Public Sector Contractors: Renegotiate Now!

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If you’re contracting in the public sector it is now incumbent upon you to act fast to renegotiate contracts with agencies and end clients…or risk excessive taxation as a result of the IR35 reform. 

With public sector changes only two months away there are multiple warnings to contractors that time is running out for them to ensure they remain engaged on a business-to-business basis. 

Indeed, contractors are being advised that they need to speak to their agencies and end clients immediately.  They can ill afford to wait on a four-week notice period or until the 6th of April itself.  If a contractor finds their client is insisting they are inside IR35, having followed HMRC’s instructions, then the contractor needs to begin negotiations over a new contract. 


Are you sure IR35 reform warrants contract renegotiations

Public sector contractors are facing something of a predicament.  There is the very real possibility that an engagement that a contractor has previously assessed as being outside IR35 will be deemed inside by a cautious client when the compliance burden shifts on April 6th.  The risk is that even if you were engaged outside IR35 you will be placed on the payroll once the reform is implemented, calling your prior engagement into the process. 

The change in circumstances warrants further consideration from all parties involved.  If the contract is fundamentally changed at the will of the end client, it follows that the agency should issue a new contract which reflects the new arrangement. 


Contractors should approach their agencies now

This puts contractors in a very difficult position.  It must be remembered though that a change in IR35 status is a fundamental change to the contract which isn’t usually covered by contract terms and as a result a new contract is required both from the perspective of the agency and the contractors. 

Contractors should note though that they must raise the issue themselves as it is not automatic that a new contract will be issued.  


Getting Invoices in early

Contractors who invoice one month in arrears must also make sure they get their invoices issued on or before March 6th in order that they may avoid potentially excessive taxation.  There is a bit of a problem in that any work completed during March but paid for after April 6th will be subject to the new rules.  Contractors are being recommended to insist on weekly or even daily payments to minimise the losses they can suffer as a result of this ill thought out legislation. 


HMRC refuses to rule out retrospective action

The risk of retrospective HMRC action is also very real.  Experts have warned that a public sector contractor being found inside IR35 under the new regime would be an open invitation for an HMRC investigation into their affairs prior to April 6th

HMRC has refused to provide assurances on whether there will an amnesty on contracts which overlap into the new tax arrangements making it seem likely that there is a real threat of retrospective investigation. 

The best advice Speedy can give to contractors working with a public sector client is for them to arrange a completely new, properly worded contract to be in force from the 6th of April. 

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