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IR35 and HR: what’s next?

31st Aug 2017
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Since changes around IR35 were introduced in April 2017, HR professionals working in the public sector have been responsible for determining the status of an assignment to supply services through a Personal Services Company (PSC).

While no stranger to legislation, the HR sector is still very much in the teething stage of getting acclimatised to the administrative and financial responsibility of deciding if engagement is ‘inside’ or ‘outside’ of IR35 – particularly as public sector organisations are liable for covering unpaid taxes and National Insurance Contributions should HMRC decide that reasonable care was not taken and the determination is incorrect. As such, decisions made around IR35 status are not yet always consistent or set in stone.

This perhaps explains why a new study has found that an overwhelming majority of independent professionals currently contracting in the public sector do not believe that either public sector bodies or recruitment agencies have the knowledge to make accurate IR35 decisions without their input.

But aside from the HMRC’s Employment Status Service (ESS) tool  - which I think it is fair to say has not had the most glowing reviews from some stakeholders – how can those with responsibility for determining status best ensure that they are making the right call?

Success lies in effective communication. While the Government tool can act as a good starting point, critics have questioned its accuracy and, as such, results may have to be taken with a pinch of salt. Dave Chaplin, chief executive of specialist platform Contractor Calculator, recently went on record to complain that the limited questions asked by the tool were far removed from how judges approached employment status, stressing that modern employment status lay on a spectrum.

The risk is that contractors who feel they might have been categorised wrongly may simply jump ship and seek employment elsewhere. HR leaders are, therefore, in the tricky position of having to ensure that they protect their organisation from the risks associated with incorrect determination, while retaining access to the best talent.   

The good news is that a precedent is already beginning to form within the contracting community, which can also be harnessed to safeguard the public sector organisations that use them. Contractors who get weak or marginal ‘inside’ or ‘outside’ results are beginning to protect themselves against being investigated further along the road by preparing, and asking those they work for to agree to, a ‘confirmation of arrangement’ (CoA) document. These statements must set out how contractors intend to work and how they will be viewed while on assignment. Crucially, they also include explicit confirmation that the contractor will not be asked to do anything that is not stated in the contract.

HR leaders may wish to further protect themselves against future fall out around ‘outside’ contractors by pulling together a file of evidence which documents the organisation’s lack of ‘control’. This may include examples of how they were excluded from employee perks, kept their own hours, and supplied their own materials and devices.  

While no one knows what the future will bring, the general consensus seems to be that the legislation is likely to be extended to the private sector sometime in the future. Almost half (48%) of contractors surveyed by tax specialist, Qdos Contractor, said the possibility of the recent IR35 rule changes being extended to the private sector keeps them awake at night. While another survey from HR consultancy, Green Park, revealed that a similar percentage (58%) of UK based human resource directors believe the Government will extend the revised public sector IR35 rules to the private sector within the next 24 months.

Whether this is true or not, it is the responsibility of the HR profession to ensure that contractors, who are legitimately operating outside of the legislation, have the support and means to prove this – and it seems that the standard for doing so is already beginning to form.    

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