IR35 Reforms - Stalling at the Start Line?

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Some of you may have read my blog back in June regarding changes to how contractors in the public sector will be dealt with around IR35. To briefly remind you, the proposal is that from April 2017 where a public sector body engages a Personal Services Company (also known as a limited company contractor) through a recruitment firm, or other third party, the party closest contractually to the worker's ltd company in the supply chain will be required to comply with the rules. That is to say, it is no longer the worker / worker's ltd company that decides whether or not IR35 applies to the assignment, but the engager (public sector body), recruiter or third party

I recently wrote to my MP to highlight my concerns (and received a prompt reply that this would be passed onto the Treasury Minister) which include:

  • The public sector will find itself competing on an uneven playing field, struggling to attract the best talent (and in particular, the NHS, who are already hand tied with rate caps – an honourable but faulty attempt to control spend).

  • The Government also seems to miss the fact that contracting does not come with the benefits of employment (sick pay, pension, holidays, maternity pay, employment protection etc etc) and therefore has to pay more to compensate)

  • Contractors will leave the public sector in droves, diminishing supply, and pushing up costs.

  • Those that remain will require a significant increase in rates to compensate for additional costs.

  • Can a third party really be responsible for the liability of paying the tax of another company

  • Are contractors really going to want to provide all the information required to enable RTI reporting on their behalf? It was hard enough to get the information required for the HMRC intermediaries legislation reporting (ie home address, DOB, NI etc) from contractors who, for 20 years, were used to just supplying the Ltd co. info.

  • Many large agencies payroll will increase over the £3m threshold for the Apprenticeship levy, even though the credits they will receive cannot be used for these ‘employees’.

  • I could go on....

And now, to highlight just how unworkable this whole situation is going to be, HMRC have cancelled a presentation to the FSCA (the freelancers and contractors trade body) of the IR35 digital model as it is not yet in a fit state to be presented.

The IR35 digital model is supposed to be HMRC’s magic solution for confirming whether or not a contractor is inside or outside of IR35. However, despite the fact that over the last 16 years since the introduction of IR35, it is still a relatively grey area, it is extremely questionable whether or not it is possible to develop yes or no tool that can be used online, and can it ever be fit for purpose.

I, and many others, wait with bated breath!