1. Case Study – Elmbridge Borough Council
18/11/2019
Louise Rayner CEO, presents:
“IR35 Reforms A history of the Public Sector reforms, how these continue to unfold”
Case Study – Elmbridge Borough Council
April 2019
Umbrella Illustration & Discussion Document

2. Who are NumberMill Consulting?
18/11/2019
Who are NumberMill Consulting?
Established by Louise Rayner FCCA, MBA
EX RSM 7th largest UK accounting firm
EX CFO Adecco - responsible for 35,000 contractors Travel & Subsistence
EX Commercial Director Randstad Managed Services
MD & Part Owner Milestone Operations temps sold to Staffline in 2015
ACCA Accountants & FCSA Accredited
Contractor Accounting Specialists
Compliance Consulting
IPSE IR35 Qualified team
Accountax – Legal retainer
Since January 2015 my team and I have been working with more than 80 agencies and public sector end hirers to support them with the implementation of the IR35 Public Sector reforms. And we now supporting organisations as these reforms are intended to extend to the Private Sector
We have undertaken over 1100 IR35 technical reviews. My intention is to briefly remind ourselves of the legislation, but more in more importantly reflect on how this has unfolded over the last few years. The mistakes that have been made, the commercial behaviours that seem to have taken over.
I will outline some work that we undertook with Elmbridge Borough Council.
Umbrella Illustration & Discussion Document

3. Protecting the supply chain
18/11/2019
Protecting the supply chain
Since January 2015 my team and I have been working with more than 80 agencies and public sector end hirers to support them with the implementation of the IR35 Public Sector reforms. And we now supporting organisations as these reforms are intended to extend to the Private Sector
We have undertaken over 1100 IR35 technical reviews. My intention is to briefly remind ourselves of the legislation, but more in more importantly reflect on how this has unfolded over the last few years. The mistakes that have been made, the commercial behaviours that seem to have taken over.
I will outline some work that we undertook with Elmbridge Borough Council.
Umbrella Illustration & Discussion Document

4. IR35 WAS FIRST INTRODUCED IN 1999, WITH THE AIM BY HMRC THAT CONTRACTORS WERENT DISGUISED EMPLOYEES, AVOIDING TAXATION

5. IN NOV 2015, THE CHANCELLOR EXTENDED THE REORMS IN TO THE PUBLIC SECTOR AND SINCE THEN HMRC HAVE CLAIMED THIS AS A SUCCESS DELIVERING OVER £700M EXTRA TO THE TREASURY. LAST YEAR HE INDICATED HIS PLANS TO EXTEND THIS REFORM TO THE PRIVATE SECTOR DESPITE A GREAT DEAL OF BAD PRESS RE THE FAILURES OF THE CEST TOOL, THE HIDDEN EXTRA COSTS WHICH HAVE POPPED UP IN THE PUBLIC SECTOR AND THE INTRODUCTION OF AGGRESSIVE TAX AVOIDANCE ARRANGEMENTS.

6. REMEMBER IR35 HAS NOT CHANGED – THE RULES HAVE NOT CHANGED, CASE LAW HAS NOT CHANGED. THE 3 TESTS REMAIN THE SAME – ALL THE HAS HAPPENED IS THAT LIOABILITY HAS BEEN EXTENDED UP THE CHAIN

7. 18/11/2019
IR35 Simplified
Series of 3 Case Law tests – Only one of which needs to be present Relevant cases include;
Ready Mix Concrete Ltd v Minister of Pensions & National Insurance (1968)
Express and Echo Publications Ltd v Tanton (1999)
Carmichael v National Power (1999)
Montgomery v Johnson Underwood (2001)
IR35 is the legislation that defines the worker status for tax purposes, put simply an employee or in business. Case law can be complex so for completeness here are some of the relevant cases that have created the defence for IR35 status cases. However lets look briefly at the relevant defence cases;
In the case of Ready Mix Concrete – the matter of Control was considered, “the power of deciding the thing to be done, the way it is done, the means, the time and the place, ALL ASPECTS MUST BE CONSIDERED AND TO A SUFFICIENT DEGREE TO MAKE ONE PARTY THE MASTER AND THE OTHER THE SERVANT. IF THIS IS CLEARLY DEFINED IN THE CONTRACT _ NO NEED TO LOOK NO FURTHER – CONTRACTS ARE KEY! In this case there were hauliers who were engaged – they had the CO LOGO on their vehicles and wore the co uniform, the vehicle could only be used for them. However they were paid based on mileage and haul … The contract was clear that it was a CONTRACT FOR SERVICE and NOT A CONTRACT OF SERVICE – there was no master servant relationship, not an employment relationship – THESE WERE SMALL BUSINESS MEN.
In the case of Carmichael v National Power MOO was tested. This was a group of tour guides and in the instance that this particular tour guide didn’t turn up 17 times, it was said that clearly this was not an employee relationship as there was no obligation to provide the services
In the case of express & Echo Substitution was tested. The contractor was a delivery driver who drove a company van and wore a uniform. However it explicitly stated in the contract “that if he is unable to do the work he must supply someone else to do it”
In the case of Montgomery, a secretary argued that she was an employee. The judge deemed that in order to be an employee ALL 3 tests need to be met. So if only one of the 3 tests is met, MOO, Control, Substitution, then IR35 is passed and the contractor isn’t an employee.
Umbrella Illustration & Discussion Document

8. CEST TOOL FOUND TO BE FLAWED
18/11/2019
CEST TOOL FOUND TO BE FLAWED
THE CEST TOOL HAS BEEN FOUND TO BE SERIOUSLY FLAWED, FAMOUSLY IGNORING THE FUNDAMENTAL TEST OF MOO, SOME SAY PURPOSELY MANIPULATED TO FOCUS ON SUBSTITUTION

9. 18/11/2019
SOME OF THE WELL PUBLICISED SCANDALS
IT CONTRACTORS WORKING AT ST THOMAS HOSPITAL WALKED OFF SITE FROM MULTI MILLION POUND PROJECT
TFL BACKTRACKED ON DECISION THAT ALL SIGNAL MAN WERE BLANKETLY CAUGHT BY IR35
LOCUM DOCTORS SEMANDING 50% RATE INCREASES – IN BLACKPOOL TEACHING HOSPITAL LOCUMS REFUSING TO TURN UP FOR WORK
LORRAINE KELLY WON HER CASE – NOT CONTROLLED, “THE BRAND OF LORRAINE KELLY”
LOOSE WOMAN KAYE ADAMS WON HER TAX CASE – THE COURT ESTABLISHED THAT SHE WAS IN BUSINESS ON HER OWN ACCOUNT AND THAT THE BBC DID NOT HAVE FIRST CALL ON HER – NB CONTRACTS VERY WELL WRITTEN

10. IR35 “Life Blood of Flexible Workforce”
18/11/2019
IR35 “Life Blood of Flexible Workforce”
1999 – some compensation for risks and rewards of being in business
CASE LAW HAS NOT CHANGED, merely extended
Contractors are not tax evaders
Impact on £200 a day worker £7,812
Impact on £300 a day worker £10,092
Since 1999 IR35 was introduced and in some way compensated for lack of employment rights, no pensions, no paid holiday etc, longevity of engagement, Risks attached to working as contractors. These guys invoice so its not as if cash is being processed. The law has not changed it has merely been extended, There seems to be some assumption that these contractors weren’t legal in the first place. I disagree!
Umbrella Illustration & Discussion Document

11. Public Sector/End Client
18/11/2019
Public Sector/End Client
Ok So lets take a look at the contractual chain and what the new legislation is doing
Typically Public Sector end hirer at the top
Umbrella Illustration & Discussion Document

12. Public Sector/End Client
18/11/2019
Public Sector/End Client
Agency
Then the Agency or managed service provider
Umbrella Illustration & Discussion Document

13. Public Sector/End Client
18/11/2019
Public Sector/End Client
Agency
Then the PSC
PSC
Umbrella Illustration & Discussion Document

14. Public Sector/End Client
18/11/2019
Decision “Duty of Care”
Public Sector/End Client
“Fee Payer” liability
Agency
Then the worker
Since 1999 the IR35 liability has sat more or less solely with the contractor, he is taking the risk and reward and that is where the risk sits. Now the decision is to be taken by the Public Sector and the liability sits with the fee payer – ie the agency. Do you the Public Sector have enough technical IR35 understanding and time and resources to make this important decision that significantly affects the contractor? And remember you must demonstrate “Due Care” in that decision Does the agency? The synics would say this is just a very effective way of forcing all workers through PAYE and increasing the tax take – even if it is inappropriate, given the lack of employment rights and the risks that the contractor is taking
PSC
IR35 liability
Worker
Umbrella Illustration & Discussion Document

15. Given blanket assessments 52%
18/11/2019
Of the 1120 assessments that we undertook across 80 organisations, we found 87% were not considered to be caught. However 52% were given blanket “Caught” decisions?
Given blanket
assessments
52%
Umbrella Illustration & Discussion Document

16. Supply Chain Response Mass transfer to umbrella “tow the line”
18/11/2019
Supply Chain Response
Mass transfer to umbrella “tow the line”
no rate increase
some rate increase
Gross Payments – taking the risk
Use of aggressive tax models and intermediaries
In-house incorrect assessments undertaken by managers
Blanket reviews – Employment tribunals
Engage IR35 technical specialists/reviews
“Fee payer” Model & IR35 Technical reviews
Agencies have borne a massive brunt, in some cases having to take a hit on margin, explaining it to contractors, forcing workers to transfer to umbrella, trying to negotiate rate increases. Workers being paid weekly rather than to terms and VAT and cashflow implications. They are all looking for ways to preserve take home compliantly.
Umbrella Illustration & Discussion Document

17. What happened? Mass transfer to umbrella “tow the line”
18/11/2019
What happened?
Mass transfer to umbrella “tow the line”
no rate increase
- some rate increase
Gross Payments – taking the risk
Engage IR35 reviews – Insurance
Other impacts
Impact on margin
Impact on cash flow
Impact re VAT
“Fee payer” Model & IR35 Technical reviews
Our latest analysis tells us that 20% gained rate increases, 29% left their roles, 37% switched to umbrella and 14% switched to other paye or deduction methods. It should be noted that some of the umbrella arrangements may be aggressive tax evasion arrangements and as such it recommended that only FCSA Accredited umbrellas be utilised
Umbrella Illustration & Discussion Document

18. Continues to unfold …… Contractor shortages
18/11/2019
Continues to unfold ……
Contractor shortages
Increased costs in the supply chain
“Black market” & un-level playing field
Disgruntlement and Tribunals
Increased usage of aggressive tax schemes
Increase in use of umbrella
So potentially what is likely to happen gradually, shortage of skilled workers, increase in costs, a black market of suppliers, anger and disgruntlement and tribunals
Umbrella Illustration & Discussion Document

19. 18/11/2019
Methodology
The operational review of internal IR35 assessments conducted via
Elmbridge Borough Council was completed as follows:
Review of Internal Guidance provided to staff
Review of 10 Document Samples
IR35 Assessment completed of 10 Samples
So potentially what is likely to happen gradually, shortage of skilled workers, increase in costs, a black market of suppliers, anger and disgruntlement and tribunals
Consolidate findings into a report
Consultations with Line Management
Preparation of Questionnaire to highlight key areas
Umbrella Illustration & Discussion Document

20. 18/11/2019
Conclusions……
Mixed, inadequate and inconsistent understanding of IR35 and the Public Sector Reforms
Insufficient background legislation knowledge of IR35 & other related legislation
Lack of training required to conduct an extensive IR35 review
Insufficient Documentation / Information provided to staff
Risk of a ‘blanket approach’ taken towards temporary staff
Inconsistent IR35 review process undertaken
Heavy Reliance on the HMRC Employment Status Tool
Reviews completed for workers where not required
No knowledge of supply chain agency practice – potential risk re Umbrella and IR35
So potentially what is likely to happen gradually, shortage of skilled workers, increase in costs, a black market of suppliers, anger and disgruntlement and tribunals
Umbrella Illustration & Discussion Document

21. Information flows
Client
PSC
Worker
1. Client required to provide status determination and reasons for
determination to person they contract with and off-payroll worker;
… …
Agency
Fee-payer
2. Status determination and reasons for determination are required to be passed down the contractual chain
3. Off-payroll worker and fee-payer (if not person client contracts with) have right to ask for reasons for determination directly from the client
Contractual chain
Action required Proposed change

22. Transfer of Liability PSC
18/11/2019
Transfer of Liability
Client
PSC
2. Agency 3 fails to share the status determination
with the fee-payer
Agency 1
Fee-payer
3. The liability initially sits with Agency 3
Agency 2
Agency 3
4. If HMRC fail to collect the liability from Agency 3, the liability transfers directly back to Agency 1
5. If HMRC fail to collect the liability from Agency 1, the liability finally transfers to the client
Contractual chain
Action required
Proposed change (tax liability)
1. Status determination flows down contractual chain
Fee Payer
The latest consultation will make the risk on the end hirer both the Public and Private sector even greater – AS LIABILITY WILL TRANSFER UP THE CHAIN

23. Public Sector/End Client
18/11/2019
Public Sector/End Client
Agency
Fee Payer
So well worth considering FEE PAYER SERVICEAS
With NumberMill’s Protect Service, we insert ourselves in to supply chain, contractually becoming the Fee Payer and taking on the liability. We assess the contactors IR35 position by undertaking ESS, Working Practice reviews, Telephone interview and reviewing any correspondence that exists with the end client. This is much more than insurance! This is the best way to preserve PSC status wherever possible. If not then we can always pay through one of our other tax deducting services.
Project
PSC
Worker
Umbrella Illustration & Discussion Document

24. Alternative Approaches
18/11/2019
Alternative Approaches
Consider careful individual assessment
Calculators – be aware of pay, remuneration and rights impact
Technical Reviews – engage experts
FCSA Accredited umbrella
“Fee Payer Service”
So maybe think about some alternative approaches, individual assessment, understand pay impact, technical reviews consider fee payer approach
Umbrella Illustration & Discussion Document

26. For Enquiries Enquiries@numbermill.co.uk
18/11/2019
For Enquiries
Option 1
Questions
I think we have some time for questions, but if you wish to contact me or make an appointment with me or one of my specialists here are the contact details
Umbrella Illustration & Discussion Document