Across the public sector, the ripples of the IR35 reform are being felt.
One of the most prominent impacts of the legislation is evident in the Crossrail project, or more specifically, how late it’s running.
At launch, the project had an internal deadline of November 2018. Completion is now forecasted for Autumn 2019, almost 11 months behind schedule at present. Whilst a government-led project landing late and over-budget is no shock to anyone, it’s the reasons behind why Crossrail is so late - and the government’s dogged denial of those reasons - that’s of particular interest.
IR35 rulings are causing contractors to leave in droves. A huge percentage of Crossrail work is currently outsourced to the very contractors that HMRC is blanket determining as inside-IR35 and demanding employee tax from, with no employee benefits to speak of.
Official reasons for the overrun of the Crossrail project span from a budget increase of almost £1bn, which is being covered by the Department of Transport and Transport for London (TfL), to a ‘testing and commissioning stage’ that appears not to have been accounted for in the original 2009 plans.
HMRC’s Jim Harra used an article on a workplace issues blog – that was clearly marked ‘Opinion' - to dismiss claims of a ‘mass exodus’ of contractors thanks to IR35. He stated that it was ‘wrong to suggest that the public sector has significant recruitment gaps because of the reform’.
Despite this official line, IR35 has been singled out by Hays and Parity recruitment, public sector recruitment specialists, as a direct cause of plummeting public sector business.
TfL, who are footing the unexpected Crossrail bill, has blamed IR35 changes for the project delay directly. A significant amount of vital contractors deserted their operations as a result of public sector changes, which are set to be mirrored in the private sector as of April 2019.
NHS in distress
These negative effects aren’t just isolated to construction. The NHS has taken a huge hit in staffing levels as a result of IR35.
Dr. Iain Campbell, of the Independent Health Professionals Association (IHPA), has seen first-hand the staff crisis that public health services are currently facing.
He states: ‘ONS data shows that the number of self-employed doctors has plummeted by 20k and that we have 11k fewer doctors following the measures. The only IR35 tribunal case concerning a medical doctor that ever occurred was that of a junior doctor assisting in surgery and he was found to be outside IR35, yet 100% of health workers have found themselves blanketed inside the legislation.’
Again, the government has denied any effects on the NHS at all.
After vehemently renouncing that IR35 has had any notable impact on public health services, Stephen Hammond, Minister of State at the Department of Health and Social Care, was asked to supply a list of the evidence he used to arrive at this conclusion.
Mr. Hammond said that he used HM Revenue and Customs Research Report 487 ‘Off-Payroll reform in the public sector’, published in May 2018, as the basis for the figures he quoted.
He also said: ‘Although this report is not National Health Service specific it covered the “key sectors of Public Administration & Defence, Education and Health & Social work”. As previously advised, the outcomes from this report were that there had not been a significant impact on the public sector of the IR35 changes.’
Dr. Campbell calls for a more accurate cause and effect report, stating: ‘We note that the first peak demand winter season post the IR35 reforms was unusually bad and that there were over 10,000 excess deaths in the first 7 weeks not due to an ageing population, influenza, or the weather as reported in the BMJ. We are calling for an investigation as to whether there is a link between this excess mortality and the IR35 reforms across the public sector.’
Plummeting public sector business
Perhaps the most laughable example of project delays due to the IR35 reform is the build of HMRC’s very own CEST tool. The digital tool was launched late because the 18 limited company IT contractors working on it quit; they were fearful of their own IR35 status.
There was no denial in this case. An HMRC digital leader acknowledged that the tax authority may lose vital skills as a result of IR35 blanket determinations, admitting that the loss of contract staff puts HMRC on a ‘bumpy road,’ but that he's prepared to accept that because ‘it’s more important that everyone pays the right tax.’ When asked to elaborate on that comment at a later date, nothing further was offered by HMRC.
Millions of pounds are being wasted and thousands of workers are being thrown into uncertainty across the public sector because of HMRC’s blundering pursuit of revenue. Much will be the same after April 2019 when the changes are extended to the private sector.
The denial of expert opinion and numerical fact by the tax authority is a tired routine. The scathing House of Lords report on HMRC’s abuse of power and lack of care published last week is a small hope, however, that justice may yet win over aggressive tax collection tactics.