IR35 in job adverts: a contractor's refresher

It was almost unthinkable only a few years ago but since April 2017, IR35 status has featured in job adverts as prominently as other fundamentals like location, pay, perks and position, writes James Holt of accounting firm Orange Genie, and James Edwards of staffing firm Aston Tate.

We now have a situation where IR35 has become a staple of public sector job adverts as we approach 2018, chiefly because it can have a huge effect on contractors’ take-home pay. It’s easy to understand the need for this; after all who would apply for a job without knowing how much it will pay?!

The practice does present an issue, though, because it means the working practices used by the individual contractor cannot possibly have featured in the ‘inside’ or ‘outside’ IR35 decision, since the status was decided before they were involved. 

The need for speed

Let’s take a step back. The agency has a need to place contractors quickly. They are likely to be up against other agencies to fill the role and the race is on to find a suitable candidate. The agency doesn’t have time to investigate IR35 status with each candidate before they put them forward. At the same time, they don’t want to provide candidates who might later refuse the role because of the IR35 decision, as this would inconvenience everyone, including the candidates.

Advance decisions

The legislation inspiring all this calls for “reasonable care” which means that blanket decisions are not acceptable (in theory), and a separate assessment should be conducted for each contractor. The best example of this is from NHS Improvement. As many contractors will know, NHSI withdrew their advice that all agency and locum staff should be classed as inside IR35, and have instead advised that individual assessments should be made, to allow each contractor’s circumstances to be considered as unique.

In practice this is difficult to do. But the IR35 status featured in public sector job adverts is generally decided way in advance of the role being advertised, as it will have an effect on the rate offered and, in turn, the experience-level of contract workers that can be provided

Amid concerns about the accuracy and usefulness of HMRC’s CEST tool, and because of the complexity of IR35 assessment, advance decisions are often the only way to manage the situation.

However, from the end-client’s perspective, the potential consequences of an ‘outside’ decision create an incentive to determine roles as ‘inside’ IR35. Where this happens, the contractor literally pays the price, in the form of higher tax and National Insurance.

A lack of explanation

IR35 is a complicated issue; everyone needs an in-depth explanation the first time they encounter it and the lack of explanation on adverts has caused some eyebrows to be raised. Often, the IR35 status is included in bold letters near the top of an advert, with no further information to be found. If you haven’t heard of the legislation before, you won’t necessarily know where to go for help.

The reason for this is simply logistical. The agency has limited space available and a lot to cram into their advert, and it just isn’t possible to include an explanation of IR35. There is an assumption that if the status is going to affect your interest in the role, you’ll already have an idea what it means. Those who need an explanation can expect one once they’ve contacted the agency.

Can the status be changed?

One common question from contractors is whether the status given on the advert is fixed, or if it can be changed in the light of the contractor’s working circumstances. In the public sector, IR35 decisions are made by the end-client, so the degree of flexibility will depend on the end-client’s internal policy and, to an extent, their attitude to risk.

Remember though that due to the legal implications for the client, many know that it is vital for their HR teams to seek clarity on a position’s IR35 status, which often means they seek assistance in the form of status reviews by external specialists. With that time, investment and authoritative input made, the client may be unwilling to reconsider the status.

At the same time, IR35 status is not something that’s set in stone, even if reviewed by a specialist. While the risk and decision will continue to sit with the end-client, the status is something that can be challenged. If as a contractor you feel that you operate in such a way that means you should fall outside of the legislation, don't be afraid to have a discussion with your consultant or client.

Outlook

We will continue to see IR35 status prominently displayed in adverts for public sector contracts, because potential candidates need to know how much the role will pay. Where you see your status stated, the client has decided in advance what the status will be, possibly after seeking specialist advice. Naturally, you should consider this when deciding if you’re interested in the role. However, if you think you’re working under the wrong status you should discuss this with your agency or client, the best of whom want to get the status decision right.