National association says many members are reluctant to work with government because of continued uncertainty over IR35 and future tax status
The launch of a tool to help government contractors determine their tax status has so far failed to calm anxieties which are leading many to stand back from working with the public sector.
At the end of last week HM Revenue & Customs (HMRC) released its Employment Status Service (ESS) tool to help contractors understand whether they would be affected by a change in rules, known as IR35, that threatens to determine many more as employees rather than self-employed.
But the early reaction has prompted IPSE, The Association of Independent Professionals and Self Employed, to say there is still a lack of clarity with many of its members unsure how they will be affected when the new rules come into forced on 6 April. Many fear they will be moved to PAYE with a significant increase in their tax bill.
There have also been reports that large numbers of IT contractors are among those turning away from government work, threatening to disrupt ongoing programmes and plans for new initiatives.
A spokesperson for IPSE told UKAuthority that the ESS has been released very late and that users have not been convinced that it is completely reliable.
“We asked members to provide us with feedback, and while some said it has been great, others said it did not determine their status, and at this stage does not have the full amount of information,” he said.
He added: “A lot of contractors have already been instructed by a client or an agency and told they would have to close a contract before 6 April and go to a new one with PAYE.
“We have encouraged members to use the tool and, if found to be outside the IR35 changes, then go their client or agency. But if they do not have the information their status will be open to question.”
In August of last year, IPSE asked its members how they would see the change affecting their work in government, and about half said it would lead them to reconsider their work in the sector.
“Since then we’ve been inundated with calls and emails saying that some are turning down public sector work until there is more clarity, and others are just turning their backs,” the spokesperson said. “It could be interfering with the plans of public sector organisations.”
He said the word that is repeatedly used by members talking about IR35 is “uncertainty”.
There have been reports from the Contractor Calculator web service that the ESS is not fit for purpose as it fails to cover key areas of employment case law. It said that in testing 21 historical IR35 court cases through the tool it came up “unknown” for a quarter, and that 10% had been passed despite the judge failing the case in court.
There have also been claims that it fails some contractors who should pass the test to remain self-employed.
The web page of the ESS says that HMRC will stand by the result unless a compliance check finds that the information provided is not accurate.
The issue has also drawn the attention of IT industry association techUK. Its head of public services, Rob Driver, commented: "The fundamental change in the legislation is that the responsibility for ensuring individuals are paying the correct amount of tax will move from the contractor to the 'fee payer’.
"techUK is working with the industry and our government partners to understand the practical implications ahead of the new legislation coming into force, helping organisations adapt their processes in accordance with the new legislation while maintaining the continuity of service."
He added that the organisation is planning to hold a market briefing on IR35 on 22 March.
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