Contractors’ Questions: What will public PSCs do about IR35 from April?

Contractor’s Question: Regarding the government’s intended IR35 shake-up in the public sector, will contractors be forced onto the end-user’s payroll/PAYE? Or will they simply jump to working through umbrella companies or keep as PSCs but just be inside IR35?

Expert’s Answer: If they had the choice, I am sure most PSC contractors would choose to continue to operate outside IR35. Unfortunately, the new IR35 rules from April will mean that the choice no longer rests with the contractor.

It is very difficult to predict how agencies and public sector bodies will react to the new rules when they come into force. What I do know is that there are fervent discussions happening now between those affected and those setting the rules.

In the vast majority of situations the agency will be in the firing line with the new IR35 rules and, as things stand, they are in a bit of a ‘catch 22’ situation. If they allow contractors to operate outside IR35 they face a potential liability, despite being the party in the chain with the least knowledge of the reality of the engagement. However, if they force contractors inside IR35 and deduct the PAYE and NI from the invoices at source, they will be acutely aware that it will almost certainly cause an exodus of high quality workers from the public sector.

What I hope is that agencies and public sector organisations adopt the new rules in a sensible, pragmatic and – importantly – consistent manner. Consistency is really the failing of the current ‘assurance’ process, and much of that is down to a lack of clear guidance from HMRC. The simple fact is that a kneejerk reaction to the new rules will be damaging to everyone. The public sector relies on highly skilled contingent workers and targeting them will be hugely counter-intuitive.

If agencies, end users, advisers and contractors can work together in advance of April 2017 there is a fighting chance that the new IR35 will be workable, and the country can continue to benefit from the skill and experience of contractors working in the public sector.

The expert was Seb Maley, a director of Qdos Contractor, an IR35 advisory for contractors.