Grapevine Leaders | Executive Grapevine International Ltd

With the shadow of IR35 legislation still looming at large over both public and private sectors, the latest information...

Will HS2 decision veer IR35 off track?

With the shadow of IR35 legislation still looming at large over both public and private sectors, the latest information issued by HS2 suggests that non-compliance might abound on a much wider scale than first thought.

Responding to a Freedom of Information (FOI) request from tax specialist Contractor Calculator, HS2 confirmed that 979 of the 1,001 assessments conducted in 2018 returned an ‘inside IR35’ verdict, with only 22 contractors deemed outside the scope of the rules.

These findings are consistent with those returned by Network Rail in 2018, which judged 99% of contractors to be caught by the IR35 tax legislation. Further information disclosed by Network Rail revealed that the organisation had adopted an unlawful role-based ‘blanket’ approach to status assessments, which will raise further questions about HS2’s own practices.

Both figures are worryingly inconsistent with the estimation given by HMRC that only around one-third of contractors will find themselves caught by IR35 regulations. They are, however, comparatively similar to the rough proportion of ‘inside IR35’ outcomes found by other public bodies using CEST – the tool primary used by public sector bodies to determine tax status of their contractors.

Conflicting evidence

“The proportion of contractors deemed within scope of the rules by the BBC, Network Rail and HS2 are 92%, 99% and 98% respectively,” explained Dave Chaplin, CEO of Contractor Calculator. “These numbers are shocking enough; yet despite the overwhelming conflicting evidence, HMRC stands firm in its confidence in CEST’s accuracy. While non-compliant application of the Off-Payroll rules has resulted in a sharp rise in the number of public sector contractors taxed as ‘deemed employees’, the unintended consequences of the legislation are already apparent.

“This appalling treatment of the self-employed has backfired for the government. Rates to obtain talent have soared, while the ability to source talent has diminished, causing considerable costs to projects such as HS2. The Off-Payroll rules have been an act of self-harm on the public sector, yet the government seems intent on inflicting the same wounds on the private sector."

He added: “The government needs to delay its proposed extension for at least one more year while independent data gathering is conducted and recognise the hard truths about Off-Payroll that HMRC has so far refused to acknowledge.”