The warning comes from Freelancer & Contractor Services Association (FCSA) CEO Julia Kermode, commenting on research conducted by the trade association. The research reveals 50% of responses to the question of how workers were assessed highlighted that no IR35 compliance tests had been carried out on workers sourced via agencies, with them all being simply deemed inside (42%) or outside (8%) IR35.

Of the 50% who claimed a compliance test had been used, 26% of respondents suggested that a role-based approach rather than an individual assessment had been conducted. The remaining 24% claimed individual assessments had been carried out, but these were seldom exclusively tested via the government’s Check Employment Status for Tax (CEST) tool.

Commenting on survey findings, Kermode said: “When HMRC issued its CEST tool, just weeks before the change, it was already far too late. Public sector employers had already begun conducting assessments in order to hire new workers and to re-assess existing contracts months before the IR35 reforms came into effect. As such, they became reliant on other commercially available assessment tools.”

Consequently, Kermode warns a high number of legal challenges will now ensue: “More than one third of respondents (36%) believe that legal challenges will now transpire as a direct consequence of role-based decisions being made and 34% of respondents are expecting challenges to workers’ deemed employment status.

“These statistics should be of real concern for the government, and our survey suggests that it is in the medical, engineering and IT sectors where such challenges may come from.

“It is no surprise that individuals rarely have their specific IR35 status assessed, with role-based decision-making being the preferred option for public sector bodies, but this approach is not always the most appropriate and will inevitably lead to challenges.  

“Interestingly, our data also shows a reluctance to rely on the government’s CEST tool, perhaps due to the widespread criticism of its flaws and the fact that the tool does not accurately reflect accepted case law. 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.”

Rules – rolled out in the public sector a year ago – mean that public sector end-clients are responsible for determining whether a worker who operates through a personal service company or intermediary is caught by IR35 or is genuinely self-employed. Where the worker is caught by IR35, the rules also make the fee payer, who will often be a recruitment agency, responsible for deducting and then paying the worker’s tax, National Insurance and employer’s NI.

In response to the FCSA’s findings, an HMRC spokesperson said: “It is only fair that individuals doing the same job should be taxed in a similar way. The reforms to off-payroll working in the public sector (IR35) do not impose a new tax charge, and the genuine self-employed remain unaffected.

“We work closely with public authorities and do not recognise the claims that they are making blanket decisions or getting it wrong. HMRC has a robust compliance programme in support of the IR35 reform.”

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