Public sector bodies who make blanket decisions regarding their PSC workforce and whether they fall inside or outside IR35 are being warned they risk litigation.

Last week Larsen Howie reported on the NHS’s decision to deem all its contractor workers inside IR35. This was however counter to the ‘reasonable care’ clause introduced to the finance bill, and the NHS may now face repercussions.

Chris Bryce, chief executive of the Association of Independent Professionals and the Self Employed (IPSE), has now warned other public sector bodies that such haphazard summations of contractor status could prove costly.

“I would hope that the ‘reasonable care’ provision proves effective in ensuring clients take the necessary measures to properly assess their contractors,” Bryce said. “A blanket decision one way or the other clearly isn’t reasonable care.”

It seems clear that many public sector organisations aren’t particularly keen on committing time to the IR35 judgment process for its contractor base.

Reports that some are forcing contractors to work through umbrella companies have emerged of late. The result of this is contractors having to pay PAYE taxes.

“The changes might leave clients exposed to litigation and it’s something that we’ll be taking up directly with the Cabinet Office,” he added. “Contractors whose clients have attempted to bundle them into umbrella companies should challenge them and insist that they take the necessary measures to assess them fairly.”

With the reforms to IR35 in the public sector coming into play next week, signs that the predicted contractor walkouts may be coming to fruition are also beginning to show.

“We are seeing signs that some contractors are just walking away from the public sector altogether,” Bryce confirmed. “It’s difficult to say at this stage just how many, but we are seeing a significant amount of contractors choosing to walk, certainly enough to infringe on ongoing projects within the public sector.”

On a case by case basis then, it seems the stance of each public sector body and their approach to showing reasonable care will be crucial to how many contractors remain in the sector long term.

Should you want some peace of mind, we offer a full contract review amongst other services to help you prepare for IR35. We’ll give a pass or fail based on the current contract you hold, along with comprehensive comments on how to improve any problem areas.

We also offer IR35 investigation insurance, plus representation from our Head of Tax and resident IR35 expert Andy Vessey ATT should it go to tribunal.

For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news and contractor guides.