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Why are we surprised? This was always going to be the case. PSB decision makers are always going to take the simpler risk free route.
"It is now the fee-payer that is required to make the decision on the applicability of IR35 to the engagement"
This is wrong. The PSB makes the decision, the fee payer must make the deduction.
"Agencies (and other intermediaries) are often not aware of the specific working arrangements between the individual and the end-client. Nevertheless, they are the party responsible for making the decision as the fee-payer"
Again, this is wrong - the agency or intermediary is NOT the party responsible for making the decision.
These are really basic things to get wrong in the article.
I think you're wrong on both counts. The body who pays the PSC has to make the final decision because they're the ones who have to decide whether to operate PAYE. As the article says, the PSB has to give its decision but it's not binding on the fee payer.
My experience to date is:
PSBs are saying that all workers are caught by IR35
Agencies are forcing workers to join umbrella companies because they don't want to operate PAYE. It's a mess!
Interesting discussion. My understanding was that the responsibility for operating PAYE sits with the fee payer, but that the responsibility for the decision is with the client.
Section 61T of the legislation makes it clear that the client has responsibility for making the determination before or on contract commencement. Perhaps it doesn't explicitly state that the fee payer has to comply with the client's decision, but, if that means they don't, it sounds more like a loophole than intention. It would be a brave agency that ignored the client's decision and did not deduct the taxes! The article is right in that they should be challenging the decision if they do not believe it to be correct.
This bit is definitely incorrect though
"If questions are asked, then the PSB must provide a response within 31 days. If it fails to do so, then the tax and NIC liability will shift to the PSB from the fee-payer."
The liability shifts the other way - fee-payer to PSB.
It sure is a mess though!
Thanks Nigel, I agree with your comments.
It may well have made life simpler for all in the industry if the PSB’s decision was binding on the Fee-Payer but unfortunately the legislation does not provide for this. There is nothing explicit within section 61T or in any other part of the legislation which states that a person is obliged to operate PAYE based on the information provided by the PSB under section 61T.
In the majority of cases I have seen, the conclusions provided to agencies and other intermediaries are being followed, however where, say, a blanket conclusion has been provided by the PSB (or any other conclusion that the Fee-Payer does not agree with) the Fee-Payer can carry out their own due diligence (by say asking the PSB questions in relation to their conclusion) and ultimately come to a different decision (whether it is that IR35 does or does not apply).
Whilst there may be contractual, commercial or client service implications of ignoring the PSB’s conclusion, there are no statutory consequences under the IR35 legislation.
The most that can be said is that if a PSB informs a party that it has concluded that the legislation applies, that party disagrees and does not operate PAYE, and, on appeal, HMRC are successful in establishing that the legislation does indeed apply, the party failing to operate PAYE is more likely to be exposed to a penalty in relation to its failure to operate PAYE on the basis of carelessness or deliberate default.
At the end of the day it is the Fee-Payer’s responsibility so it is not surprising that Parliament have not removed their right to make the final decision.
I should also say here that the PSB only has an obligation to provide its conclusion to the party it is in contract with. If for any reason that party is not the Fee-Payer (e.g. if there is a secondary agency) then the Fee-Payer does not have the right in statute to receive the PSB’s conclusion let alone ask questions in relation to the conclusion!
One thing is for certain: the new legislation does certainly move away from simplification!
An additional issue that we have found is that the agencies are deducting employers NI from the PSC which is clearly against the HMRC guidance.
Employers NI should be paid by the agency, and the agency should have negotiated a different rate to compensate for any extra expense on the contract.