Contractors' Questions: Are consultancies inside April's IR35 rule change?

Contractor’s Question: Will PSC contracting at consultancies and private sector outsourcers such as BT, Capita and Fujitsu be caught by April’s IR35 changes? BT, for example, serves the public sector but let’s say it’s them I’m contracted with via an agency -- not the public sector end-client, am I therefore outside the rule change?

Expert’s Answer: The HM Revenue & Customs proposals are relatively clear on who is caught. Interestingly, they do not necessarily cover every organisation that receives public money. For example, the proposals do not cover some charities that receive grants. They also do not cover certain private sector organisations that perform public functions.

And no, private sector companies providing consultancy and/or outsourcing services directly into the public sector are not caught by the changes. 

However, we are aware of the problem that arises with some consultancies/outsourcers in deciding if they are acting as a consultancy, or really acting no differently to an agency/employment business in the contracting relationship. Indeed, HMRC themselves get this wrong in some IR35 investigation cases. In these cases, it is always necessary to establish the procurement contract details i.e. what is contained in the contract that has been entered into with the public sector body or under what framework they are registered, as a supplier to the public sector.

The most definitive answer you will receive to your question can be obtained by you asking your client if they are subject to the Freedom of Information Act. If they are; then they’re caught and so will you be too.

If at a consultancy or other public sector body and you want to be sure, ask a management representative of the organisation about whether they are impacted by the new rules. Bear in mind; the representative you ask may initially rebut your question on the basis that it is a commercially sensitive issue. But be patient and explain the context. They also may not know immediately or off-hand, but they should offer to find out and let you know.  

Lastly, consider here that care needs to be exercised in this area. It would be foolish to think that by simply moving to a ‘consultancy’ arrangement you can continue to operate outside IR35, as you presumably do currently.

The expert was Dan Moss, a director at contractor accountants Orange Genie.

Editor’s Note: This is the first in a seven-part Contractors’ Questions series based on questions posed in a recent webinar on Autumn Statement 2016 and its impact on contracting.