HMRC report claims IR35 has ‘minimal’ long-term impact on public sector 

HMRC report claims IR35 has ‘minimal’ long-term impact on public sector 

HM Revenue & Customs (HMRC) has published its first assessment of how changes to IR35 off-payroll rules have affected the public sector in the long-term.  


It’s been nearly five years since the changes to IR35 came into effect for the public sector. The government’s aim was to crack down on organisations using what it described as ‘disguised employment’ to pay less tax and national insurance.  


Under the new IR35 rules, HMRC made an online tool available to help public sector organisations and agencies determine whether a contractor was inside or outside of IR35.  


New HMRC report concludes ‘minimal’ impact 


In order to assess whether fears that IR35 has led to a sudden drop in the use of contractors and temporary skills, HMRC has published a new report. The organisation commissioned IFF Research and Frontier Economics to conduct the research, entitled ‘Long-term effects of the Off-Payroll working rules reform for public sector organisations’. 


The key findings of the research related to whether the number of off-payroll contractors had changed within public sector bodies and sites.  


In 2020, 95% of central government bodies and 93% of sites engaged off-payroll contractors.  

Researchers found that since 2017, 48% of central bodies said the number of off-payroll contractors had stayed the same, 30% reported an increase and 23% reported a decrease.  


In terms of sites, 72% said there had been no change in the number of off-payroll contractors engaged since the IR35 rule change. 


Other findings included the following: 


  • Most public sectors found it easy to comply with IR35 reforms, but over half (53%) of central bodies found it more difficult 
  • Nearly half (48.5%) of government bodies said that no contractors were assessed as being inside IR35 
  • The most common way to employ contractors within the public sector was through personal service companies (PSCs).  

Does the report give a true picture of IR35 impact?  


While some of these findings may contradict early fears over how smoothly the implementation of IR35 reform would happen within the public sector, not everyone is convinced that the HMRC report represents an accurate picture. 


The CEO of contractor specialist Qdos, Seb Maley, explained to SIA: 


“This study suggests the impact of IR35 reform in the public sector was minimal, despite there being plenty of evidence out there to contradict this. It even goes as far to say that nearly half of public sector bodies have not assessed any contractors inside IR35 whatsoever. While a welcoming statistic, I’m taking it with a pinch of salt – blanket IR35 determinations were commonplace in the public sector.” 


“Contractors haven’t been asked to contribute to this research either. In my view, it’s difficult to get a true sense of public sector reform if you aren’t going to ask the individuals who have been directly affected by the changes.” 


If you’re looking for your next finance role within the public sector, or you’re an organisation searching for industry-leading talent, we can help.  


Get in touch with our public sector finance recruitment specialists here at Castlefield Recruitment.