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IR35 Decisions – A Blanket Approach?

New evidence suggests blanket IR35 decisions are widespread in the public sector

Even before the arrival of IR35 reform in the public sector in 2017, many contractors feared they would be wrongly placed inside the legislation by their clients, whether by an IR35 decision mistake or as a short-sighted risk-averse approach to protecting the IR35 liability many of them now carry.

When much-anticipated IR35 changes were finally introduced, it emerged that The NHS, among other public sector bodies, took the view that to minimise the financial risk involved when engaging contractors, their status should be set to inside IR35 irrespective of their contractual conditions.

Fast-forward two years and amazingly the same concerns remain. What was initially speculation and rumours have now been confirmed as truths, following an investigation carried out by the online contractor resource, Contractor Calculator.

Latest reports suggest that role-based IR35 assessments and perhaps even blanket decisions continue to be made on a large scale. This is despite the best efforts of IR35 experts to point out that they risk inaccuracies and, when it comes to blanket determinations, are not IR35 compliant.

Needless to say, as the private sector gears up for IR35 changes, which will be enforced from April next year, the following makes for rather worrying reading…

Network Rail class 99% of contractors inside IR35

After a Freedom of Information (FOI) request submitted by Contractor Calculator, Network Rail revealed it placed an alarming 810 of the 817 contractors it engaged last year inside IR35.

What’s more, it became apparent that the public sector body did so after holding discussions with HMRC. The taxman apparently advised Network Rail to assess contractors with CEST, the unpopular IR35 tool. This meant that 99% of individuals were placed inside IR35 and made to pay taxes at a similar rate to an employee.

Understandably, as a result of these revelations, IR35 experts have yet again voiced their concerns regarding the tool’s impartiality and reliability.

98% of contractors engaged by HS2 caught by IR35 Decisions

Further controversy was uncovered by Contractor Calculator, that also broke the news of High-Speed 2’s (HS2) approach to administering IR35. Another FOI request this time revealed that 979 of the 1001 IR35 assessments made by the railway line resulted in inside IR35 decisions.

IR35 specialists have been quick to make the point that while this doesn’t necessarily prove that HS2 is guilty of non-compliance, the information does nothing to quash these rumours.

The BBC decides 92% of contractors belong inside IR35

Towards the end of last year, National Audit Office (NAO) findings showed that in 2017, The BBC placed 92% of 663 on-air freelancers inside IR35 after running their working engagement through HMRC’s technology.

Of course, it could be said that a significant number of BBC presenters belong inside IR35. This was certainly the case with former Look North presenter, Christa Ackroyd – who was one of more than 100 presenters reportedly forced to work outside IR35 by the broadcaster or face having their contracts cancelled.

But whether as many as nine in ten contractors at The BBC should actually be operating under the IR35 rules remains to be seen. Given that these decisions were based solely or even partly on the answers provided by CEST, sceptics will say that these decisions aren’t necessarily accurate.

And they could have a point. An answer provided by the taxman’s IR35 tool has been overturned more than once in court, while it’s no secret that the technology ignores Mutuality of Obligation (MoO) – which is seen as one of the three most important factors to consider in IR35 decisions.

These three examples are the only ones we have proof of. But given it was a policy of The NHS to place contractors inside IR35 when reform was initially introduced in 2017 (an approach the body has said it has now discarded), there could easily be more.

Rather predictably, the Government has denied that blanket IR35 decisions or even role-based decisions are widespread. Contractor Calculator reported that The Financial Secretary to The Treasury, Mel Stride, claimed most engagers make IR35 decisions on a case-by-case basis. It’s also been said by HMRC that this approach is only used by 10% of end-clients. Whether this is the case or not remains to be seen.

Without a doubt, Contractor Calculator’s findings raise serious questions about whether public sector bodies are making well-informed status decisions – something that IR35 specialists are urging the private sector to focus on as we edge closer to further reform.

Learn more about QAccounting’s range of IR35 services here.