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Public sector IT contractors are being urged to support a crowd-financed legal challenge that seeks to address the “iniquity” of the recently introduced IR35 tax avoidance reforms.
The initiative is being masterminded by IT consultant Mike Gibson and entrepreneur Andrew Merritt-Morling, out of concern at how public sector organisations are interpreting the new-look IR35 regulations, which came into force on 6 April.
The pair have enlisted the help of tax law barrister Michael Paulin to explore the legal options opened to contractors frustrated at how the IR35 reforms have been implemented by the public sector at large.
“There are unquestionably people who are acting as contractors who should be employees. They are doing the job of an employee and are avoiding tax,” Gibson told Computer Weekly.
“However, the number of those is relatively small, and there are a lot of people getting caught by IR35 who – in a sensible economy – should not be caught by IR35.”
In an email to supporters, seen by Computer Weekly, Gibson estimates that the group will need to raise £10,500 to fund the research and analysis required to ascertain what form the legal challenge should take.
To inform this process, the group are calling on contractors to share their complaints at how the public sector organisations they engage with are determining what their IR35 status should be.
“We will, at each stage, consider whether it is reasonable and sensible to proceed,” Gibson’s email said. “If, at any time, we decide there is little chance of success, we will close the case and return any money in the proportion that it was donated.
“It is our expectation at present that to raise a full legal challenge will cost us approximately £360,000 over about 18 months.”
30 days to raise £10,500
A Just Giving page to support the crowdfunding effort went live on 27 June, and says the group has 30 days to raise the £10,500 for the research and analysis phase.
“Even if we don’t do a legal challenge, that’s not going to stop me talking to government and anyone I can influence to say this is just wrong, because I believe it is wrong,” said Gibson during his interview with Computer Weekly.
Under the revised IR35 rules, public sector bodies are now responsible for deciding how off-payroll public sector workers should be taxed.
Previously, it was up to contractors to self-declare if their public sector engagements meant they should be taxed in the same way as salaried workers (inside IR35) or as off-payroll staff (outside IR35).
Although the IR35 reforms came into force only a couple of months ago, Paulin has already had some success in the NHS, which is to review how it decides whether contractors should be paid in the same way as salaried workers.
Read more about IR35
- Differing approaches to IR35 tax reforms meant some Whitehall teams were harder hit than others by the changes introduced in April 2017.
- HM Revenue & Customs has underestimated the widescale disruption the IR35 tax avoidance reforms will have on the delivery of public sector IT projects, as stakeholders warn that the number of contractors affected will dwarf department estimates.
On the instruction of the Locum Doctors’ Union, Paulin oversaw the legal challenge that caused NHS Improvement to issue reviewed guidance, urging health trusts to stop making “blanket” judgements on the IR35 status of their staff.
Under the terms of the HM Revenue & Customs-led reforms, public sector organisations are supposed to take a case-by-case approach to decide how contractors should be taxed.
However, Computer Weekly has uncovered numerous examples in the run-up to the reforms coming into force of organisations that have taken a “blanket” approach, which, in many cases, has prompted contractors to end their engagements prematurely.
As previously reported by Computer Weekly, some government departments lost up to 40% of their contractors in the wake of the reforms.
Drumming up support
Ahead of the crowdfunding page going live, Gibson penned a series of LinkedIn blog posts about the need for contractors working in all areas of the public sector to fight the IR35 reforms, and consider joining forces with him to mount a legal challenge.
These posts generated “80-85” expressions of interest from the public sector contractor community about getting involved, which the group hopesto increase to around 150 as time goes on, he said.
“I’m still at the stage of getting the information out there and seeing how many people come back to say they are prepared to support it,” said Gibson.
“We’ve got 80 to 85, which is a useful number, but not quite as many as we would need to get all the way through the [18-month] process.
“It all depends on what happens when we launch the crowdfunding page, because there may be others who are not in these circles, but think it’s a really good idea too.”
Read more on IT for government and public sector
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IR35 reforms: Blanket-banning firms risk losing contractors and suffering reputational damage
IR35 reforms: Private sector start date prompts mixed picture of predictions for contracting market