In IR35

The full extent of the shambles arising from new public sector IR35 rules continues to emerge: a new survey of intermediaries supporting approximately 33,500 workers in public sector roles has shown that 50% of those polled reported no IR35 compliance tests had been conducted on staff sourced via agencies.

Questions are now being raised about the prospect of a legal challenge to the practice of ‘en bloc’ decisions about the tax status of contracting professionals in the public sector: 42% percent of the respondents reported that all of the contractors they had sourced were simply deemed inside IR35, while 8% were equally arbitrarily deemed outside IR35.

The survey was conducted by the Freelancer and Contractor Services Association, the largest trade association for Umbrella Companies in the UK. More than half (26%) of the remaining 50% of respondents who reported that IR35 compliance tests had been undertaken believed that a generic, role-based approach was used rather than an individual analysis of specific contracts.

The remaining 24% reported that while individual assessments had been conducted, they were rarely determined by an exclusive reliance on the government’s Check Employment Status for Tax (CEST) tool, which is widely distrusted.

Julia Kermode, CEO of the FCSA, noted that when HMRC provided its CEST tool with a matter of weeks before the radically reformed IR35 rules were introduced – much too late.

Public sector end-clients had already started carrying out evaluations months before the reforms were implemented as they needed to hire new workers and re-evaluate existing contracts. Because of this, they had already become reliant on alternative, commercially available IR35 evaluation tools.

As it is becoming plainer by the day that large numbers of people have now been incorrectly assessed and coerced into paying higher income tax as though they were salaried employees, Kermode believes it likely that a large volume of legal challenges will now ensue.

Underlining the finding that over a third of the intermediaries polled believe that legal challenges will follow due to the role-based assessments that had been conducted while a third also believed that workers would legally challenge their deemed employment status, Kermode said that these statistics should be concerning for the government.

She added:

“Given all the issues implementing the changes in the public sector, it would be very damaging to the economy if the government was to rush to extend the IR35 reforms into private sector.

“The Chancellor has already promised that the government ‘will carefully consult, drawing on the experience of the public sector reforms’, and we will be putting pressure on policy makers to ensure that Mr Hammond’s promise is fulfilled.

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