A contractor accountancy firm has reported a surge in demand for IR35 contract reviews from its public sector contractors following the release of a controversial report by Monitor which shows that dozens of NHS executives, working via their own limited companies, have failed to demonstrate that they are paying the correct amount of tax.
According to the regulator of health services, 86 executives working at 21 different NHS foundations trusts could face investigations over their IR35 status, having failed to provide their departments with assurances that they have been meeting their ‘tax obligations’.
In addition, 47 senior executives working across 23 trusts were also found to be working on an off payroll basis – despite having significant financial responsibilities, and / or board-level responsibilities.
The ‘Off Payroll’ clampdown
In early 2012, Danny Alexander, Chief Secretary to the Treasury, ordered an audit of all public sector organisations after it was revealed that the head of the Student Loans Company, Ed Lester, was paid on an ‘off payroll’ basis (i.e. via his own limited company rather than PAYE).
A further 2,400 public sector executives were subsequently found to have used similar arrangements for many years.
As a result, the Government drew up new rules in early September 2012, which put the onus on limited company contractors who are employed on an ‘off payroll basis’ to show that their work falls outside the IR35 legislation (or not). You can view the PDF here.
Government departments who fail to implement these rules also face sanctions – their resource budgets may be reduced by up to five times the amount of any outstanding tax owed by any individuals.
Surge in demand for IR35 contract reviews
ClearSky Accounting says that many of their public sector contractor clients have requested IR35 contract reviews in recent weeks, perhaps spurred on by media coverage of the NHS workers’ predicament.
In line with current Government rules, Mairi Bowen, compliance manager at ClearSky has reminded public sector workers to provide assurances to their departments that they are paying the “correct” levels of tax, if they earn £220 per day or more, and their contracts last for six months or more.
“Failure to do so could see the contractor being investigated by HMRC or having their assignment terminated.”
Bowen says that many contractors are being proactive: “This willingness to get on the front foot shows that public-sector contractors are getting to grips with the new rules, and are willing to do what’s necessary to protect themselves.”
You can access the full Monitor report – ‘Off-payroll arrangements at NHS foundation trusts’ here (PDF).