What are the implications of the recent Government issued Procurement Policy Note on public sector organisations, needing to obtain ‘required assurance’ for non payroll payments, made to contractors and freelancers?

The high profile cases…

As many will know, this Government response came out of the media pressure, from stories such as the Head of Student Loans working via a personal service company, Government reviews of public sector spending going to limited company contractors, high profile celebrities working for the BBC via their own limited companies.

Required assurance…

There was much heat and noise from these stories for a period, and an outcome was the need for all public sector organisations to obtain what is referred to as ‘required assurance’ that when they make payments without deduction of PAYE (i.e. not through their payroll), the ultimate recipient is paying the right amount of tax.

Working through a limited company is fine – If you do it correctly!

To be clear, the Government has maintained throughout this media pressure that self-employed individuals are a critical part of the UK flexible workforce, and working through a limited company is perfectly acceptable if this is done compliantly.  Essentially, they are simply recognising that the enforcement of this via IR35 is quite a challenge for HMRC, and this approach provides a more systemised ‘check’ on contractors and freelancers providing services to public sector organisations.

So what does this all mean?

I feel that ultimately, the impact will be the same whether a recruitment agency is involved in the supply chain or not.  By April 2013, all public sector organisations will need to have system in place for obtaining this ‘required assurance’ from the organisations they are making these payments to.  This will either be to an employment business supplying individual contractors, or directly to the contractors and freelancers themselves.

Required Assistance – What’s acceptable?

What is acceptable as ‘required assurance’ will in our view be determined by the individual public sector organisation, but is likely to be determined by the way of working chosen by the individual contractor or freelancer.

If the freelancer is running their own business via a limited company, this assurance is likely to take the form of documented evidence of the employment status of the individual.  We think this is unlikely to be acceptable just as confirmation from the worker or worker’s company themselves, and is much more likely to need to be third party confirmation of employment status from a ‘recognised expert/advisor’ such as an accountant or a lawyer.

What about people NOT working as a limited company?

For individuals running their business on an unincorporated basis, we would expect that a similar sort of third party assurance would be required.  Finally, for those contractors or freelancers working via an employment business, often referred to as an umbrella, it will fall to the umbrella business to confirm the taxation position of the worker.

Getting to grips…..

At this high level, the need for ‘required assurance’ doesn’t look to be a particular problem or issue for self-employed individuals, but as with many of these things, the devil is in the detail.  Each organisation will no doubt decide that ‘required assurance’ is slightly different, many of the workers will not already have the required employment status documentation requested, the significance of the employment business / end client contract has not yet been thought through, the whole process will undoubtedly add cost and who will bear this, which types of third party advisors will be acceptable etc.

There is still much to be worked out as the public sector organisations start to get to grips with these new requirements.

How Brookson can help…

Within our objective of always doing more for customers, Brookson are already providing this ‘required assurance’ to our customers as part of our existing services.  We will be in position to ensure our customers fulfil the new requirements for any public sector clients, without any extra cost to them.  So customers can rest easy knowing this new requirement is already covered.

We are already talking to employment businesses about this issue too.  Their end client customers in the public sector are starting to engage on this new requirement and we can help shape the solutions here for the benefit of our customers too.