A newly published report from HMRC has examined the long-term impacts of IR35 reforms introduced for public sector organisations in 2017. The study, entitled “Long-term effects of the Off-Payroll working rules reform for public sector organisations”, was carried out by IFF Research and Frontier Economics.
The study was initially commissioned in 2020 ahead of the 2021 implementation of IR35 reforms in the private sector, but was delayed as a result of the second wave of the COVID-19 pandemic in late 2020.
According to the report, Personal Service Companies (PSCs) have been the most common way to engage off-payroll contractors, comprising an average of 57 per cent of off-payroll contractors hired by sites and 56 per cent by central bodies.
72 per cent of sites said that there was no change in how many off-payroll contractors they engaged from March 2017 to March 2020. 14 per cent of sites said they had seen an increase, compared to 12 per cent reporting a decrease in off-payroll contractors.
23.5 per cent of contractors fell within the scope of IR35 rules, with 11.5 per cent of public sector bodies in the report assessing all contractors engaged as inside IR35. 48.5 per cent said none of their contractors had been determined to be inside IR35 and 49 per cent said they had not used information from HMRC or third parties to ensure their compliance with the rules.
As of March 2020, 46 per cent of sites and 71 per cent of central bodies said they engaged PSC contractors through agencies, while 11 per cent of sites and 21 per cent of central bodies reported engaging off-payroll workers through umbrella companies. 92 per cent of sites, meanwhile, said they had seen no change in how many contractors they engaged through umbrella companies from March 2017 to March 2020.
Despite the report indicating the long-term effects of IR35 in the public sector have been minimal, there has been criticism from some figures in the contracting industry. Seb Maley, CEO of IR35 advisory Qdos, commented: “This study suggests the impact of IR35 reform in the public sector was minimal, despite there being plenty of evidence out there to contradict this.”
“It even goes as far to say that nearly half of public sector bodies have not assessed any contractors inside IR35 whatsoever. While a welcoming statistic, I’m taking it with a pinch of salt – blanket IR35 determinations were commonplace in the public sector.”
“Contractors haven’t been asked to contribute to this research either. In my view, it’s difficult to get a true sense of public sector reform if you aren’t going to ask the individuals who have been directly affected by the changes.”
Maley added: “We’re also told that around half of public sector organisations didn’t use any information to ensure their compliance, whether from HMRC or third-party specialists. This I can believe. The hundreds of millions in tax liability and penalties issued to government departments for non-compliance shows that the public sector wasn’t nearly well prepared enough for IR35 reform.”
