Public Sector IR35: the story so far

A review of Off-Payroll Reform in the Public Sector 

In the lead up to 6th April and arrival of public sector IR35 reform, the overriding feeling among contractors, the public sector and recruitment agencies was one of uncertainty, confusion and concern.

Contractors distrusted public sector companies’ and agencies’ readiness and ability to make accurate IR35 decisions en masse with a tool built by HMRC themselves, with a telling 85% ready to stop working in the sector should they be found inside IR35.

Two months down the line and casting our eyes over our own research, we can now shed light on how the controversial IR35 reform is starting to play out.

Status Review Results

Having developed our own solution, and working closely with public sector companies and agencies, we have assisted in over 1,500 individual public sector IR35 reviews since February 2017. We have come to the conclusion that 87% of the public sector contractors we have reviewed sit outside IR35, leaving them unaffected by the new rules.

While this is a higher pass-rate than the typical IR35 review which sits at 57%, it’s worth noting that these public sector reviews were based on a comprehensive working practices test which gives a better all-round picture of a contractor’s agreement than the written contract alone, helping us make more accurate decisions that hold more weight. Put simply, with clearer information, we’re able to make better IR35 decisions.

To Stay or Go

There has been 30% increase in the number of public sector companies and agencies who have now contacted the contractors they engage. 88% of contractors have been contacted by either their public sector company or agency. This is welcome news. Clear, direct communication between each party is vital in coming to more accurate IR35 decisions.

And while the vast majority of contractors had planned to stop working on public sector projects should they be placed inside IR35, out of the independent workers now caught by the new rules, less than half (49%) intend to leave. Just over half (51%) of contractors sitting inside IR35 plan to continue working on their current contracts despite being affected by the new reform.

On those intent on stopping working in the public sector, 20% have already actually left their contracts, 19% intend to leave within the next month, 37% will leave in between one and three months, with the remaining 24% hoping to leave their contracts in 3 months or longer.

ESS Tool

Given the ongoing concern over the accuracy of HMRC’s CEST Tool and its inconsistencies, it comes as no surprise that 85% of contractors do not trust it to make accurate decisions over their IR35 status.

Blanket Determinations

The news that one or two public sector organisations have made blanket IR35 determinations is of course concerning. As well as breaking the ‘Reasonable Care’ clause in the legislation, it assumes a one-size-fits-all approach to setting IR35 status (although some of these decisions are now being turned around, such as the most recent NHS U-turn).

This simply isn’t the case, which is why Qdos Contractor is working closely with a number of vital public sector organisations and renowned agencies to advise carefully considered, accurate IR35 decisions going forward.