Public Sector Guidelines – How do they affect Agencies?

For any agencies who supply contractors to Public Sector clients the Public Sector Guidelines, introduced in September of last year are likely to be very familiar.

The Public Sector Guidelines were introduced following significant media attention concerning Ed Lester, the head of the Student Loans Company after it emerged that he avoided paying thousands of pounds in income tax by operating via his own limited company.

To combat this an enquiry undertaken and the Treasury announced that those contractors who are being paid over £220 per day and whose contracts continue for more than six months would be required to provide assurance of their tax status  and therefore that they are paying the correct amounts of tax and NI. The Public Sector IR35 Guidelines are now firmly underway and thousands of contractors have been asked to provide ‘assurance’ to their end client.

Whilst these guidelines do not seem to affect agencies at the point of first supplying a contractor to a Public Sector client, the problem often arises, upon renewal of the contract when the contractor has reached or possibly exceeded the 6 month point.  At this stage a letter is usually issued from the agency or end client themselves to the contactor, advising them that they must provide ‘assurance’ that they are paying the correct amount of tax. Failure to do so will ultimately result in termination of the contract.

For those contractors who have a low risk score on the Business Entity Test, it is sufficient simply to advise the end client of their low risk score along with any necessary evidence, and this should be adequate proof that they are operating outside of IR35, and therefore operating correctly.  However contractors with a medium or high risk score, who believe that they are outside of IR35 will have to provide assurance by seeking advice from an independent experts such as Qdos, and providing a contract review, for example.  Qdos’ IR35 Public Sector Pack which includes a contract and working practices review, business entity test score and certificate has been extremely popular and has been accepted in many cases as the necessary assurance.

That being said there have been some end clients who have taken the decision to consider all of their contractors to be caught by IR35. In these cases contractors would be required to pay themselves a deemed salary, have their details passed onto HMRC, or risk termination of the contract, none of which are welcome options for any contractor.

As an agency being able to point contractors in the direction of independent experts such as Qdos, will not only benefit the contractor but may help to prevent the contract from being terminated.  Support can be provided to you as an agency and any contractors affected will be given as much support and advice as is possible to ensure that their tax status remains unchanged.