IR35 changes: Gird your loins, but don't panic

In my nearly 14 years in the contractor industry, I can recall some strong reactions to major legislative events but none more so, perhaps, than Autumn Statement 2016’s all-clear to reform IR35 in the public sector, writes Seb Maley, the chief executive of Qdos Contractor.

Until now, the imposition of the MSC rules, the rise of Section 660A and, more recently, the introduction of the new dividend tax had represented a sort of high-water mark of uncertainty and panic.

But the reaction this week among contractors, agencies and other service providers to chancellor Philip Hammond forging ahead with public sector IR35 reform has been made of even stronger stuff. So strong in fact that it begs the question; is this reaction justified?

Deeming you IR35-caught isn’t the default position

Yes, agencies will now typically be holding the cards when it comes to determining a contractor’s IR35 status. But no, contrary to lots of whispers, agencies will not just force contractors inside IR35 or through an umbrella company.

Why? Well it’s true that agencies do not want the burden and risk of IR35 dumped at their door. Although they are often the party paying the contractor, they are also the party furthest from the reality of the engagement -- which is ultimately what IR35 revolves around. However, they are also acutely aware of the risk of losing highly skilled people from their books. For as long as the IR35 rules remain unchanged in the private sector (we’ll see how long that lasts), agencies risk a migration of workers out of public sector engagements.

Therefore, I believe many agencies will do their best to implement a process which will not penalise contractors who are working -- and will continue to work -- compliantly. I hold this belief having spoken to several agencies over the last week (all of whom span pretty much the key sectors and some who are considered ‘the big guns’). They are actively looking for a workable and compliant solution. Not one of these agencies has suggested they are considering forcing their entire contractor book inside IR35. They also haven’t been particularly vocal about umbrella companies, who naturally stand to gain amid the (totally unfounded) predictions about the ‘death of PSC contracting.’

The other untruth doing the rounds

There’s another reason not to panic. Despite the quite staunch criticism of the IR35 digital tool, it is NOT going to be obligatory for PSCs. From meeting with HMRC, I can assert that the tool is only going to be mandatory for contractors if their agency or end-user makes it a compulsory part of their process as an organisation.

So, the next time you’re told that all agencies will just shoe-horn all PSCs inside IR35, or through an umbrella, and told that all PSCs will be forced to use a digital tool that HMRC hasn’t even finished, remember; neither is true. 

It is true that some agencies might take a more extreme course of action and worry about blanket ‘outside IR35’ declarations. Who knows which direction every individual agency will go in? But for now, at this early stage, many agencies are being pragmatic. Overly negative conjecture won’t help them stay this course, which appears to be in everyone’s interests.  

Final thought

Budgets and Autumn Statements are always nervy affairs. Indeed, previous ones have been surrounded with many false prophecies of IR35 being either strengthened or scrapped. While April 2017’s reform has been tabled for a while, and comes as no real surprise, the reality of it actually happening has hit home over the past couple of days.

But rumours of the ‘death of PSC contracting’ are being greatly exaggerated --- agents are NOT lining up to deem you inside IR35 and an already discredited tool is NOT going to be forced upon you on every contract. Let us recognise that the government’s changes to this unwieldy legislation are cause for some concern, but we should simply gird our lions for uncertainty until the legislation is set in stone, very shortly.