Since public sector reform arrived last year, contractors have consistently been placed inside IR35 without a fair or thorough assessment of their individual working arrangements.
From The NHS to the Ministry of Defence, several public sector bodies have left contractors no choice but to work under IR35 should they hope to continue on with them.
The number of independent workers subject to blanket IR35 determinations is considered to be high, but until now, there has been no accurate figure to show this. New data gathered by The FCSA has revealed as many as one in two contractors hired through agencies have not had their IR35 status set following a review of their individual working arrangement.
Of this 50%, which was calculated by asking intermediaries supporting 33,500 public sector contractors, the vast majority (42%) have been immediately placed inside IR35, with the remaining 8% automatically set as outside the rules.
It’s no secret that public sector engagers still struggle with IR35 compliance, but the true extent of the problem is disconcerting. That exactly half of contractors hired through recruitment agencies are not given a fair IR35 Assessment is hugely concerning, and not just for independent workers either. Public sector bodies and recruitment agencies (when playing the role of the fee payer) both risk IR35 liability and deterring contractors with this approach.
From the remaining 50% of intermediaries that confirmed IR35 compliance tests are carried out on the contractors they place, 26% stated it is a ‘role-based’ assessment, not an individual one.
The IR35 legislation states the need for public sector engagers to take ‘reasonable care’ when setting a contractor’s status. While ‘reasonable care’ is hard to define specifically, blanket IR35 decisions are neither reasonable nor caring, and therefore should be considered non-compliant.
Judging by this data, less than a quarter of public sector bodies engaging contractors through agencies are IR35 compliant. The research suggests that just 24% of independent workers were individually assessed, which is in keeping with the rules. This has to change.
Interestingly, the insight indicates very few of these compliant IR35 assessments were exclusively carried out by HMRC’s CEST tool. Perhaps more than anything, this shows the clear lack of trust that public sector bodies (along with 81% of contractors) have in the IR35 technology.
The chances that thousands of public sector contractors have been wrongly taxed since IR35 reform are high. And this is reflected in the 36% of intermediaries that believe legal cases will arise as a result of inaccurate status decisions. In addition to this, 34% expect contractors to challenge these IR35 determinations, only going to emphasise HMRC’s poor handling of reform.
The FCSA research is yet more evidence to suggest that reform isn’t working. Realistically, for how much longer can HMRC claim it as a success?