The Association of Independent Professionals and the Self Employed (IPSE) has exposed serious omissions by HMRC from the research paper the government included in its recently-launched consultation into off payroll working (IR35) in the private sector.

One glaring shortcoming of the paper (Research Report 487) identified by IPSE is the assumption that research confined to the immediate effects of reformed IR35 rules on the public sector last year can be confidently used to “inform opinions” in the consultation. The consultation document makes clear that HMRC considers a private sector rollout of the rules their “lead option.”

On closer analysis, however, IPSE finds that this is not the only flaw. HMRC’s decision to promote an extension of the rules to the private sector as their “lead option” is based on a partial reading of the report itself. As IPSE puts it, “HMRC appear to have ‘cherry-picked’ from the summary of the report and ignored the more inconvenient truths the research reveals.”

The disregarded facts include the following:

  • 32% of public sector bodies (PSBs) reported that they were now finding it harder to fill contractor vacancies. 24% of central government bodies reported greater difficulty in recruiting independence contracting professionals possessing the requisite skills and experience.
  • 33% of PSBs reported growing reluctance among contracting professionals to engage in public sector work after the reforms
  • 28% reported increases in contractor payments directly after the reforms were implemented. One respondent said that he and his colleagues had “been working our socks off to drive down these costs and pretty much as a consequence of IR35…we’ve noticed a trend that everything has shifted up [in cost by] 10 -15 per cent.”
  • 5% of PSBs had used no assessment procedure but nonetheless determined that contracts fell within IR35. This is in marked contrast to more recent research by Umbrella Company trade association the Freelancer and Contractor Services Association (FCSA), which found that a staggering 50% of PSBs had not conducted any kind of IR35 compliance test and that 42% had automatically placed contracts inside IR35 with no formal assessment.
  • 46% of PSBs report rising disputes with contractors, most of which (62%) occurred because of “inside IR35” rulings.
  • 60% of central bodies reported increased administrative burdens since the reforms were introduced.

Noting that the report reveals increased difficulty in recruiting, rising costs, and significantly increased admin burdens since IR35 was introduced in the public sector, IPSE member and experienced IT contractor, Matt Searle, concludes: “And yet the lead option is to inflict the same damage on the rest of the flexible economy.”

IPSE CEO Chris Bryce has vowed that the organisation will “fight this proposal all the way.”

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