Engagement of off-payroll personal service companies (PSC) – BBC challenged by HMRC

28 November 2016

Over 100 BBC presenters are under HMRC investigation for using their own PSCs to minimise their income tax and/or national insurance bills. We strongly urge you to review your PSC engagements as soon as possible.

Engagement of off-payroll personal service companies (PSC) – BBC challenged by HMRC

The Autumn Statement confirmed that HMRC’s proposed reforms for off-payroll engagements will apply from April 2017 for public sector organisations that contract with personal service companies (PSCs) – ie for services provided by individuals who work through their own limited companies. The definition of public sector is quite extensive and the reform will affect bodies such as schools, further education and higher education institutions.

These changes create a significant amount of responsibility on the public body and significant risk if they get it wrong. HMRC has indicated that it will provide a set of clear objective tests and develop a simple straightforward digital tool to help public bodies make the right decisions.

Following the consultation and analysis of the feedback, HMRC has made one amendment to the original proposals - the removal of the 5 per cent ‘tax-free allowance’ that IR35 companies can claim as a business expense. 

All public bodies should, if they have not already done so, consider what this means for their organisation and what key actions they need to undertake in the next few months. We strongly recommend that organisations:

  • set up an off-payroll steering group;
  • undertake an IR35 audit to ascertain who/what groups of workers will be impacted;
  • consider the impact on the organisation’s budget for 2017;
  • communicate changes to off payroll workers;
  • review and amend existing contracts with those workers engaged directly;
  • review and consider amendments where third parties indirectly provide workers; eg agencies, neutral/master vendor providers, third party consultancies;
  • introduce/update policies in relation to engaging off payroll workers; and
  • introduce a robust process for complying with the new rules for such engagements. 

Further details on the reform will be announced in due course.