According to Computer Weekly, Network Rail appears to have made a U-turn over its initial blanket ban on contractors working outside IR35, in a move that experts hope will encourage other organisations to follow suit.
All activities regarding Britain’s railways are overseen by the Department for Transport (DfT). The DfT’s 2020-21 accounts show that the rail operator overhauled its off-payroll compliance process, meaning more than 70 per cent of contractors are now engaged outside IR35.
Figures showed that the DfT, its executive bodies and agencies, engaged 1,912 contractors in the last financial year. Of those, 1,025 were deemed to be outside the scope of the legislation.
The majority of these contractors (1,323) were engaged through Network Rail, with almost three-quarters (74%) assessed as outside IR35.
This is in sharp contrast to the previous year. The 2019-2020 accounts for DfT showed that 99 per cent of the 538 contractors it engaged had been placed inside the rules.
The accounts also revealed that when determining IR35 status, the department used HMRC’s Check Employment Status for Tax (CEST) tool in all cases, except for those working on the HS2 high-speed rail project, who were automatically considered inside the off-payroll rules.
Andy Chamberlain, Director of Policy at IPSE, said: “It’s certainly good news that Network Rail have changed tack and rowed back from their blanket inside-IR35 assessments.
“After the damage the IR35 changes have done right across the contracting sector, we can only hope this is a sign of things to come, and that more organisations – in the public and private sectors alike – will recognise the legislation does not require all engagements to be processed through payroll. Clients can hire contractors on an ‘outside IR35’ basis and do so perfectly compliantly.
“Contractors and the wider self-employed sector are a crucial part of the workforce – in times of economic crisis and recession more than ever. The country needs contractors now, but the changes to IR35 have sent shockwaves through the sector at the very worst time, with risk-averse businesses of all kinds either only engaging inside IR35 contractors or scrapping their contractor workforces altogether.
“We hope more organisations will follow this example, however, and row back from these terrible policies to engage vital contractors in a way that recognises their independent status.”
The Treasury requires all government departments to publish their annual accounts, detailing the number of off-payroll engagements and any additional charges they have incurred due to compliance failings.
Analysis of various department accounts revealed that a number have been issued with huge tax bills for failing to comply with IR35 reform. For example, the Department for Work and Pensions (DWP) paid £87.9 million after a review of its implementation of IR35 by the taxman revealed “historic” mistakes.
Meanwhile, the Home Office faced a £33.5 million bill in 2020/21, which included a £4 million penalty for its “careless” application of the IR35 rules. And HM Courts & Tribunals Service had to pay £12.5 million to HMRC for incorrectly applying the IR35 rules.