Public sector IR35 reform: one week in

The first working week since IR35 reform in the public sector took effect has seen the framework covered by the Financial Times, where agencies bemoaned its impact on hiring.

One such agency, Harvey Nash Recruitment Solutions, told ContractorUK yesterday that one in four of its candidates is shunning the sector, not one in three as the FT reported.

The fear of IR35 being automatically applied ‘across the board’ to every PSC -- as it is being across the entire National Health Service -- is partly to blame for their refusal of public gigs.

‘Prolonged delay’

Such automatic and universal applications of IR35 by public bodies to their PSCs are at odds with what the April 6^th rules stipulate, but they are understandable according to IPSE.

“Because of the prolonged delay [in unveiling the IR35 digital tool], many public sector bodies have been taking a blanket approach and incorrectly deeming many engagements to be inside IR35,” the group says.

“IPSE is advising all contractors in this situation to use the ESS tool and show the results to their clients. This is the only way contractors can get fairness and clarity.”

It also the only way that contractors can avoid losing up to a quarter of their tax-home pay, although 13% has been calculated to be a more typical loss of having to stop using their PSC.

Bryce hopes that the ‘reasonable care’ provision will help by ensuring clients have to individually assess their PSCs, rather than blanket payrolling -- or banning -- all of them.

‘Far too late’

But writing shortly before the April 6^th commencement date, Chris James, head of accountancy operations at JSA, said that exactly what ‘reasonable care’ entails is unknown.

“It has been suggested that perhaps it will lower the chances of blanket ‘inside’ opinions, “ said Mr James, referring to analysis by IR35 advisory Qdos, which first made the interpretation to ContractorUK.  

“But that depends what it means, and we don’t know. In addition of course, it’s far too late in the day -- where blanket decisions have been made, the damage is already done.”

Like Mr Bryce, the accountant is sympathetic to agencies and public sector bodies, left in the lurch by each other -- or the taxman, who others say was unfairly tight-lipped in the run-up to the rules.

“Agencies and PS end-users haven’t been able to answer the questions contractors have been posing, because in many cases, agencies weren’t told what the end user’s approach would be,” Mr James claimed, reflecting just before the rules took effect.

“That’s because the end users didn’t know -- they are not status specialists, and had no tool. The advice the end-user line managers received changed each week and confusion reigned.”

‘Honest and upfront’

He advises that, from now on, the best strategy for contractors is to communicate fully with both agency and end-user “and where the opinion output is helpful, use of the ESS”.

In addition, “Find out if your end user is classing anyone as outside IR35 – if so why...[and] can alterations to contracts and working practices be considered…? Be honest and upfront.” 

If contractors take this open approach, they seem well-placed to find out whether their client is disregarding “non-ESS” IR35 assessments, which the JSA boss said is starting to happen.

This may be because “HMRC has said it will stand by the results of their ESS,” Mr Bryce at IPSE pointed out on Monday, following the Revenue’s pledge on April 6th to ContractorUK.

‘Unwilling or unable’

However, clients and contractors who since used the ESS and received an ‘outside’ outcome have fresh cause to retest themselves, as the ESS was quietly altered on Wednesday.  

The changes include new details to help answer the office-holder question and rephrasing the substitution question to “unwilling or unable,” as Qdos suggested should happen.

The revisions by HMRC come after local councils were encouraged to double-check they are doing everything they can -- in terms of working practices -- to engage PSCs outside IR35 by using a list, assuming they want to retain some genuinely independent commercial suppliers.

Written by a consultancy, the list contains seven steps such as giving PSCs outputs rather than job descriptions or titles; making them new contracts for new work and using their substitutes.