The Farce that is IR35

It has been an incredibly frustrating few weeks for anyone involved in supplying, or buying the services of contractors in the public sector, and possibly even more frustrating for the contractors themselves.

This is down to the complete shambles that is Off Payroll in the Public, or IR35, or more correctly Chapter 10, Part 2 Income Tax (Earnings and Pensions) Act 2003. 

I suspect anyone reading this is aware that the decision on whether a contractor working through their own Ltd company (or PSC, Personal Service Company) is caught by IR35 rules has moved from the contractor to the Public Body that hires them. Fine in theory. Not so fine when the entire industry is given a matter of weeks to understand, digest, rollout, make decisions on status, change systems etc etc etc.

A huge amount of our time has been spent explaining what the changes are to our clients, something HMRC claimed they were doing.

Then there is the ‘tool’ – used to decide the status for IR35 – delivered about a week before several hundred thousand contractor’s status had to be decided. A tool which keeps changing (because it doesn’t work properly because the decision on IR35 is far more complex than a few tick boxes).

Then there is paying a Ltd company invoice as if it is an employee – agencies, or public sector bodies where no agency is involved now become liable for the additional expense of Employer’s NI. An immediate increase in costs for the public sector (in particular the NHS where many our client preside). But on top of this, many contractors are demanding higher rates of pay, particularly when many public sector bodies seem intent on deeming ALL as working inside IR35, even when they should not be. This results in unfair, an essentially illegal, taxation. Clearly, the contractors want / need compensating.

Just when we thought this couldn’t be any more farcical, an amendment has been pushed through parliament this week (notable quietly) now putting high street pharmacies and opticians, amongst others, out of the scope of the rules. This means that anyone deemed inside has now been incorrectly taxed, charged NI, and the agency or client has paid employers NI.

I don’t think anyone who hasn’t been directly involved with this will comprehend the time, disruption and cost that this has caused, and now for many now deemed out of scope due to this late change, it was all a waste of time, and now will need fixing!

There has been a huge effort across the public sector, agency and contractor community to get HMRC and the Government to see sense and at least postpone these changes, if not ditch them altogether. Unfortunately, this fell on deaf (or very stubborn) ears and was railroaded through regardless.

I can guarantee that the relatively paltry additional amount in tax raised for the revenue will be dwarfed by the vast additional costs experienced by the entire public sector including time spent tackling the changes, money spent on systems, increases in costs of flexible resource, loss of this resource to the private sector (entire IT teams have walked, including from HMRC) etc

Several months ago I sincerely hoped that sense would have been seen and this legislation would have been cancelled, or at least postponed. Now we can only hope it does not get mirrored in the private sector. If it does, we will no longer have a flexible workforce, at a time when we need it most.