Public Sector: IR35 Concerns

Q. I am in a public sector IT contract. I had a IR35 contract review that was deemed outside. My working practises have not been reviewed.

Is it wise to continue working with the same contract for my client beyond April 2017 given the risk of being found inside IR35.

I am concerned HMRC might take a closer look at my engagement prior to April 2017 and send a demand for PAYE and NIC. Is this irrational?

A. If the contractual terms of your working arrangements fall outside of IR35 then this should provide some degree of comfort. However, it is the working practices that are of greater importance, ie are the contractual terms worked out in practice? I would therefore recommend that you have these reviewed asap. Any problems can therefore be detected and hopefully remedied.
 
Under current proposals, as from 06.04.17, the agency/public sector organisation will be responsible for assessing a contractor’s IR35 status. Initially, this requires them to answer two questions:

1. Is the worker required to do the work themselves?
2. Does the engager decide or have the right to decide how the work should be done?

Answering ‘yes’ to both questions places the contract firmly inside IR35. If, however, the engager is unable to answer ‘yes’ to both questions then they will move and use the digital status tool.

If your current contract is to survive IR35 from April of next year it is imperative that it, along with your actual working practices, can effectively demonstrate that the engager has no right of control over the manner in which you carry out your work and that your own personal service is not a requirement of the contract. The latter can be proven by having a genuine right of substitution, ability to engage other workers or sub-contract some of the services. Whilst the other employment status factors should not be ignored, control and personal service are key areas in IR35 decision making.

If your contractual and working arrangements put you outside of IR35 then you should be in a strong position should HMRC take you up for enquiry. Whether or not they will depends on whether they consider you to be a sufficient risk to merit initiating an investigation. Nobody knows fully what HMRC’s risk criteria is but given that they are only committed to 250 new enquiries each year, the department does not have the resources to suddenly raise enquiries into every contractor operating in the public sector who has not yet come under their microscope before 05.04.17, as there are around 26,000 contractors working in the public sector!