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- Seb Maley
On 6th April 2017, the new IR35 public sector changes will come into force.
Put simply, the responsibility for determining public sector contractors’ employment status will shift from the contractor, and onto the public sector body engaging them. It’s HMRC’s grand plan to combat tax avoidance. And to state the obvious, it’s not a popular one.
It’s unpopular with public sector contractors, who don’t want to be taxed at a similar rate to employees. And it’s unpopular with public sector employers who don’t want the burden of deciding whether a contractor falls inside IR35. And it’s unpopular with recruitment agencies, which – as it recently turned out – still have a rather large role in all of this.
On 5th December 2016, agencies breathed a collective sigh of relief, as details from HMRC’s consultation revealed that it would be up to the public sector employer to decide a contractor’s employment status, rather than the agencies. Tight on time to prepare and clouded in confusion, agencies simply didn’t want the responsibility. And who could blame them?
But the moment the dust settled, it became clear that agencies weren’t entirely off the hook. If an IR35 investigation were to find a contractor or contractors inside IR35, the agency would be at fault. Under the new rules, the agency would become the employer for tax purposes – meaning they carry the liability. As things stand, the public sector bodies themselves actually seem to have very little penalty or liability. Madness? You could say that.
With little over two months until the new changes come into play, needless to say, recruitment agencies need to prepare themselves. My advice? First and foremost, don’t panic. And avoid any kneejerk reactions. It’s a manageable situation.
Don’t panic
The natural reaction to all this uncertainty and ongoing confusion is to perhaps hold back on placing public sector contractors to minimise risk on the agency side.
But with huge infrastructure projects like HS2, and the sheer size of public sector institutions like the NHS, the demand for skilled, flexible workers won’t drop off overnight. In fact, 51% of hiring executives asked by Deloitte expect to increase or significantly increase the use of independent workers in the next three to five years. So the opportunity to place these workers in roles isn’t going anywhere. The evolving world of work means there’s money to be made in freelancer and contractor recruitment.
Experience tells us most contractors will be compliant
To settle your nerves, around 75–80% of the contractors Qdos Contractor reviews are classed as working outside of IR35, in our professional opinion. And in over 1500 investigations, HMRC has disagreed with us just three times. Granted, each case is different, and we’re basing this largely on the contractors we deal with – the majority of whom work in IT and tech. But the reality is IT makes up a massive part of the UK’s two million or so independent workers – in both the public and the private sector. So to tar every contractor with the same brush and assume they are avoiding paying the right taxes, and actually should be classed as ‘employees’, would be pretty damaging.
Take the initiative
As an agency, it’s important to understand that you are in the driving seat. Many public sector departments still don’t fully understand the situation. So take the initiative, create an open dialogue with the public sector organisations you work with, and start working together on a solution.
Get organised
Rightly or wrongly, agencies will be the first port of call for an IR35 investigation and will carry the financial liability. As an agency, take it upon yourself to have all the right payment vehicles in place for paying contractors. Offer payroll and umbrella services to contractors.
A resolution?
IR35 is a tricky subject to get your head around. And if you’re confused by the situation, you aren’t alone. Often, public sector bodies and agencies won’t have an in-house IR35 expert to make the call on every contractor that walks through the door. If you’re in this position, call an expert. It’s better to make an informed decision with the help of a specialist than to risk getting it wrong.
Seb Maley is CEO of specialist IR35 advisors, Qdos Contractor
To find out more please visit https://www.qdoscontractor.com/
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