Flurry of outside IR35 determinations pleasantly surprises contractor sector

Alerts over the perils of banning limited company contractors, or blanketing them ‘inside IR35,’ seem to be finally getting through, as a flurry of outside IR35 decisions is emerging.   

In fact, at least 11 end-clients have been identified in the last few days on off-payroll.org as offering either a ‘fair’ determination process, or one geared towards ‘outside’ outcomes.

The 11 are, AstraZeneca; William Hill, Enterprise, IPG, Orsted, Brighter Consultancy, Magic Milestones, Equal Experts, MWH Treatment, Ashfield and the Co-operative Group.

'Sensible IR35 decisions'

And despite firms in financial services tending to ban PSCs in a bid to bypass next month’s off-payroll rules, LGT Vestra is among those now making “sensible” IR35 status decisions.

“It’s one of a few wealth managers now issuing both inside and outside IR35 determinations,” a source also told ContractorUK. “It depends entirely on engagement type.”

Qdos is seeing similar. Revealing end-users to be asking for CEST answers to “reviewed for compliance,” the adviser said: “We’ve even seen one or two [firms] reverse contractor bans.”

'Blanketers don't have a statutory right to deduct PAYE'

This possible sea change in how IR35 status is being tested coincides with a law firm warning that end-users may not even have the legal grounds to force contractors onto PAYE.

In a briefing on Friday, Chartergates said: “Blanket [decisions]…will not constitute a valid status determination statement for IR35 purposes, as they are non-specific, not provided directly to the worker, and will probably lack reasons and due care in approach..

“This in turn means that they do not provide the engager of a PSC with a statutory right to deduct PAYE taxes from the PSC.”

The law firm added: “It is certainly open for clients and engagers to opt for either employment or IR35 deemed payment deductions, [but] this needs to be carefully considered, the cost implications need to be understood by all parties, and the statutory procedures will need to be carefully followed in either case.”

'Good amount of de-risking'

The legal briefing and its subtext cautioning end-users against blanketing and banning follows a new revision to the April 6th legislation, said to offer clients “a good amount of de-risking.”

Of his assessment, James Poyser of inniAccounts explained: “[Currently] if agents or PSCs do something [non-compliant] in the supply chain, the client takes the full whack of the risk.

“Clients have to audit supply chains and take responsibility for the lot, [so] no wonder they [have until now moved to] ban PSCs.

“[But] this amendment [of section 61V and Regulation 22] means if someone in the supply chain supplies fraudulent information, they take the hit. Not the end-client.”

'First outside IR35 contracts in many, many months'

Posting online just a few days later (and with clients having had a week to digest it since the revision was unveiled by HMRC), a recruiter indicated that a corner had indeed been turned.

“Yesterday was the first time I’ve been able to advertise an ‘outside IR35’ contract in many, many months,” said the agent, a specialist in the digital sector.

“I’ve been inundated with fantastic contractors as a result, most of whom refuse to work inside IR35.”

The agent asked: “When will other businesses realise they’re losing a competitive advantage by not assessing contracts and continuing with the blanket PAYE/ umbrella approach?”

'Dubious IR35 processes - have come to an end for me'

Also taking to LinkedIn late last week, a change consultant said: “With six months passing since my last contract… I had to unfortunately reject [offers I received afterwards because of] some dubious IR35 processes”.

“[But] after staying true to my principles, today, I’ve been offered an outside IR35 contract. [It comes just] a few days short of the 6th year anniversary of founding a business that I’m very proud of. Amazing.”  

At least ten contractors won’t be so lucky however, or so suggests another online post by an agent, who bravely used her profile to almost denounce her customer.

“I have 11 freelancers…who have been notified that they fall inside IR35 – [but] they have all been given the identical status determination document [and it was] done four months before they started working there,” the agent wrote. “Surely an…[unfair] blanket decision.”

'Contractors may form a large company, together'

Meanwhile, according to The Association of Professional Staffing Companies, contractors should be aware that HMRC’s rewording of ‘intermediary’ alongside Budget 2021 could put them within scope of the off-payroll rules.

“If they have any shareholding in a company, even if it is less than 5% [then they are within scope],” APSCo’s legal counsel Tania Bowers told ContractorUK on Thursday.

“This [change by HMRC] is intended to prevent a situation where groups of contractors may form a larger company together to be able to operate outside IR35.”

'Banners deny themselves of essential talent'

Such a situation would arise at clients who are still blanket assessing inside IR35, still insisting on umbrella-only, or still banning PSCs outright such as, ContractorUK understands, Jacobs, the nuclear giant.

“Blanket banning PSCs denies you -- the end-user -- essential business talent,” says Freelancer & Contractor Services Association CEO Phil Pluck.

He added; “The IR35 reforms are coming into place on April 6th. [And unfortunately for the unprepared] HMRC cannot make the decision to delay or cancel the reforms.”

'Contractors told to fib - by end-users' own managers'

But despite the numerous alerts, from CEOs, status advisers, recruitment specialists and many others (including a respected House of Lords committee), it may come down to a bunch of inflated, fraudulent invoices to ultimately deter clients from banning or blanketing.

Inni’s Mr Poyser explained: “We’ve heard from a number of contractor clients…who've been pushed inside IR35 or subject to PSC bans. The end-clients won't budge on a rate uplift to cover employment costs.

“The outcome? The contractors have been told by their [client] hiring managers to fib and increase the number of hours or days they're submitting on their timesheets! Not an isolated case. Incredible.”