IPSE, the Association of Independent Professionals and the Self-Employed, has published a series of questions that it posed to senior HMRC officials and civil servants concerning the planned changes to IR35 rules for public sector contracting professionals.

IPSE’s Deputy Director of Policy, Andy Chamberlain, made it clear that despite the number of meetings held with HMRC representatives over the last few weeks, no substantive answers to its urgent questions have yet been provided.

The Government, he said, appears intent on implementing the IR35 changes in the face of across-the-board criticisms from industry experts. The latter includes Umbrella Company trade associations the Freelancer and Contractor Services Association (FCSA) and PRISM, Umbrella Company group Unitum and staffing bodies the Recruitment and Employment Confederation (REC) and the Association of Professional Staffing Companies (APSCo).

To compound matters, IPSE’s early soundings from public sector end-clients revealed that they are struggling to make any sense of the proposals.

The questions that remain unanswered are as follows:

  • How can the Government justify abolishing tax deductions on legitimate business expenses such as insurance and accountancy costs (a measure that may result in contractors funding companies running at a loss, which is illegal)?
  • How does HMRC intend to prevent the reforms that do not incentivise contractors to make private pension contributions (which must be made after the deduction of tax)?
  • Why should recruitment agencies be obliged to request an assessment of a contractor’s engagement when the end-client should automatically provide such an assessment?
  • After the reforms come into effect in April, will contractors be subject to retrospective investigations for the preceding months (if they remain in an engagement after a client decides that IR35 reforms apply to their agreement, can this be interpreted as acceptance of these changes)?

HMRC has, Mr Chamberlain reported, at least replied to the last question: Revenue officials do not rule out retrospectively applying assessments conducted after April to work completed previously.

Citing the recent decision by Transport for London (TfL) to prohibit all limited company contractors from working for the organisation because of the IR35 reforms, Mr Chamberlain warned of the consequences of widespread risk aversion taking root.

He said: “Now, consider what will happen if all public sector bodies take the same approach. In central and local Government, contractors who will have legitimate concerns over the issues mentioned previously (retrospective investigation, pension provision, disallowed business costs) may well walk out. Work will simply stop. Clients will have to find the resources from somewhere to get the projects going again, and they will probably turn to the big consultancies, at huge cost to the taxpayer.”

IPSE, he said, is available to assist public sector clients in any way that it can to implement the changes.

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