FCSA anticipates influx of public sector contractors challenging their IR35 statuses

New research carried out by the Freelancer & Contractor Services Association (FCSA) has predicted that there will be a sharp rise in the number of public sector contractors deemed ‘inside’ IR35 who choose to pursue legal claims challenging their statuses in the months ahead.

Towards the end of April, Julia Kermode, CEO at the FCSA, warned that a backlash was expected following recent revelations that many such contractors had their IR35 status determined before HM Revenue & Customs (HMRC) rolled out it’s flagship Check Employment Status for Tax (CEST) tool.

The fact that the tool has faced so much criticism since it’s introduction further exacerbates the issue, as many contractors – regardless of how their status was determined – feel they cannot be certain how accurate their IR35 status really is in light of their circumstances.

According to the FCSA’s research, 50 per cent of public sector freelancers recruited via agencies were not subjected to any compliance tests, yet 42 per cent of such workers were automatically deemed ‘inside IR35’ regardless.

Meanwhile, of the remaining 50 per cent of survey respondents who claimed that they had been subject to a compliance test, 26 per cent underwent a ‘role-based’ assessment while 24 per cent had chance to take part in an individual assessment.

In short, the majority of cases did not exclusively rely on CEST to determine workers’ IR35 statuses – most likely because the tool was not released until “just weeks before” the new IR35 legislation affecting public sector contractors was phased in.

“It was already far too late,” Ms Kermode said.

“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.”

As a result of this, the FCSA has estimated that there will be a sharp rise in the number of contractors seeking to challenge HMRC in relation to IR35 decisions over the coming months.

“More than one third of respondents (36 per cent) believe that legal challenges will now transpire as a direct consequence of role-based decisions being made and 34 per cent of respondents are expecting challenges to workers’ deemed employment status,” Ms Kermode said, citing figures featured in the FCSA’s survey.

“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,” she said.”

“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 private sector,” she added.