In their Off-Payroll Review verdict, the Treasury claims that ‘research on the impacts of the reform in the public sector showed that it did not reduce market flexibility or impact use of contingent labour’. Using tax receipt to assess the impact of the public sector changes, the review concludes that ‘compliance with the rules is improving’. However, recent hearings for the Lords Investigation have exposed the actual extent of the impact of IR35 reform in the public sector on organisations such as the NHS.
Research by the Independent Health Professionals’ Association (IHPA) has uncovered that NHS Trusts across the company have adopted a blanket approach to Off-Payroll working that has resulted in almost all locums being deemed ‘inside IR35’. The approach has subjected critical health workers to excessive taxation, while also withdrawing the travel expenses necessary for many locums to work long-distance engagements. As a result of the approach, the IHPA has found that Locum vacancy ‘fill rates’ are down by more than 50% in many hospitals, while 12,000 medics have left the UK in response to Off-Payroll legislation.
According to a leading industry body, there’s strong evidence to suggest that these consequences are a direct result of the misleading advice delivered by HMRC to many NHS Trusts when the Off-Payroll legislation was first introduced to the public sector. In September 2017, HMRC delivered a webinar on Off-Payroll compliance to NHS Trustees. Despite reasonable care requiring the assessment of individual engagements on a case-by-case basis, HMRC’s policy advisor stated: “Reasonable care can be exercised by saying: “I know what the standard contractual terms are for all of my people and they would meet the criteria. You don’t have to look at every single case individually if you know that that case is like other cases.”
This approach was recently criticised by experts at a Lords Finance Bill Sub-Committee hearing, who also noted the impact that blanket assessments have had on payroll tax receipts. While revenue may be up, this isn’t necessarily a result of greater compliancy, but as a result of more contractors being forced onto the payroll with blanket policies. The recent PSC ban adopted by many private sector businesses ahead of the April reform is one such example. However, in response to concerns regarding these non-compliant practices, the Off-Payroll Review simply reiterates that determinations should be made on a ‘case by case basis’ to achieve reasonable care.
The review sidesteps the PSC ban by stating that HMRC is aware that some businesses are reassessing whether a PSC is the best form of engaging contractors. However, a recent survey found that many businesses aren’t even attempting to assess their workforce before putting a ban in place, while others are conducting inadequate assessments. Many companies have said that a PSC ban is a temporary arrangement as they aren’t confident they can achieve compliancy in time for the April reforms, leaving them wide open to the risk of tax liability. Only last year, HMRC fined the NHS £4.3 million for making incorrect determinations, even though these were made using the Treasury’s own CEST tool.
Speaking before the House of Lords Finance Bill Sub-Committee recently, an expert witness described the fallout: “On the ground, we are seeing that a lot of genuinely self-employed individuals can’t obtain an outside status. We’re seeing that many individual status assessments don’t occur, and we are seeing blanket determinations applied to thousands of workers at once.” The impact on engagements is worrying. The IHPA data reveals huge declines in the fill rate of temporary worker requirement, which for many hospitals was found to be down by more than 50% and in some cases up to 75%.
Indications also suggest that the true extent of the impact may be being kept under wraps by many Trusts. The IHPA investigated Colchester General Hospital after the chief executive made headlines in April 2018 for banning his employees from speaking up about staff shortages. From looking at the hospital’s Corporate Risk Register, they found that it was down 100 additional nursing shifts per week as a result of the Off-Payroll legislation. This ‘silencing’ was also evident in a recent Lords hearing where it was discovered that the Office for Tax Simplification hadn’t been consulted over the reforms. Considering that the IR35 legislation has been widely criticised for being overly complex, Lord Bridges expressed the opinion that this was “odd”. However, when asked for his opinion, OTS director Bill Dodwell remained consistently non-committal.
Speaking to an Industry publication, Rebecca Seeley Harris, founder of ReLegal Consulting, said: "This is less a case of the OTS not being asked to review IR35 and more a case of it actively being told not to. When I was a senior policy adviser at the OTS, we were warned not to include IR35 in any of our reviews. Those reviews were the Employment Status Review of 2015; the Small Company Review of 2016 and the Gig Economy Review of 2017.This instruction to exclude IR35 was despite the fact that I made it very clear that it would make sense to include IR35."
The damaging impact of reforms has been worsened by a simultaneous surge in demand. The NHS, along with many other organisations, are facing staffing issues because of the government’s post Brexit immigration policy that’s left many EU nationals without a visa to work in the UK. Additionally, the Coronavirus outbreak has led NHS England to declare a "level-four incident", the highest emergency footing. Across the UK 30 hospitals on standby to take patients, while others have been placed on alert. With statistics indicating that up to 80% of the population could be affected, an already understaffed NHS could be stretched to breaking point.
Statistics indicate that one in twenty people affected by the virus could need critical care, but it’s not just hospitals that are affected by the reforms. Pharmacies are also facing major problems as they struggle to find enough locum pharmacists to keep open. “We are concerned that the introduction of these new rules will have a deep impact on our members’ ability to maintain consistent pharmaceutical services in local communities,” Layla Hannbeck of AIMP said in her letter to the Treasury. “Any shortage of locum pharmacists will certainly cause unplanned closures of pharmacies. Locum pharmacists are an integral part of the pharmaceutical workforce, used both planned and unplanned to cover holidays, days off, sickness and many other absences.”
Despite overwhelming evidence to suggest that the Off-Payroll reforms continue to have potentially disastrous consequences in the Public sector, the Lord’s inquiry seems to have hit a moot point. At its third oral evidence session, the Inquiry’s Chair, Lord Forsyth, effectively asked the three expert witnesses if HMRC should go back to the drawing board with the Off-Payroll regime. All agreed that the reforms needed either rethinking or replacing with something else entirely. However, HMRC’s response to these opinions was: “The government is [today] confirming its intentions to proceed with the reforms.” While such overruling of an official inquiry is fairly dubious, the Lords Inquiry website says its next session will “focus on the administrative and legal aspects of off-payroll reform,” indicating acceptance that the reforms will be implemented on the 6th April.
This content has been supplied by IR35 Guru.
If you’ve been affected by the Off-Payroll reforms, or if you’re unsure about your employment status, Umbrella Exchange has a range of options to help you keep your contracting career on track. To talk to a member of our team, call: 0203 393 3881
