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Home Office U-turn over IR35 contractor classifications prompts IT project delay fears

IT project delays predicted at Home Office, following reports of last-minute departmental U-turn over contractors' IR35 status classifications

The Home Office’s ability to update and maintain its border, policing and immigration IT systems could be compromised, following a wide-scale reclassification of its contractors as inside IR35, it is claimed.

Under the new IR35 legislation, which came into force on 6 April, responsibility for determining if limited company contractors should be taxed in the same way as salaried employees (inside IR35) or off-payroll staff (outside IR35) now lies with the public sector bodies they engage with. Previously, it was down to the contractor to self-declare their tax status.

The Home Office is understood to have enlisted a third-party IR35 contract review provider to assess the engagements of its off-payroll workers several weeks ago.

This process resulted in the “vast majority” of Home Office IT contractors being initially declared outside IR35, sources claim.

A subsequent and unexpected reassessment of their engagements, however, has since seen them ruled inside IR35, Computer Weekly has learned, prompting contractors working on several key Home Office IT systems to walk out.

“A whole bunch of folks who had their assessments done, and had email confirmation they were outside, were suddenly reassessed. This has put the cat amongst the pigeons,” a former Home Office IT contractor, who left in the wake of the reassessments, told Computer Weekly.

“Entire teams have been taken out, and there are still people who’ve not had their assessments back and don’t know what they’re walking into when they turn up to work.”

Tax status turnaround

The U-turn is understood to have created a lot of bad feeling in the department, another IT contractor caught up in the furore told Computer Weekly.

“It has screwed contractors who know they are outside and now have the last-minute option of either walking out the door or being forced onto PAYE for no reason until they can line up another contractor gig and flee the Home Office,” they said.

Among those hit by the departures are the teams overseeing the delivery of the Home Office’s Common Data Platform (CDP) and Core Technical Infrastructure (CTI) capabilities, Computer Weekly understands.

“The Home Office can try to build up its own capacity, to replace those who have left, but it will take a long time to skill people up, and the Civil Service doesn’t currently have the technology skills the department needs,” the source added.

Read more about IR35

According to the Home Office’s own technology strategy document, the CDP enables the organisation to securely access and share data across multiple departmental systems.

A sudden shortfall in contractor support for these systems could have a knock-on impact on core policing, border control and immigration-related IT systems, it is feared.

“The local managers in charge of those teams have specific deadline objectives and are likely to be cursing what’s gone on,” said the first source.

“Even if they start advertising for replacement staff today, they’re still going to be losing six, eight or 12 weeks of work on their projects because that’s how long it could take to get a recruitment advert done, approved and circulated to start interviewing to fill the vacancies.”

IT delivery delay fears

The timing of the departures could not be worse, said the second source. “Why do this now, with borders, immigration, visas [all areas] where Brexit will hit hard and require the best talent the Home Office can find?”

In an interview with Computer Weekly in March 2017, Home Office CIO Sarah Wilkinson described the department as “enormously dependent” on off-payroll workers, and spoke candidly about how the IR35 reforms would affect the delivery of public sector projects.

“There’s no doubt in my mind that, if we’re realistic, we’re going to have a year of significant pain, because you will see a degradation of the contractor population,” she said.

“It will take some time to embed new pay structures even if they were approved tomorrow. It would take some time to recruit even if we started tomorrow. So 2017 is going to be extraordinarily difficult.

“I don’t know if there is a way of imagining the IR35 problem isn’t going to have a delivery impact, but once it’s done, it’s done. That’s the positive of it,” she said.

Reforms aiming to achieve fairness

Computer Weekly contacted the Home Office for a response to this story, and was issued with the following statement from a government spokesperson:

“Public sector organisations and contractors are free to work with each other in a manner that suits their circumstances, but it’s fair that two people doing the same job should pay the same taxes. These reforms will help ensure that happens,” said the statement.

“Like all tax changes, we are monitoring their effect to make sure they work effectively and fairly.”

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They were told and told and told and told and told this would happen, they chose to totally ignore the risks and look at the mess - bet no one is held to account for the phenomenal amount of cash this farce has cost us taxpayers!
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Two people doing the same job being taxed the same?Shouldn't this also include having the same benefits and rights? Government department takes tax and employees NI, then sends what is left to the agency who deduct employers NI and let you have what is left! You still have to pay public liability and professional indemnity insurance and accountancy fees, no holiday pay, sick pay, bank holiday pay, training....
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Months notice period, paternity leave, pension contributions, redundancy pay after 2 years. 1/2 day shopping leave at xmas. When HMRC wants to be fair, then it will cost them, just waiting for the first inside IR35 'contractor' to put a test case for these to court - I will put my £10 to crowdfunding this and see if they want equal terms for contractors.
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8 weeks to find replacements?

Months before they become effective.

So much domain-specific knowledge lost overnight, and no handover process.

The cost to the taxpayer will likely outweigh the extra tax they gain when you think about how this will affect every Gov dept.

And with so much demand for excellent IT professionals across the UK, Government contracts are about to become very unattractive.

Only massive, inefficient IT companies like Accenture and CapGemini benefit from this.

How ironic. Nice one, Mr. Hammond.
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"It’s fair that two people doing the same job should pay the same taxes." If they receive the same job benefits, I might agree, but they do not, I am thinking about pensions, Hoildays, job security and Employers in Statutory benefits.
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This debacle at the Home Office is still going on with Contractors deliberately been kept in the dark after initially told they were out of scope no formal update has been sent to Agencies. It’s a numbers game in conjunction with HMRC to get what they want there and any borderline determination is being pushed inside IR35, there is nothing about fairness and transparency in the public sector relating to this process, its behind closed doors and fixing results. For HMRC to adjust the tool after many contractors were quite rightly falling outside IR35 beggars belief considering the tool was so late before the legislation.
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