It is now eight months since the introduction of the new public sector rules for IR35 which should be a long enough period of time to consider how the rules are affecting the contractor marketplace,
It is uncertain whether, as a whole, public sector bodies are looking at the individual circumstances and working practices, judging each case on its own merits, or rather, whether they are forming a blanket ‘one-size-fits-all’ decision, with the exception of those consultants who are deemed to be key to the success of a project or contract.
But there are examples of public sector bodies making ‘caught’ decisions in the case of self-employed, non-PSC contractors, who are not covered by the legislation in any event.
As part of the new rules, HMRC has introduced the online tool, Check Employment Status for Tax (CEST) , which can be used by anyone in the contractual chain, or indeed the PSC’s advisors. Based on reports from contractors, the questions and options for responses seem very much slanted towards the answers that HMRC are looking for. It is a blunt tool, without sufficient detail of the engagement being considered, and while its predecessor, the ESI tool, had its faults; CEST seems to be a backward step. At least for contractors.
Anecdotal evidence suggests that public sector bodies such as the BBC, MOD, TFL, Network Rail and Channel 4 are erring on the side of caution and deeming the majority of contractors caught by the Intermediaries’ legislation (IR35). And the education sector is now only reportedly taking on contractors who are working via an umbrella company or who accept the ‘deemed employment’ scenario. With an absence of any right of appeal against the public sector decision, what options, albeit limited, does a contractor have where the public sector body deems the engagement caught by the Intermediaries’ legislation, contrary to an ‘outside’ determination that the contractor may have received from an IR35 contract review?
Although there is no right of appeal against the decision made by the public sector, exercise your statutory right to require the public sector body to explain the reason for its decision, and the public sector body must reply within 31 days.
Allied to the point above, if possible, try to enter into discussions with the public sector body to put forward the reasons why it is believed that the decision is incorrect, and should be re-considered.
Then, if possible, renegotiate the contract, to enhance the fees to compensate for the additional liabilities that will be incurred.
Finally, leave the contract by terminating early, or at the end of the current contract period.
When looking at future opportunities, consider using an umbrella company service.
The new public sector rules seem to have created a scenario where ‘heads HMRC wins, tails the contractor loses’, by taking away many of the benefits of operating independently via a PSC, while failing to provide any of the security and perks enjoyed as a result of being an ‘employee’. Consider seeking the support and advice from an accountant, adviser, or IR35 specialist if you want to increase your odds.