Following an outpouring of criticism from a raft of experts representing contracting professionals and recruiters, HMRC has hit back at claims that its handling of forthcoming changes to IR35 legislation in the public sector has caused widespread confusion.

On 6th April, responsibility for determining a public sector contractor’s tax status under IR35 rules shifts from the contractor to the public sector end-client. Should public sector bodies (PSBs) decide that a personal service company (PSC) contractor is caught by the new IR35 rules, the party that pays that freelancer (typically a recruitment agency) will become responsible for paying income tax, National Insurance and employer’s NI.

Yet, with the Revenue’s online tool for determining IR35 status still unavailable, many reports of serious uncertainty in the public sector have been surfacing.

Last week, for example, Julia Kermode, CEO of Umbrella Company trade association the Freelancer and Contractor Services Association, said that the sector is in “disarray” in the absence of the Revenue’s digital assessment tool, which is preventing PSBs from obtaining the taxman’s view of their contractors’ IR35 status.

Consequently, she said, some PSBs are opting for sweeping generalisations that effectively bar all contractors working through their own PSCs. As a result, many of the latter are either leaving the public sector altogether or seeking an increase in their pay rates. Skills shortages are being exacerbated as a result, and financial pressures have worsened in an already stretched public sector.

Supporting calls from the Local Government Association (LGA), the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Society of Local Authority Chief Executives (SOLACE) to delay the introduction of the new IR35 rules, Ms Kermode said: “None of these changes would have been necessary if HMRC had properly enforced IR35 over the last 17 years. It is wrong to railroad badly planned legislation that effectively makes the public sector do HMRC’s job for them. It’s ill-thought through and is causing chaos.”

An HMRC spokesperson has now told Recruiter magazine that claims about the Revenue failing to help and support PSBs and their suppliers are “untrue.”

The spokesman said that HMRC will continue to work closely with PSBs and their suppliers and maintained that the Employment Status Indicator Tool has been available to private and public sector bodies during its private development. It will be available publicly shortly.

In the meantime, public sector contractors worried about their IR35 status can obtain advice on the new rules from Umbrella Company group Unitum here, and they can assess their status using Unitum’s online questionnaire, available here. The latter was developed by tax specialists and rubber-stamped by an experienced barrister.

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