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Network rail performs IR35 U-turn

Network Rail reverses contractor ban and is engaging PSC workers outside IR35 once more

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.

Three-quarters of contractors now working 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.

Other firms urged to follow suit

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.”

Government accounts reveal numerous failings

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.

By Contractor Weekly

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10 thoughts on “Network rail performs IR35 U-turn”

  1. Gary Andrews

    Companies up and down the country are grinding to a halt because they can’t get workers. Desperate engagers can do what they like with IR35 assessments … until the revenue come knocking.

    Nothing is certain, no rules properly defined. The only framework with an effective track record has been donating to the Conservative party.

    A perfectly normal kleptocracy.

  2. Alas PCS

    When are the HMRC going to investigate the oil and gas companies that blanket decision ruled all contractors inside IR35?

    • Gav

      An industry I know well, skeletal staff working part-time to prevent maintenance disasters. Most infrastructure needs careful looking after. See the blank cheques constantly written for Sellafield with no ROI.
      The contractors I know in energy sector are subcontracted outside of IR35 via smaller firms who are taking the tax risk. Officially the big industrials aren’t employing outside which is causing safety concerns in oil & gas.

  3. Mark

    If you’re persistent, with a good reputation, you can engage outside IR35 with large companies, still.

    To make this work, you should ask them to consider an engagement on a SOW (rather than a day rate) basis.

    • Bobby

      If you’re really persistent you can still can still do most things, but there comes a time where it’s just not worth it anymore.
      Any HGV drivers out there?

  4. Christopher Bevan

    Inside IR35 contracts are not economically viable or worthwhile compared to permanent roles I’ve found. Also, HMRC’s tax take has plummeted by £12,000 per year from my activities now that I’ve been forced onto payroll compared to when I operated through a Ltd company. I don’t know whether the HGV driver shortage has been exacerbated by IR35 as drivers quit if they operated as independents, but I suspect it has. I’m also noticing more organisations in skills distress. Either they can’t get contractor resources or they are watching their costs spike massively for the same or less qualified people provided through major consultancies. All in all, the way the IR35 legislation has been implemented seems to have benefitted a very few elite and squashed and disrupted a diverse majority.

    • Mark

      HMRC are clueless. If this backfires and their overall tax revenue plummets (as a result of a giant corp tax deficit), well… they were warned. Of course, they’ll find some way to attack small business and employees even more, rather than admit the error of their ways

  5. Alfie

    Selfish money grabbers need to pull together and support Boris if want christmas to happen. stop thinking of yourselves all the time and do a bit of work

  6. XY

    I smell another stitch-up in the making.

    All these public bodeis that supposedly made these “historic mistakes”… and all paid up without a squeak of dissent – nor any details of the “mistakes”.

    If these had been private sector firms they would have gone to tax tribunals and to court – and given HMRC’s abysmal record, the private sector firms would almost certainly have won.

    These “fines” are clearly trying to scare the private firms into an inside-only approach. The money paid by public sector agencies is simplky monet they got from the Treasury going back to the Treasury, with a reason to increase their budget next year, so no REAL cost to them at all.

  7. XY

    Something to note…

    A relative of mine was contacted about a role for a firm in the oil & gas sector. Inside IR35, but the rate offered was only a level about right for an outside IR35 role…

    At the back end of the conversation the agent threw in that she’d have to work though Infosys, as the client, and the oil/gas co would be their customer, so that the oil co “would be protected from IR35 risk”.

    She said no. The agent asked why. She explained that she would have nothing to do with Infosys, since it’s Sunak’s family business – she didn’t want to enrich them in any way. She also pointed out that Infosys weren’t taking any risk since they were offering an inside contract (and to add insult to injury, at outside rates).

    The agent said this is normal now, consultancies are inserting themselves into the chain to take the IR35 risk.

    So she took the role no further.

    Make of that what you will. To me, it looks like consultancies, who lobbied for IR35 in the first place, are now milking companies while destroying the one-man band competiton (that they could only compete with by tilting the playing field via IR35).

    This country is falling apart.

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