Big Consultancies Advise Public Bodies
One phenomenon that has not yet been remarked on much is that we now see the big Consultancies Advise Public Bodies to mark all contractors inside I35.
As a result, many contractors are leaving those public bodies as their tax bill just went up by 20% or more.
That’s what happened when the Government implemented he IR35 reforms in he public sector and it will almost certainly happen in he private sector too in April 2020.
The public bodies don’t have time to recruit new permanent employees to work on important projects.
Less Experience Than Contractors
The process would take months and the permanent employees would not have the experience or expertise of contractors anyway.
It would be difficult to hire new contractors once you have told them that their contracts would be inside IR35.
This would mean them taking a major drop in income.
So, who does that leave?
Why the big Consultancies.
Big Consultancies Replacing Contractors
They can supply the projects with as many people they want to fill the gap left by the contractors’ departures.
Weak public sector managers never like to do anything without consulting the big consultancies. Indeed it is the same in the private sector too.
So, they asked them what to do about the new Government IR35 rules in the public sector.
The Government have changed the rules so that it is no longer the contractor who decides his or her IR35 status.
It is the public body who now decides the contractor’s IR35 status.
And if they get it wrong there may be financial penalties for them.
New Online IR35 Employment Status Test
So, the public bodies took decisions on which contractors are inside IR35 and which ones outside.
They used the new HMRC online IR35 Employment Status test to help them.
They made their contractors take it.
One major agency MD said that 40% of their contractors failed the test and 60% passed it.
Public Bodies Asked the Big Consultancies
So, at that stage, just to be sure, the nervous public bodies consulted their Oracles at Delphi, i.e. the big consultancies.
At this stage the big consultancies should have recused themselves from the decision making process.
After all, they stand to benefit if the public body take their advice.
That’s what normally happens in the business world.
This is to say that you recuse yourself from the decision making process if you stand to benefit from it.
However, they haven’t.
Make All Contracts Inside IR35
And their advice, from what we have seen so far has been “make all contractors contracts inside IR35”.
One public body, that we know of, had already tested their contractors for IR35 and found the majority of them outside.
However, after consulting their Big Consultancy Oracle, the consultancy advised them to make all the contracts of their contractors inside IR35.
The reason they gave?
It was to be on the safe side.
HMRC Tinkering with IR35 Test
They said that HMRC were constantly tinkering with the test.
If the test made the contractors outside IR35 but at some later date, the online test changes make the contractor inside IR35 then the public body might be liable for his, or her, taxes.
So, it was better to be on the safe side and make all contracts inside IR35.
No Legal Basis for This Advice
Anyone who knows anything about the law knows that this has no legal basis.
The public body was acting in good faith as the test showed the contractor to be outside at the time of testing.
To be safe, the public body could re-test their contractors every time they renew their contracts. Or they could re-test them every three months.
However, the public body took the advice of the big consultancy and made all their contracts inside IR35.
Who Will Replace Contractors Who Left?
As a result they have lost a lot of their contractors.
They are working on several major projects and they wouldn’t have time to hire permanent staff for it.
Also, they don’t need extra permanent staff long term anyway.
They only just want extra bodies for the projects that they can wave goodbye to at the end of the projects.
So, where will they find those extra bodies?
One could guess.
Consultancies Giving Public Bodies Advice That Benefits Them
This was not the only one of the big consultancies to give advice to a public body which resulted in the public body making all contracts inside IR35.
We have been told about another one who has done this too.
The big consultancies have always seen IT contractors as their main competitors.
They would like the profession abolished if they could.
They lobbied hard for IR35 originally.
Government Listens to Big Consultancies
Unfortunately they have had the ear of successive Governments, both Labour and Conservative.
They are behind many of the Government attacks on contractors and their pockets.
And they have spread their influence deep inside public bodies where their advice is taken as gospel.
That’s even when the advice they give benefits them financially.
The big consultancies advise public bodies to make all contracts inside IR35 and the public body does it.
Big Consultancies v IPSE
Ranged up against the big consultancies lobbying on behalf of contractors is IPSE.
That’s very much an uneven contest.
So, contractors will continually be in the front line of Government attacks on them, as they have been since IR35 was introduced in 1999.
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