The Association of Recruitment Consultancies (ARC) has lodged its response with HMRC to the July technical consultation on the draft legislation leading to the extension of IR35 public sector rules to the private sector.

“We are calling for greater clarity and a better overall balance in the legislation which is due to apply from April 2020” says ARC’s chairman Adrian Marlowe. “As currently drafted the legislation leaves a lot to be desired, with the uncertainty around employment status and application of the rules likely to lead to hirers simply rejecting the use of company contractors because of tax risk. This has a major impact on recruitment businesses which inevitably will be first in the HMRC firing line when it comes to an investigation which in turn is only ever likely to arise where the contractor is paid gross.

“Apart from uncertainty for hirers, the legislation unfairly bears down on contractors who have genuine businesses, with the result that many may be forced into other kinds of arrangement to avoid losing the work.

“For these reasons we have recommended

  • a modernisation of the rules around employment status, something we have been calling for many years
  • improved HMRC guidance around subjects such as ‘reasonable care’
  • a removal of the conflicts that exist over when an IR35 assessment should first be made, with the preliminary assessment being made being based on the nature of the services sought
  • a backstop to protect agencies in the event that a hirer changes its IR35 status assessment part way through a supply so that agencies can end the supply without being prejudiced
  • a simple process for an HMRC review where there is conflict on assessment, with an easy repayment arrangement where tax and NICs are incorrectly deducted
  • the ability for government to exclude certain sectors or types of work from application of the rules, this e.g. could be useful for oil and gas offshoring.

“We hope HMRC takes our points into account. As things currently stand the deterrent effect on hirers and agencies will mean a shift from PSC contracting to other methods, most of which are likely to result in a reduction in use of the limited company opt out and the greater application of the agency conduct and agency worker regulations. This sea change may catch agencies by surprise and so we are sponsoring a conference on 19th September, to be run by our legal advisers Lawspeed, to discuss these issues, the impact and options. For more information see”