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Contractor input excluded from Off-Payroll report

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HMRC has published its report, ‘Long-term effects of the Off-Payroll working rules reform for public sector organisations’, but some IR35 and contractor industry experts suggest the report appears self-serving and one-sided.

The findings were solely based on interviews and surveys with public sector organisations, not contractors impacted by the reforms. Here are some of the findings based on Qdos Contractor analysis:

  • 23.5% of contractors were classed as inside IR35
  • 11.5% of public sector bodies assessed 100% of all contractors engaged inside IR35
  • 49% did not use any information (whether from HMRC or third parties) to ensure their IR35 compliance 
  • 48.5% of public sector bodies said 0% of contractors were assessed as inside IR35
  • 72% said there had been no change in the number of off-payroll (outside IR35) contractors engaged between 2017 and 2020.

How are people reacting to the report?

Dave Chaplin, CEO of tax compliance firm IR35 Shield had this to say about the report’s findings and research methods:

Literary critic and poet Andrew Lang wrote in a 1910 speech that ‘Politicans use statistics in the same way that a drunk uses lamp-posts – for support rather than illumination’ and I think that this report smacks of the latter. 

I fully expect the secretary of state to regurgitate these statistics to claim success of the Off-payroll legislation in the public sector when the opposite is true.

IR35 specialist and Qdos CEO Seb Maley was also not convinced that the report provided a realistic assessment of the impact the rules have had on contractors or the public organisations involved:

“This study suggests the impact of IR35 reform in the public sector was minimal, despite there being plenty of evidence out there to contradict this.

“It even goes as far to say that nearly half of public sector bodies have not assessed any contractors inside IR35 whatsoever. While a welcoming statistic, I’m taking it with a pinch of salt – blanket IR35 determinations were commonplace in the public sector.  Contractors haven’t been asked to contribute to this research either.”

In my view, it’s difficult to get a true sense of public sector reform if you aren’t going to ask the individuals who have been directly affected by the changes.  

Seb Maley, CEO of Qdos

Maley also highlights that around half of public sector organisations didn’t use any information to ensure their compliance, whether from HMRC or third party specialists.

“This I can believe,” says Maley. “The hundreds of millions in tax liability and penalties issued to government departments for non-compliance shows that the public sector wasn’t nearly well prepared enough for IR35 reform.”  

Contractors could have given a true picture of the economic impact of Off-Payroll rules if they were given the opportunity
Photo by MART PRODUCTION from Pexels

What does the report really tell us?

According to Chaplin the report doesn’t really tell us that much, other than there was considerable disruption, and the supply-demand curve kicked in and increased costs for the public sector.

“By not interviewing agencies and contractors, it’s rather pointless, because it does not reveal the full picture at all and does not provide the necessary cross-check to what the public bodies are saying,” he says.

He continues: “However, the elephant in the room for this survey is the complete lack of marrying up to the Government accounts recently published which demonstrated that many public sector bodies have ended up with a combined tax bill of circa £250m, despite using CEST and following HMRC guidance.”

While Chaplin and others may say that none of the findings was are surprising, many of them are alarming, revealing that public bodies did suffer. However, he says, “the report contains a considerable amount of fudging in how the figures are presented. For example, describing 51% as a majority to spare the blushes of HMRC.”

Maley also highlights that around half of public sector organisations didn’t use any information to ensure their compliance, whether from HMRC or third party specialists.

“This I can believe,” says Maley. “The hundreds of millions in tax liability and penalties issued to government departments for non-compliance shows that the public sector wasn’t nearly well prepared enough for IR35 reform.”  

Can we expect a similar report carried out on the private sector?

According to some, not likely.

A similar report is unlikely, because private sector firms may not be overly responsive to a survey organisation poking around.

Dave Chaplin, CEO of IR35 Shield

What we can expect though is more snooping around umbrella companies.

“In terms of umbrellas, there is already a call for evidence by HMRC into the umbrella sector, highlighting the considerable concerns they have with the unregulated sector,” says Chaplin.

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1 Comment
  1. Robin says

    I’m a contractor for those government organisations above and for various banks. The response to these rules is very different. Government organisations have a much higher proportion of Outside IR35 work, as apposed to the banks. The banks have responded by shifting all their contractor work into umbrella companies who have in turn PAYE’d all the roles. This has not been done with care. The reason has to do with liability. The banks, predictably, want to keep offloading any liability. The government departments on the other have less liability than the private sector as HMRC is not seriously going to investigate the public sector. Which makes this investigation a complete farce. It in no-way reflects the private sector.

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