Network Rail U-turns on blanket inside IR35 contractor determinations
Network Rail seems to have revamped its off-payroll compliance procedures, based mostly on the marked rise within the variety of contractors it engages that are actually labeled as working exterior IR35.
The organisation is tasked with overseeing the secure and dependable operating of Britain’s railways, and its actions are overseen by the Department for Transport (DfT).
According to the DfT’s 2020-2021 accounts, its govt our bodies and companies engaged a complete of 1,912 contractors throughout the monetary 12 months, of which 1,025 had been designated as being exterior IR35.
The overwhelming majority (1,323) of the division’s contractors had been engaged by way of Network Rail, and 74% of them (977) had been assessed as being exterior IR35.
This marks a substantial turnaround for Network Rail, given the DfT’s accounts for the 2019-2020 monetary 12 months present that 99% of the 538 contractors it engaged at the moment had been working inside IR35.
The accounts additionally verify that the entire contractor engagements logged in its accounts had been assessed utilizing HM Revenue & Customs’ (HMRC) on-line Check Employment Status for Tax (CEST) software. That just isn’t the case, although, for any people working on the HS2 high-speed rail venture. “[HS2] automatically assessed all roles as being in scope of the off-payroll working rules,” the accounts confirmed.
Computer Weekly contacted Network Rail for remark and clarification on what the figures imply throughout the context of its IR35 compliance technique and acquired the next response from an organization spokesperson.
“Network Rail complies fully with tax law. Robust processes and procedures are in place to determine the status of off-payroll engagements against IR35 legislation,” they stated.
IR35 turnaround at Network Rail
During the course of the 2019-2020 monetary 12 months, Network Rail’s IR35 compliance technique got here underneath shut scrutiny within the wake of its response to a freedom of data (FOI) request submitted by contracting authority ContractorCalculator.
The request confirmed that, after the IR35 reforms got here into power within the public sector in 2017, 99% of Network Rail’s contractors had been decided to be working inside IR35.
In its reporting of the FOI response, ContractorCalculator claimed the excessive variety of contractors caught in-scope of the off-payroll guidelines may very well be attributed to the organisation taking a “role-based blanket approach” to complying with IR35 guidelines.
“This far exceeds HMRC’s estimation that roughly a third of contracts are within scope of the legislation,” reported ContractorCalculator at the time.
The IR35 reforms ushered in modifications that resulted in accountability for figuring out whether or not contractors needs to be taxed in the identical approach as salaried employees (inside IR35) or off-payroll staff (exterior IR35) shifting onto the general public sector organisations that engaged them.
Previously, it had been right down to the contractors themselves to find out if their engagements needs to be labeled as inside IR35 or exterior IR35, based mostly on the work they do and the way their duties are carried out.
According to HMRC, permitting contractors to determine for themselves how they need to be taxed was a system open to misuse, with the tax assortment company claiming some people might have intentionally misclassified themselves as working exterior IR35 to minimise their employment tax liabilities.
However, the choice to make shoppers responsible for figuring out the IR35 standing of every particular person contractor they interact with has prompted some organisations to answer the extra administrative burden this locations on them by making blanket determinations.
For some, this has meant declaring all of their contractors as being inside IR35, whereas others have launched blanket hiring bans that prohibit the usage of restricted firm or private service firm contractors.
Speaking to Computer Weekly, ContractorCalculator CEO Dave Chaplin stated it was good that Network Rail had seemingly referred to as a cease to finishing up blanket determinations, whereas the DfT’s accounts recommend the division’s wider IR35 compliance technique is working.
“It is pleasing to see that Network Rail is not blanket banning contractors, as it appeared to be many years ago when off-payroll came in,” he stated. “These figures, across 11 government departments, show that the DfT has successfully coped with the new reforms and that the reforms are manageable.”
Chaplin stated “commercial reasons” may have performed a task in why Network Rail appeared to have turned its again on blanket assessments, however that it ought to give different corporations pause for considered their very own method to complying with the reforms, which got here into power within the non-public sector in April 2021.
“Network Rail could have turned things around for a number of reasons, but for commercial reasons it may have had to start doing the right thing, which means other big firms may follow suit,” he stated.
“I said years ago that the blanket bans were just the starting point for many firms, which were harbouring dusty contractors who were probably caught by IR35, and the clean and sensible route would be to press the reset button and start again.”
Tax failings uncovered
All authorities departments are required by HM Treasury to publish particulars of their annual accounts concerning the variety of off-payroll engagements they’ve in place, together with details about what number of of those had been caught in-scope of the IR35 guidelines.
Departments are additionally required to share particulars of their accounts of any further tax fees they’ve incurred as a consequence of IR35 compliance failings.
This is how particulars got here to mild concerning the £87.9m unpaid tax invoice the Department for Work and Pensions acquired following the invention of “historic inaccuracies” in its implementation of the IR35 guidelines.
As reported by Computer Weekly in July 2021, the Home Office additionally discovered itself on the receiving finish of a multimillion-pound tax demand from HMRC over its “careless application” of the IR35 guidelines.
In these circumstances, no additional particulars had been offered about what precisely these departments did unsuitable to fall foul of HMRC, with the tax assortment company repeatedly stating that it couldn’t remark on the tax affairs of different ministerial departments.
Even so, Chaplin is of the view that HMRC may stand to be extra open and clear concerning the the reason why it has taken motion towards some organisations and never others within the pursuits of teaching the private and non-private sectors about how greatest to stick to the IR35 guidelines.
“It would be useful for HMRC to explain what went wrong at the DWP, and what went right at Network Rail, because the outcomes are very different. It will enable firms to learn lessons and ensure they remain compliant,” he added.
