IR35 in the Autumn Statement
IR35 in the Autumn Statement
In what now seems to be its modus operandi we have heard today that HMRC will be pressing ahead with changes to its embattled IR35 legislation – despite huge opposition from industry and other government departments. The changes push the responsibility for determining whether the contractor is 'in' or 'out’ of IR35 firmly onto the organisation closest to the end user, as opposed to the contractor's limited company (where it sits currently), from April 2017.
Whilst this may seem relatively innocuous, the implications for public sector organisations and the contractors who work in the public sector are potentially substantial.
Whilst the details are to be confirmed, an online system is to be used to determine the IR35 status of a contractor (a beta version of which was due out over a month ago, and in true HMRC style, isn't ready). Presumably, after entering specific information on the contract, the system will respond either with ‘in’ or ‘out’. It's worth noting the system itself has been widely criticised and there are reports that criticism has come mainly from government departments (I’d love to hear what the view from Government Digital Services is!).
We believe due to the increased risk, most recruitment consultancies and supplying organisations will end up treating all contractors as ‘in’ IR35, although this, of course, depends on the system and how its used.
Potential effects:
Confusion and abuse! The potential for information to be entered inaccurately is high, together with abuse of the system (i.e., a supplier purposely putting in information into the system it knows will result in an ‘out’ when actually the contractor should be classified as ‘in’)
Reduced initial take home pay for contractors – resulting in increases in rate and/or potentially moving into the private sector
A worsening skills shortage in many areas (with Brexit acting as a catalyst) as contractors chose to work in other sectors. This could be particularly damaging in the coming years as government attempts ‘to do more with less’
Increased management and administrative burden for public sector line managers who have to understand and impose the new legislation whilst continuing to deliver projects
Our response
As ever we will be aiming to secure the best possible outcome for contractors we engage, whilst minimising the management and administrative burden for hiring managers and of course, providing the best people.
In real terms we are investigating the following options to mitigate the risk for our business (and in turn, the contractors who we work with):
Deliverables contracts
The system HMRC intend to use, details are scant currently and this is pivotal
Employed consultants
Sharing the risk and reward with contractors
We will begin in earnest once HMRC proposal becomes clear, unfortunately, there is little hope of any detail this year.
If you are a public sector contractor or manager and are concerned by the proposals, please talk to us. We firmly believe that working in partnership with our stakeholders will be key in meeting this challenge.