Public Sector IR35 Reforms Lead to Surge in Umbrella Enquiries

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As the UK's leading contractor support specialist, we at Parasol were interested to see how the recent IR35 reforms in the public sector would effect how new and existing contractors choose to work. We've shared our findings in a press release, which you can see below.

Surge in enquiries to umbrella companies as public sector IR35 reforms bite

  • Number of enquiries for umbrella companies up 76%
  • Public sector end users taking a ‘one size fits all’ approach

There has been a surge in contractors switching to umbrella companies in the months leading up to new employment status checks implemented by public sector bodies, according to Parasol Group, the market leading contractor support specialist.

Parasol says that the number of enquiries it received about its umbrella company service in Q1 2017 was 7,916, a 76% increase on Q1 2016, when it received 4,473 enquiries.

According to Parasol, many public sector bodies, including the NHS and TfL, have taken a ‘one size fits all’ approach and decided that all their limited company contractors are inside IR35. Other bodies, such as Network Rail, have taken the opposite view, declaring all its limited company contractors outside IR35.

A large proportion of the contractors enquiring about Parasol’s umbrella company service are outside IR35 and run their own limited companies.

Nick Rawlings, Group Commercial Director of Parasol Group, comments: “We were prepared for an uptick in enquiries but the sheer volume has been surprising. Rather than using HMRC’s online employment status checker as a precision tool, many public sector bodies have used it as a blunt instrument.”

“From the conversations we have had with contractors, it is clear that a large proportion of new enquiries are legitimately in business of their own account and are therefore outside IR35. By considering all contractors to be inside IR35 many public sector end users are throwing the baby out with the bathwater.”

Parasol points out that it is up to the public sector body, not HMRC, to make determinations about employment status. They must take ‘reasonable care’ when doing so. If they fail to take ‘reasonable care’, they could be deemed the ‘fee payer’, which means responsibility for deducting tax and National Insurance passes from the agency to the public sector body.

Nick Rawlings says: “It seems evident from the conversations we’ve had over the last couple of months that many public sector organisations are not taking ‘reasonable care’ when determining employment status but using a broad brush approach.”

Parasol says that when new contractors are engaged, or when contracts come up for renewal, it is likely that public sector bodies will be more discriminatory and check the status of each contractor individually.

Nick Rawlings says: “Many public sector organisations have thousands of contractors on their books. Determining employment status means looking at the contract and working conditions for every single contractor. With staffing levels pared to the bone, many are likely struggling to find the resources to do it properly at the outset and would rather err on the side of caution by deeming all contractors insider IR35.”

According to Parasol, contractors need to be increasingly flexible about which corporate structure they operate through from contract to contract, particularly when working in the public sector. For this reason, customers of ClearSky (an Optionis Group company), which provides limited company accountancy services to contractors, also get free access to Parasol umbrella company services.

Nick Rawlings says: “We have developed this hybrid model in recognition of the fact that contractors working in the public sector now face uncertainty over which corporate structure they can operate through, and that this might change from contract to contract.”


Notes to Editors:

Parasol is a Professional Employment Organisation (PEO), and the leading provider of outsourced employment services to contractors, freelancers and the recruitment agencies that supply them. Parasol acts as an intermediary between contractors and their clients, meaning it takes care of all administration duties such as income tax and national insurance. We partner with over 2,500 recruitment agencies and have looked after over 90,000 satisfied contractors since our launch in 2000.

ClearSky Contractor Accounting is a specialist accountancy company that looks after over 6,000 clients nationwide.

Press enquiries:

Paul Arvanitopoulos
Aggelos Consulting
M: 07941 943960