in badly needed funds being diverted from providing frontline healthcare into off-payroll rules compliance.
The rules require that contractors on contracts lasting more than six months or earning £220 per day or more must provide to their public sector clients assurance that they are paying the correct amount of tax.
Evidence obtained by ContractorCalculator in September 2013 suggested that the application of the rules was inconsistent across government and that some departments were diverting large amounts of taxpayers’ money into trying to comply with the Treasury’s rules.
Another feature of the rules is the requirement for interim management contractors appointed at a senior level to be taken onto the payroll within six months.
Two government departments – the Department for Environment & Rural Affairs (Defra) and the Department for Transport (DfT) – have been fined nearly half a million pounds by the Treasury for failing to take on senior hires within the six-month limit.
According to Alexander, the Treasury plans to continue its monitoring of compliance and will be conducting a similar review for the 2013-2014 financial year: “It is right that the public sector sets the highest standards in terms of its tax arrangements and that departments continue to assure themselves that all their workers are paying their fair share of tax.”