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Surge in enquiries to umbrella companies as public sector IR35 reforms bite
by Susie Hughes at 10:57 12/07/17 (News on IR35)
There has been a surge in contractors switching to umbrella companies in the months leading up to new employment status checks implemented by public sector bodies.
Contractor support specialist, Parasol Group says that the number of enquiries it received about its umbrella company service in Q1 2017 was 7,916, a 76 per cent increase on Q1 2016, when it received 4,473 enquiries.

According to Parasol, many public sector bodies, including the NHS and TfL, have taken a ‘one size fits all’ approach and decided that all their limited company contractors are inside IR35. Other bodies, such as Network Rail, have taken the opposite view, declaring all its limited company contractors outside IR35.

This is despite instructions and commitments that contractors are assessed on a case by case basis.

A large proportion of the contractors enquiring about Parasol’s umbrella company service are outside IR35 and run their own limited companies.

Blunt instrument
Nick Rawlings, Group Commercial Director of Parasol Group, said: “We were prepared for an uptick in enquiries but the sheer volume has been surprising. Rather than using HMRC’s online employment status checker as a precision tool, many public sector bodies have used it as a blunt instrument.

“From the conversations we have had with contractors, it is clear that a large proportion of new enquiries are legitimately in business of their own account and are therefore outside IR35. By considering all contractors to be inside IR35 many public sector end users are throwing the baby out with the bathwater."

Reasonable care
Parasol points out that it is up to the public sector body, not HMRC, to make determinations about employment status. They must take ‘reasonable care’ when doing so. If they fail to take ‘reasonable care’, they could be deemed the ‘fee payer’, which means responsibility for deducting tax and National Insurance passes from the agency to the public sector body.

Nick Rawlings said: “It seems evident from the conversations we’ve had over the last couple of months that many public sector organisations are not taking ‘reasonable care’ when determining employment status but using a broad brush approach.”

However, when new contractors are engaged, or when contracts come up for renewal, it is likely that public sector bodies will be more discriminatory and check the status of each contractor individually.

Nick Rawlings said: “Many public sector organisations have thousands of contractors on their books. Determining employment status means looking at the contract and working conditions for every single contractor. With staffing levels pared to the bone, many are likely struggling to find the resources to do it properly at the outset and would rather err on the side of caution by deeming all contractors insider IR35.”

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Susie Hughes © Shout99 2017

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