HMRC report finds most education institutions aren’t prepared for IR35 reforms

More than three-quarters of education sites do not feel prepared for the off-payroll reforms taking effect on 6 April.

The education sites were surveyed for an HM Revenue & Customs report looking at the potential impact of impending changes in Off-Payroll Working Rules.

The report, ‘Long-term effects of the off-payroll working reform: education sites interim report’, found that a total of 72% of the education sites surveyed either had not heard of or had heard of but had no knowledge of the 2021 reforms that will affect them. More than half (53%) said they were not prepared, and 25% were “not at all prepared”. Of the 47% that said they were prepared for the reform, only 18% felt “very prepared”. 

While the bulk of the reforms coming in next week are aimed at the private sector, the public sector faces a significant new requirement that follows on the 2017 reforms they had to adopt. The new requirement, also contained in the 2021 reforms for the private sector, is communicating employment status determinations to contractors through a status determination statement (SDS). They must then pass the SDS to agencies they engage off-payroll contractors through, keep detailed records of their status determinations and have processes in place for dealing with any disagreements that arise from these determinations.

The 2017 reform moved the responsibility for operating the Off-Payroll Working Rules to the client organisation, when the client is a public authority. The client organisation population in scope of the 2017 reforms included local government, the NHS, police forces, schools and higher education institutions, and government departments including devolved administrations and arm’s length bodies.

Overall, the report said, results showed the 2017 reform “had very little impact on education sites over the longer term. There is little indication that sites are reducing their engagement with [personal service companies] as a result of the reform”.

Some survey respondents interviewed for the report said they felt the reform “might increase the number of disputes due to a lack of understanding of the off-payroll working rules among contractors”. Further, the report said: “None of the follow-up respondents had made a clear plan about how they would communicate the reform to contractors, mostly because of the relatively low incidence of contracts which were assessed.”

The report went on to say that the “qualitative” interviews conducted for the report showed that “some education sites still lack confidence in their understanding” of the rules and in making status determinations, “fearing the repercussions if they make the wrong decisions”. There was also some criticism of the controversial CEST tool, with some respondents saying they did not receive conclusive outcomes “and a lack of information about what to do next”.

The report references two episodes of research in connection with 2017 and impending 2021 reforms in the public sector. The latest research involved 51 survey interviews with individual education sites for public authorities and qualitative follow-up interviews with six of these sites. The report said fieldwork was expected to recommence later this year “when there is less pressure on public authorities”. 

A full report will include research into other public sector areas including health and social work, public administration and defence organisations. The report says there was “low response” from the other sectors in the work leading up to the current “short” report.

The Research by IFF Research and Frontier Economics that was published in May 2018 concluded that the immediate impact of the April 2017 reform in the public sector had led to “only minimal impacts on the number of contractors engage on or off-payroll. However, some impacts on the ability to fill vacancies and increases in contractor rates were reported by a minority of public authorities”.

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