Public Sector HMRC IR35 Test – I Failed it – What Are My Options?

Public Sector HMRC IR35 Test
Public Sector HMRC IR35 Test

Public Sector HMRC IR35 Test

A reader wrote to us saying that he failed the public sector HMRC IR35 test. So, the NHS tell him that he is inside IR35.

They have asked him to extend his contract for three months.

He asks us what his best option is?

NHS Contractor’s IR35 Question

As you may have guessed, it’s regarding the IR35 in public sector.

I’m one of those unlucky ones who is a contractor with the NHS and I’ve been told that I fall inside the IR35.

My contract is ending this month but I’m being offered an extension.

We did the public sector HMRC IR35 test online as a group of contractors. They did us all together and took a majority decision. There was a HR person there and our manager. The HR person appeared to be in charge.

Contractors IR35 Options

I have 3 options:-

1. Extend and pay the extra taxes.

2. Don’t extend, stay at home until I find a new contract in the private sector (where the new rule may soon spread to).

3. Extend and work under an umbrella company.

I’m inclined towards option 3, please advise.

Dr. McLaughlin’s IT Contractor Surgery

Any regular reader, here, will know that I don’t favour Option 2.

It’s always better to be working than not working.

Successful contractors work nearly all the time. They do that even if they have to cut their rates to stay in contract.

Private Sector Contract

I don’t think you should quit and wait for a private sector contract to come up.

There may be others who plan to do this.

So, this will boost the numbers of people chasing the same number of contracts in the private sector.

Most likely those extra people will have similar skills to yours.

And the rules will apply in the private sector from April 2020.

Bide Your Time

I’m sure you would love to tell them to stuff it.

But revenge is a dish best served cold.

So, I would take the contract extension but use that time to search for aother contract.

Now, as far as which you should choose between just paying your IR35 tax or joining an umbrella company, I would say, join the latter.

There is a marginal financial difference in favour of the normal PAYE umbrella company over the IR35 tax.

Also, in a future contract, you might want to declare yourself outside IR35 for it, providing your working practices have changed.

It would be harder if you have already been paying IR35 tax than if you were sheltering under an umbrella company.

Contractors use umbrella companies for several reasons, only one of which is that they are inside IR35.

You only pay IR35 tax for one reason – and this because you are inside the regulations.

Take the Contract Extension and Search for New Contract

So, what I would do is to take the contract extension. Use an umbrella company in the short term whilst looking for a new contract in the private sector.

You don’t want to be sitting at home as the bills mount up wishing that you hadn’t resigned in a fit of pique and false bravado.

Leave the resigning till you have a new contract.

You’ll enjoy it more then!

If you do choose the umbrella company route make sure you pick your own that suits you best.

If the agency try to coerce you into going into a particular umbrella or one on their PSL this is likely to fall foul of the 2010 Bribery Act.

For others take the test here – IR35 Employment Status Test


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