HMRC puts its own IT contractors inside IR35

The IR35 digital tool was delayed because the very IT contractors who built it quit the tax authority amid fears it would place them inside tomorrow's new legislation.

In fact, the 18 limited company IT contractors who worked on the tool – the ESS – left HMRC on the Friday before it was publicly unveiled, fearing for their own IR35 status.

“This is why the launch date for the tool was delayed and also why HMRC have struggled to get it working properly,” said a PSC whose colleagues were on the ESS build team.

In line with the fears of the 18, every IT contractor at the HMRC-owned software group behind the ESS has since been told that they will be caught by tomorrow’s off-payroll rules.

Even niche senior interims with a strong right of substitution, and who regard themselves as taking financial risk, have been decided as inside by the group, RCDTS.

'No visibility'

Those affected, about 250 IT contractors -- equating to 70% of RCDTS’s workforce -- are therefore asking how the determinations were made; on what basis and with what criteria.

“At first we had agreement with our line managers that we were outside based on the ESS”, said a RCDTS insider, an IT projects specialist.

“However, it was then decided to [be] handled centrally and we have no visibility of how they came to their assessments.

“They certainly did not ask us for any information. They do not appear to have used the ESS or applied ‘reasonable care.’”

Despite the latter charge, no blanket assessment (to imply a lack of reasonable care) was made by the HMRC official who led the status reviews for RCDTS. The results were also emailed individually.

'Bumpy road'

But the official did not respond to a request for comment yesterday. Nor did a HMRC spokesman respond to why another of its officials, a digital leader, has acknowledged that HMRC may now lose vital skills -- albeit for a worthwhile cause.

Specifically, the leader has admitted that the loss of contract staff puts HMRC on a “bumpy road,” but that he is prepared to accept that because “it’s more important that everyone pays the right tax.”

Continuing to relay this first-hand account of a meeting with the HMRC digital leader, a source also told ContractorUK: “I really doubt that he [the HMRC digital leader] has any idea how bad things really are ‘on the ground’”.

“All of our projects are turning RED as there’s just not the talent to deliver them successfully…and there are key Live Systems that are now out of support in terms of operating systems, database management systems and applications”.

'Unprepared'

The revelations come as eight out of 10 contractors say that public sector organisations are “unprepared” for the changes to IR35, due to take effect from midnight tonight.

Despite the finding, based on a 2,000-strong poll of PSCs by Qdos, some parts of a public sector body appear more prepared for the changes than other parts. Or perhaps, some parts are just seen as more likely to give an ‘outside’ decision.

For example, at RCDTS, a chunk of the ESS contractors asked to be transferred to another project the software group is running, unrelated to the IR35 digital tool.

'Immediately available'

The HMRC-owned software group's refusal to grant the transfer has not gone unnoticed by other contractors at RCDTS, as they have openly started advertising themselves as "immediately available" for opportunities elsewhere.

“[They are making very clear] they’ve got no intention of abiding by their notice clauses,” the RCDTS insider said.

“[These contractors are in addition] to the number [of PSCs who] already decided to leave last Friday and walked out, refusing to work their notice.”

The source said other contractors who’ve quit RCDTS based their departure date on advice from IPSE, after it recommended that PSCs receive their potentially final payment from their public clients by April 5th.

For contractors on the NHS however, this cut-off point was earlier. In fact, all PSCs on the NHS have been banned since April 1st, implies an official email seen by ContractorUK yesterday.

'No blanket application'

Written by Jim Mackey, CEO of NHS Improvement, the email says the health service’s stance that all PSCs are inside IR35 must “remain in place… due to HMRC regulations.”

A HMRC spokesman declined to be drawn on the specific wording of NHS edicts, including the one last week claiming 'HMRC will automatically treat all PSCs as failing under IR35’ from April 6th.

But it won’t, suggested the HMRC spokesman. “Whether someone is affected by the new off-payroll rules in the public sector, will depend on their particular situation,” the spokesman said. “There is no blanket application of the rules.”

Transport for London is a case in point. Despite initially announcing it was banning all PSCs (seemingly so it did not have to individually consider which of its many PSCs the rules affect), it is now finalising some individual status assessments.

'IR35 Status Verified solution'

TfL internal document state: “Individuals may be offered the opportunity to undertake independent assessment for the IR35 Status Verified solution to help determine whether the individual is within or outside the scope of IR35.”

In a guide to affected parties, the capital’s transport body elaborates on this ‘solution:’ “For some roles in defined business areas, workers may be offered an option for assessment of IR35 status via a third-party assessor.

“The individual is tested independently to verify their IR35 status to comply with HMRC requirements,” it says. “Where that organisation finds that the PSC is outside IR35, TfL will continue to engage them via an agency on that basis.”

So there is now a way for limited company contractors to work at TfL, despite it emerging too late in the day for many. One of them reflected last night:

“I've now left TfL but I understand that they are assessing some, not all, contractors for IR35 status using an external body.

“But I note, PSCs are considered inside IR35 unless evidence is available to the contrary and [if no longer a PSC], only umbrella companies that are approved by the agency can be used.”

'Many more to leave'

Whether these same 'options' are introduced at RCDTS is not yet clear, but the prospect of the software group losing more of its contractor talent is.  

“Many contractors have already left and there are many more about to leave,” the RCDTS insider said. “HMRC also have contracts with [software firm] Equal Experts and QA [Consulting] who provide whole teams of people -- mainly contractors. They have also been found to be inside and have all walked out.”