HMRC’s own goal – their own contractors quit after being caught by IR35 under new rules


It has been reported that the IT contractors behind HMRC’s Employment Status Services tool have themselves been declared as caught by IR35, with many abandoning their contracts with the department as a result.

According to a report on IT news site The Register, the IT software consultancy responsible for building the new IR35 assessment tool had a total of 250 contractors placed with HMRC.

Insiders have accused government departments of applying a “blanket” approach by arbitrarily declaring all limited contractors inside IR35, even if previous reviews have found them to be clearly outside.

The case of the HMRC contractors has been highlighted for its “IRony” (see what we did there?)
Yet similar across-the-board decisions are being made across the public sector. Last week ContractorUK reported that the NHS has told its entire bank of PSC locum and agency staff that they will be caught by IR35 and deemed as employed from early April.

The problem with blanket decisions…

However there is a fly in the ointment for public sector bodies using blanket determinations for large groups of contractors.
A seemingly small tweak to the legislation, published last month in the Finance Bill 2017, stipulates that “reasonable care” must be taken when engagers come to assess the IR35 status of PSCs.

This means that the next party in the contractual chain, eg. the recruitment agency, can ask the public sector body to provide an explanation of why a certain determination has been made.
Naturally this would be nigh-on-impossible to do if a blanket decision had been applied. But if they fail to respond within 31 days, the public sector engager risks becoming the “fee-payer” and therefore responsible for PAYE tax and NIC deductions.

Aside from these repercussions, blanket decisions to find groups of PSC contractors caught by IR35 could backfire spectacularly on the public sector, with 85% threatening to leave the public sector completely, potentially affecting vital front-line services.

Countdown to change

Changes to IR35 in the public sector come into force on 6th April, coinciding with the start of the new tax year.

There are two key strands to the reforms:

1. The responsibility for making the IR35 status decision will transfer from the individual operating the personal limited company (PSC) to the public sector body they are working for.
2. The responsibility for making the necessary deductions will be that of the “fee payer” – the body paying the PSC – be it an Employment Intermediary, Agency or the Public Sector body.

With just days to go, will be keeping up with the latest developments in order to support affected contractors and recruitment agencies up to and beyond 6th April.

Contact our specialist team