Treasury minister Jesse Norman says IR35 blanketing isn’t happening
The Treasury’s financial secretary was asked if the reform might be paused, given that PSCs are being ‘forced into contracts that tax them as employees without employment rights.’
But replying to the question in the House of Commons, Mr Norman said he had no knowledge of such blanketing.
His admission is despite the fact that droves of companies have now carried out 'blanketing' and still are.
The admission is further humiliating for the minister because HMT’s own legislation is meant to guard against blanketing by requiring ‘reasonable care’ to be taken when assessing IR35 status.
Today, exclusively for ContractorUK, IR35 expert Rebecca Seeley Harris advises what PSCs need to know about their client taking ‘reasonable care,’ to comply with HMRC’s new guidelines.
Meanwhile, Mr Norman may be additionally red-faced as not only do ‘blanketing firms’ appear to outnumber ‘non-blanketing firms,’ but also blanketing has evolved into four different models.
Firstly, there is the blanket ‘inside IR35’ rulings which the minister was asked about by Labour MP Jessica Morden, whereby engagers broad-brush all their PSCs as IR35-caught.
Secondly, there is the blanket ‘ban,’ whereby to head off having to deal with IR35 at all (prospectively), clients cease doing business with PSCs altogether, across their operations.
Thirdly, there are either of these two models in all but name – whereby an engager says it is testing IR35 case-by-case but, ultimately, bans nearly all PSCs or deems almost all ‘inside.’
Fourth, and in a sign of just how entrenched blanketing has become, some blanket banners like HSBC, Lloyds and Fidelity, have forced their consultancy partners to ban PSCs too, when working on their corporate projects.
'We're not aware'
But Mr Norman seems to be in the dark about all these models and the numerous companies which have adopted them.
“We are not aware of blanket determinations being made,” the minister told Ms Morden, the Labour MP for Newport East.
Although Mr Norman also said, “firms are choosing to acknowledge disguised employment” by payrolling contractors, the minister did not connect it to blanketing, which is often related.
'Deeply out of touch'
Contractors, consultancies and advisers were last night at a loss in trying to react to, let alone explain, Mr Norman’s comments.
“It has become clear…just how very deeply out of touch with reality senior government ministers now are,” an outraged limited company contractor says.
“Like Nero, they are fiddling while Rome burns – or in this case, UK competitiveness is being destroyed – blindly -- with the murder, not death, of UK contracting.”
'Large clients just don't want the risk'
At change management consultancy Bishopsgate Financial, chief operating officer Elizabeth Kent opted for the more corrective approach.
“In practice, most organisations [we know of] are applying a blanket ban on PSCs”, she said.
“Hirers do not have the [desire or] opportunity to determine the status of how someone is working.
She explained: “This is mainly down to large organisations not wanting to take any risk. The implication of that is there are consultants who are truly working outside of IR35…who are no longer able to use their limited company. This is discouraging a lot of valuable consultants.”
'I just couldn't accept the bank's blanket determination'
One such consultant, who has worked for 25 years on niche IT projects, was until last week in place at a leading retail bank – operating via his own PSC.
“I looked at the potential impact of accepting a blanket inside-IR35 declaration. But I’m sorry, I just couldn’t -- because I’m so very clearly outside,” he says.
“I’m rarely in the office and haven’t been for the past few months, but as my working practices haven’t been individually assessed, I got hit with the same [inside IR35] policy”.
'IBM, BAE Systems'
On top of the most typical blanketing (‘all inside IR35’), other ContractorUK readers have been illuminating the least obvious one -- blanketing under the guise of fair assessment.
Firstly, at IBM.
“So IBM's approach now is to only consider doing the ‘deep dive’ IR35 assessment in very exceptional circumstances where there is cast iron evidence the contract is very outside of IR35,” one contractor said.
And secondly at BAE Systems. At the defence giant, a PSC said: “Across their sites, BAE have performed a very small number of assessments which they then apply to groups of subcontract consultants.
“Anecdotally, this has led to approximately 98% of their current contracting staff being declared as caught by the new legislation.”
'Destruction of flexibility'
Reflecting on this blanketing, in effect, the PSC added: “In light of the potential financial damage that could be caused by this legislation, I can well understand why this approach has been taken by BAE.
“However, the only real outcome now is surely [going to be the] destruction of the very flexibility that our highly qualified, mobile freelance sector brings to the UK economy. This is a dangerous, ill thought-through approach to a perceived problem.”
Last night, the boss of a contractor accountancy denounced such blanketing:
“This is like a slow motion car crash -- it shouldn't happen, everyone knows it shouldn't happen, it's going to [cause a] disaster but it seems impossible to stop it happening.
“[To my mind it’s just another reason why] in the meantime, everyone should be making a submission to the Lords’ review,” he said.
'More blanketing is inevitable'
Sitting before those Lords in the first expert-witness session into IR35 reform, Justine Riccomini of the Institute of Chartered Accountants in Scotland (ICAS), responded to a Labour peer who floated some reasons why engagers make “blanket determinations” -- the very determinations that Mr Norman claims to be unaware of.
“There has been a tendency [in the public sector] to make blanket decisions,” Ms Riccomini confirmed. “And I’m not sure that’s going to change in the private sector either.
“If you’ve got a lot of contractors…and it takes about 30 to 90 minutes to conduct a status determination statement piece, per person, then you can imagine that if you have a couple of hundred of those people working for you, you could be there until kingdom come -- trying to prepare SDSs. So it’s inevitable that some form of blanket decision-making will take place.”
The head of taxation at ICAS also told Lord Monks: “And we know that lots and lots of contractors left the public sector to go and work elsewhere and they’ve had terrible problems with resourcing and recruitment in the public sector, in certain parts [as a result]. They’ve suffered terribly.”