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Legal challenges to IR35 public sector reforms seem inevitable

50% of FCSA survey responses stated that no IR35 compliance tests had been carried out

More than one-third of respondents believe that legal challenges will now transpire

We asked intermediaries who support some 33,500 workers in public sector roles about the level of IR35 compliance testing undertaken for their workers.  50% of responses highlighted that no IR35 status tests had been carried out on workers sourced via agencies, with them all being simply deemed inside (42%) or outside (8%) IR35.

Of the 50% who confirmed that a compliance test had been used, 26% of respondents suggested that a role-based approach, rather than an individual assessment had been conducted.  The remaining 24% highlighted that individual assessments had been carried out, but these were seldom exclusively tested via the government’s Check Employment Status for Tax (CEST) tool.

Commenting on the low 24% instance of partial or full reliance upon the CEST tool, Julia Kermode, chief executive of FCSA said: “When HMRC issued its CEST tool, just weeks before the change, it was already far too late.  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.”

With many people being wrongly assessed and forced to be paid as employees on the payroll, Kermode anticipates that a high number of legal challenges will now ensue: “More than one third of respondents (36%) believe that legal challenges will now transpire as a direct consequence of role-based decisions being made and 34% of respondents are expecting challenges to workers’ deemed employment status.  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.

“It is no surprise that individuals rarely have their specific IR35 status assessed, with role-based decision-making being the preferred option for public sector bodies, but this approach is not always the most appropriate and will inevitably lead to challenges.  Interestingly, our data also shows a reluctance to rely on the government’s CEST tool, perhaps due to the widespread criticism of its flaws and the fact that the tool does not accurately reflect accepted case law.  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 the private sector.  The Chancellor has already promised that the government ‘will carefully consult, drawing on the experience of the public sector reforms’, and we will be putting pressure on policymakers to ensure that Mr Hammond’s promise is fulfilled.”