IR35 – Looking back and learning: What business can take from the public sector implementation
April will bring IR35 to the private sector. In the first part of our series on the legislation, Toni Hall – Director Public Sector Interim at Penna – asks, what did IR35 mean for the public sector, what are the learnings for businesses and how can the private sector businesses prepare for the changes?
On Thursday 14th of November we’re hosting a breakfast event to discuss the implications of IR35 for the private sector. Our expert panels will provide credible and reliable information on the legislation and how to prepare for April 2020. If you would like to attend, email email@example.com.
Thanks for joining us Toni. You were a leading voice when IR35 came into the public sector in 2017. In a nutshell, what is IR35?
Toni Hall: “IR35 is a set of tax laws which form part of the Finance Act. The first piece of legislation came into force in April 2000 and is properly known as the Intermediaries Legislation.
The IR35 changes aim to tackle tax avoidance of those who work through Personal Service Companies”
Having guided the public sector through IR35, what should private sector organisations be doing to prepare for April 2020?
Toni Hall: “Two years ago, I was heavily involved with advising clients and interims alike on the IR35 changes in the public sector. Knowing the impact, there is no doubt this legislation will create changes. My advice is to mitigate for potential issues and definitely don’t leave preparations to the last minute.
Start by reviewing those who are working off-payroll in your organisation. If their contracts go past April 2020, you will need a strategy that deals with any contract challenges that arise. Interim managers may terminate their contracts or ask for higher day rates. Reviewing assignments individually and not taking a blanket approach is advisable. It’s not the role per se, it’s the working practices and responsibilities that should be considered. Then, engage with these individuals to make sure they understand the IR35 changes. Awareness is key to ensuring a smooth transition. Now is the time to get acquainted with HMRC’s online tool. Run your off-payroll workforce through it. Best practice in the public sector has been that the hiring manager goes through the online tool with the worker – the questions in the tool can be ambiguous so going through it together minimises challenge of the outcome.
You can talk to experts like Penna, and read up on the information on the gov.uk website. Do come to our breakfast event too, details of which are at the bottom of this article.”
What were the learnings from the public sector IR35 implementation and how has the market adapted since the legislation came in?
Toni Hall: “It was clear that those organisations which got to grips with the legislation quickly dealt with the changes better. Some of the public sector organisations took a blanket ban approach to anyone working through a personal services company – a measure HMRC did not support and which created anxiety within the public sector flex workforce.
Some Councils took a hard-line approach that interims should have been paying their tax in the manner recommended by IR35 regardless. What wasn’t understood was that interims can’t offset business expenses if working inside IR35, yet they do not receive any of the benefits of a permanent employee. Accordingly, interims could find themselves significantly out of pocket. Such hard-line approaches have lost out on a vital flexible workforce.
Another learning from the public sector workforce was that Chief Executives, HR leads and hiring managers of flexible workforces must understand this legislation, and its impact. There is a cohort of roles which the market knows are either inside or outside of IR35, ‘office holders’ for example. But there are other roles, particularly those project-based assignments where the online tool does not give the correct outcome. This has been fed back to HMRC.
Local authorities have been more pragmatic about what they use interims for; defining their set of deliverables. Deciding what goals need to be achieved. Outcome based work has increased. This has been good for the sector and the public purse – there’s been far more business case creation when interims are engaged.”
Thanks Toni. How did the legislation affect the supply of flexible executive talent into the public sector?
Toni Hall: “A number of very senior interims, particularly those working as Director of Children or Adult Social Care, stopped flexible working in the sector. We’ve seen an increase in temporary to permanent role transitions.
From the client perspective, an increased number of organisations wish to offer a fixed term contract over an interim role. For interims themselves, we’ve seen day rates rise 25% - 35% for those working inside IR35.”
And how did it affect clients within the public sector?
Toni Hall: “We at Penna took the definite view that we wanted to be as helpful and informative as possible for our interim and client community. From lobbying HMRC and government, to running workshops for clients and interims – we were an expert partner for the public sector as it grappled with the changes.
Some of our clients were using hundreds of interims. The changes had huge implications for Councils in this position. Private sector organisations need to consider the scope and breadth of their off-payroll workforce.
What the private sector implementation does is it levels the playing field between the sectors – which is good for the public sector.”
What was your view of HMRC's support during the public sector IR35 implementation?
Toni Hall: “HMRC did engage with the recruitment and public sector on a number of occasions to test the online tool and provide a sounding board for critique. Did they take on all of the feedback from recruiters and public sector figures? No, not in all cases.
There is still a view in the market, that the online CEST tool is not as robust as it could be. Presently, it’s arguable that it doesn’t represent the nuances of the very complex IR35 legislation. HMRC are evolving the tool however, and maintaining the dialogue across sectors to make it more effective for the future.”
Join us on Thursday the 14th of November for a breakfast event to discuss the implications of IR35 for the private sector. Our expert panels will provide credible and reliable information on the legislation and how to prepare for April 2020. If you would like to attend, email firstname.lastname@example.org.