Network Rail’s assessment of its 817 contractors found that just seven of them were not caught by IR35 rules.
The information, obtained via a Freedom of Information (FOI) request by the contractor specialist website ContractorCalculator, raises questions around how IR35 assessments are being made.
Andy Chamberlain, Deputy Director of Policy at the Association of Independent Professionals and the Self-Employed (IPSE), commented: “Network Rail’s assessment that 99 per cent of its contractors are caught by the off-payroll rules is deeply concerning. These people will now have to pay tax like employees – without any of the rights.”
ContractorCalculator found that the figure was the result of an unlawful role-based blanket approach agreed upon with HMRC, with assessments being conducted using HMRC’s Check Employment Status for Tax (CEST) tool.
In response to a separate FOI request, Network Rail revealed correspondence with HMRC that detailed a strawman process of determination of status that was later agreed upon.
ContractorCalculator CEO Dave Chaplin, commented: “It’s unacceptable that HMRC has encouraged role-based assessments which defy the legislation, let alone acknowledge that it’s a strawman process which will have resulted in so many contractors being overtaxed.
“This approach will also be putting a strain on Network Rail, for whom the cost of hiring each ‘deemed employee’ who previously operated outside of IR35 will have significantly increased in order to retain them.”
Chamberlain agreed, adding that Network Rail need the flexibility that contractors offer.
“Instead, however, they have been strong-armed into assessing them as ‘employed for tax purposes’ through a mixture of direct pressure from HMRC, a fundamentally flawed CEST tool, and an incomprehensible set of rules on tax status,” said Chamberlain.
“Ultimately, the off-payroll rules are so unclear even HMRC doesn’t understand them, as evidenced by its utterly atrocious record at recent tribunals. Treasury Ministers urgently need to pause and listen, rather than deciding on a policy then consulting.”
Issues around IR35 and the use of contractors in the gig economy are likely to continue for the foreseeable future. The Self-Employment in the Modern Economy research from the IPSE revealed that the number of highly skilled freelancers rose by 47 per cent between 2008 and 2018, with the solo self-employed sector contributing £275 billion to the economy in 2018.
