Half of public sector contractors working through agencies have had their IR35 status decided without an assessment being carried out, a survey shows. The astonishing figure is revealed in a survey of employment intermediaries conducted by the Freelancer and Professional Services Association (FCSA). The majority of these automatic decisions put the contractor inside IR35, raising fears that public sector organisations could face a barrage of lawsuits from those unfairly taxed as employees.

Even where an assessment has been carried out there are concerns. Over half of assessments were based on the role, rather than the individual contractor and their working conditions – this runs against recent Tribunal rulings on IR35, which say that working practices, not contractual terms, are what count for determining status.

FCSA’s chief executive Julia Kermode, who takes part in HMRC’s IR35 Forum, says that a third of intermediaries answering the survey say that they anticipate legal challenges from public sector contractors. “More than one third of respondents (36%) believe that legal challenges will now transpire as a direct consequence of role-based decisions being made and 34% of respondents are expecting challenges to workers’ deemed employment status,” she said. “These statistics should be of real concern for the government, and our survey suggests that it is in the medical, engineering and IT sectors where such challenges may come from.”

The study also found that only 24% of engagers are using HMRC’s online CEST tool to determine status. For Ms Kermode this is the result of the Revenue’s rush job in the run-up to last April’s rule changes. “When HMRC issued its CEST tool, just weeks before the change, it was already far too late,” she explains.  “Public sector employers had already begun conducting assessments in order to hire new workers and to re-assess existing contracts months before the IR35 reforms came into effect.  As such, they became reliant on other commercially available assessment tools.”

Even where public sector bodies are using CEST, there is evidence that they often ignore the results. IR35 expert Dave Chaplin, CEO of ContractorCalculator, revealed last week that figures obtained by him under the Freedom of Information Act show 54% of results from the online tool have yielded an “outside” status, yet many departments, including the NHS and the MOD, have declared all contractors to be deemed employees. “It’s clear that many hirers would sooner adopt blanket ‘inside IR35’ approaches than accept the risk that accompanies placing their trust in CEST,” Mr Chaplin said.

For Ms Kermode the key message of FCSA’s survey is that the government should be cautious if it plans to extend the public sector IR35 model into private industry. “Given all the issues implementing the changes in the public sector, it would be very damaging to the economy if the government was to rush to extend the IR35 reforms into the private sector.  The Chancellor has already promised that the government ‘will carefully consult, drawing on the experience of the public sector reforms’, and we will be putting pressure on policymakers to ensure that Mr Hammond’s promise is fulfilled.”

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