Almost two months in, IR35 reform is still chaotic

After many months of anticipation leading up to April 6th, along with a frantic few weeks before the controversial IR35 changes officially hit ‘on the ground,’ things have calmed down a little, writes Seb Maley, CEO of Qdos Contractor.  

But that isn’t to say that the dust has settled as we reach approach the two-month anniversary of what must be one of the most debated and unpopular issues to land on the laps of UK contractors since IR35 itself was established.

‘Still in the dark’

Unfortunately, the problem we were most concerned about still stands. To a wide extent, contractors still remain in the dark about these changes, unsure about how, when and why they could be determined inside IR35 by their public sector client.

Long before reform landed, we emphasised the need for consistency. Sadly, and predictably, we’ve experienced the opposite, only serving to propagate the confusion. Across different public sector organisations, we’ve seen contractors, who by and large are providing very similar services, being given completely different determinations. It’s chaotic.

And let’s remember that 85% of contractors plan to leave the public sector entirely should they be placed inside IR35 under the new rules. Inconsistency simply won’t do.

The Finance Bill stated that ‘reasonable care’ must be taken when setting IR35 status. In simple terms, it outlines that public sector engagers cannot make general and blanket determinations, and that each contractor engagement is assessed independently and fairly. Already though, it’s been reported that one or two public sector organisations have taken a ‘one-size-fits-all’ assessment to their contractor workforce.

‘Nobody seems to really know’

Added to this, we’ve seen numerous instances of individual contractors being assessed and subsequently re-assessed, only to be given a different outcome. In our experience, and as we said in April, quite often the reversing of decisions seems to be down to political pressure rather than a change to any specific circumstances.

While this is concerning to say the least, such is the chaos among public sector bodies and agencies, that the door is open for contractors to challenge decisions. But it remains a strange, worrying situation where nobody seems to really know what’s going on.

HMRC’s recently released ESS Tool, built specifically to determine IR35 status, leaves a lot to be desired. Having tested it rigorously ourselves, we found it to have inaccuracies. IR35 is a complex issue. It takes a certain level of expertise and time to look at cases individually. It’s hard to see how a newly-released, one-size-fits-all digital tool does this effectively, and on scale.

Unveiled just a month before 6^th April -- the day the IR35 changes landed -- there’s barely been a moment for HMRC to refine the tool. On its release it seemed the test was largely reliant on substitution, which immediately set alarm bells off. If, as a contractor you don’t have the right to send a replacement, there isn’t much of a chance that the tool will deem you outside IR35, even if you have control over how the work is carried out.

‘Rushed and unreliable’

Tweaks and updates to the tool are still being made as we go. Rushed through and unreliable, it’s a real worry that refinements are being made on-the-fly. The most recent update was fairly significant in terms of question and explanatory note wording; both things which could easily change a client’s interpretation of what they’re being asked, affecting their answers and in turn, the result.

Prior to the changes coming into effect, our research highlighted that just 4% of contractors believed that their public sector clients were prepared to cope with reform. We’re not even two months in, and with all things considered even the greatest optimist would find it hard to believe that this figure has risen much at all.

HMRC claimed they expect 20,000 contractors will be affected by public sector reform. But this figure seems quite low. Given the NHS has a workforce of around 1.4million -- including many contractors and locums -- you wonder whether HMRC has hugely underestimated the number of independent professionals that might well stop working in the public sector forever, if placed inside IR35.

Only time will tell. In the meantime as we head into unchartered territory, considering what’s at stake, it’s vital that more well-informed and accurate IR35 decisions are made, not just with the help of public sector bodies and agencies, but contractors too.

How it’s playing out

So what are these temporary professionals encountering? Well, we caution that we’re not yet even two months into IR35 reform, but we are seeing a number of different reactions from public sector bodies and agencies. Ranked in order, from the most frequent to the least, we are seeing:

1. Roles assessed through the ESS Tool with no input from the contractor
2. Blanket determinations placing contractors inside IR35
3. Contractors individually assessed using independent specialists
4. Blanket determinations placing contractors outside IR35

As you might expect, if you are placed outside IR35, you do not need to take much action. It is worthwhile though to keep hold of any evidence or correspondence from your client or agency stating that you are outside IR35.

If you have been placed inside IR35, and you don’t agree, the first step would be to ask -- via the agency if there is one -- for the end-client to explain their reasoning. They are legally required to provide this within 31 days. Any specific points can then be discussed.

Beyond that, if the role is still deemed as inside, your next option would be to appeal with HMRC -- it’s one of the five steps we’ve recommended and still stand by if you don’t agree with the decision. But despite month three of reform now being on the horizon, it’s not yet clear what shape this would take; ultimately it could be a similar process to an IR35 enquiry and is unlikely to be particularly quick.