Confusion reigns ahead of public sector IR35 changes


Confusion and uncertainty reign ahead of rule changes to the tax status of interims and contractors working in the public sector.

According to recruiters and other professionals, many organisations and individuals are still unprepared for the changes.

Due to come into effect in April, the new rules mean that public sector end clients will be responsible for determining whether a worker who operates through a personal service company or other intermediary is caught by IR35 or is genuinely self-employed. Where the worker is caught by IR35, the new rules will 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.

Claire Carter, director public service at Interim Partners, told Recruiter: “There is a complete lack of knowledge across the market. It is quite obvious that there is widespread confusion surrounding the changes to IR35. Because of the confusion, people are unprepared for the changes, although it varies across the market.”

Carter criticised HM Revenue & Customs (HMRC) for not providing the market with “the appropriate level of support and guidance” and in particular for the absence of HMRC’s new online assessment that was not yet ready. This is designed to help determine a contractor’s IR35 status. This was causing “a knowledge gap”, said Carter, which was particularly affecting end users’ ability to tell Interim Partners whether a particular assignment fell inside or outside of IR35.

Carter said that unless there was an answer on when the appropriate level of support from HMRC would be available, “perhaps it is best for the changes to be delayed until there is the correct level of guidance”. 

In a statement issued to Recruiter, HMRC referred to guidance first published on 3 February 2017 and told Recruiter that the online employment status “is expected to be made available by the end of February 2017”.

Matt Gascoigne, chief operating officer at public sector and not-for-profit recruiter GatenbySanderson, told Recruiter there had been “a degree of paralysis” as people waited for the online assessment tool. “We are still waiting for an awful lot of decisions about workers’ status, but of course D-Day is getting very close,” he said.

He said a delay in introducing the new rules “would help mitigate against the risk of people getting decisions wrong or being overly cautious and making decisions that [incorrectly] put people inside the scope of IR35 rather than outside IR35”.

Dave Chaplin, CEO of Contractor Calculator, an online advice and information portal for contractors and freelancers, told Recruiter that many people were “just unprepared” for the changes. “They need to know whether they are caught by IR35 and should be moving to a payroll, or know for certain that they are not going to get caught,” he said. 

He said time was running out, leaving public sector contractors due to be paid after 6 April, who invoiced on a 30-day basis, only a few days (6 March) for the necessary compliance to be completed.

Belinda Brooke, legal compliance and HR director at Morgan Hunt, told Recruiter that in the absence of HMRC’s new online tool, the company had been engaging with its contractors and clients about the new legislation for some time.

Brooke said another grey area in the new rules was who was financially liable for unpaid tax and NI “in the event that a public sector body provides false information” indicating that IR35 does not apply.

In a press release, Theresa Mimnagh, associate director at legal and compliance consultancy Lawspeed, scotched rumours that HMRC intended to change the rules on liability. These rumours had led some public sector employers to believe that they would be financially liable if HMRC subsequently deemed a worker should have been inside IR35, said Mimnagh. 

However, Mimnagh said that in Lawspeed’s dealings with HMRC on behalf of the Association of Recruitment Consultancies (ARC), HMRC had clearly indicated this was not the case. Nor was there any intention to change the legislation to give recruitment agencies a defence that it had relied on the end user’s advice that IR35 did not apply, should that advice subsequently prove to be incorrect. She said the only defence under the legislation would be if the agency itself could show that IR35 did not apply, Mimnagh said.

Meanwhile, The Freelancer & Contractor Services Association (FCSA) has today backed calls by The Local Government Association (LGA), Chartered Institute of Public Finance and Accountancy (CIPFA) and Society of Local Authority Chief Executives (SOLACE) calling on HMRC to delay IR35 changes set to come into force on 6 April.

The bodies made the appeal to HMRC in a joint statement earlier this week.

FCSA CEO Julia Kermode said the sector is in “disarray”, while the continued absence of HMRC’s digital employment status tool means that it is impossible for hirers in the public sector to get HMRC’s view of the IR35 status of their contractors.

“This is why we are seeing sweeping decisions being taken by some public sector bodies banning all workers who operate through their own limited company. Many contractors are simply deciding to leave the public sector, or seeking an increase in their rates, which in turn is exacerbating skills shortages and financial pressure in an already stretched public sector.

“HMRC has always said that these new changes would only affect non-compliant contractors, and would not impact on the flexibility of the workforce, both of which are incorrect and not what we are seeing in reality on the ground.”

Kermode added: “I really hope that the voices of the LGA, CIPFA and SOLACE will be heard, and we fully support their cause. 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.”


A response from HMRC was expected late Friday. Look on on Monday for more on this story.