Preparing for IR35 in Public Sector

With the implementation of the 'off-payroll' rules less than 2 weeks away now (15th September), the Cabinet Office has released the new rules for contractors engaged by government departments, 'Procurement Policy Note – Tax Arrangements of Public Appointees; Action Note 07/12 – 24th August 2012' (PDF).

The rules themselves should now be familiar to most freelancers who should be aware that a Department will seek assurances from contractors about their IR35 status in situations where the worker is engaged for 6 months or longer and being paid £220 per day or more.

The Policy Note encourages departments to decide when to seek the assurance and suggests that some may wish to seek assurance for some contracts only. A department may wish to seek assurance at the start of the contract, if they know it will last for 6 months or more. Alternatively, assurance may be sought at the 6 month or some other point.

Contractors are to be given a reasonable time to provide information to departments and the Policy Note suggests an example of 20 working days. Note that 'reasonable time' is not defined and the 20 working days should not be a mandatory time limit as first believed.

The document goes on to say that where a contractor scores medium – high risk by reference to the Business Entity Tests (BETs) then they will be able to provide evidence of a contract review to verify they are outside of IR35. Whilst it does not make it clear who should be responsible for such a contract review, i.e. HMRC or external advisor, as it is stated earlier in the Policy Note that information can be sourced from the freelancer’s accountant or professional advisor, then it could be reasonably inferred that evidence from an IR35 specialist will be accepted.

If a department is not satisfied with the evidence then they can forward the information to their CRM or customer co-ordinator in HMRC to be considered alongside other intelligence to support HMRC's work to tackle non-compliance. Taxpayer confidentiality prevents HMRC from sharing the results of any follow-up action with a department – read as likelihood of an IR35 compliance review.

At whatever point a government department seeks assurance about IR35, contractors can be proactive right now and be ready for such a request. They should firstly undertake the BETs (http://www.hmrc.gov.uk/ir35/guidance.pdf ) to ascertain where they are on scale. If they are low risk then this will be sufficient evidence for the respective department. If, however, a contractor falls in the medium – high risk category then they will need to have their contract reviewed by an IR35 specialist, so that this can be presented as evidence. Regardless of a freelancer's BETs status, it is always recommended that a contractor has their contract reviewed from the outset to help establish their IR35 position.

If a department refuses to accept third party evidence then they should be challenged and asked the reason for such a refusal and how a contractor can progress matters. Here again, the support and advice of an IR35 expert may be a useful ally.

So for those currently providing services within the public sector and those about to, the message is that of the Scout motto – Be Prepared.

Status experts Qdos Consulting are now offering a Public Sector IR35 Solution – see here for details.

3 Comments

  • C says:

    Why would anyone waste their time on the BETs when most real freelancers have no hope at all of passing the stupid things?

    Get Ltd Co insurances (PL/EL/PI) through Qdos with their TLC35 cover and you get that for the best price you can get just the basic insurances from anywhere else (including the PCG’s so-called ‘preferential’ rates with their pet company).

    That gets you 3 free contract reviews a year, so if you ignore the BET nonsense (yet another PCG own goal) you can get the client to investigate and accept that you are outside of IR35. How can a judge overturn that?

    My view is simply to go straight to contract review, ignore the BETs for the rubbish that they are.

  • Kevin Robinson says:

    Why bother contracting in the Piblic sector. It is not worth the hassle, expecially as contractors risks their details being passed onto HMRC for an IR35 investigation. Solution: don’t contract for the Public sector or if you do now, leave as soon as possible.
    This is Cameron’s fault, who knows nothing about the world of work never mind the contracting world. An over reaction to a couple of senior people working in the Public sector operating through limited companies. In the end, the Public sector will lose out. When the economy picks up and their is plenty of work available, no contractor is going go through the hassle and risk of worling for the Public sector. The high quality contractors will avoid the Public sector who will be left dregs to choose from.

  • Tax Networks Ltd says:

    Lessons from the infamous Dragonfly case tell us that its the notional/hypothetical contract that should be looked at.T&Cs rarely reflect the arrangements on the ground. Also, I seriously doubt whether this would be sufficient for the IR35 assurance required by the public sector client for the reasons below.There is the need to be able to provide evidence of a robust contract review in line with specific case law and statute.

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