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Contractors being forced out of Ministry of Justice by new IR35-unfriendly contracts

Limited company contractors working in the Ministry of Justice (MoJ) may be forced not to renew contracts, or terminate contracts early, as a result of a new contingent labour framework that requires them to sign contracts putting them squarely inside IR35.

Concerned sources within the MoJ have told ContractorCalculator that all contract labour in the ministry is being transitioned onto a new contract framework, called Contingent Labour 1, which is managed by Capita and has a new contract template.

Contractors are being given an ultimatum: sign the new contract or find work elsewhere. This is despite the vast majority continuing in exactly the same roles they were in before the new framework was launched.

PCG, which was very active during the off-payroll rules review in the ministry, is unhappy about this development.

Senior public affairs adviser Andy Chamberlain has confirmed that PCG is in contact with contractors on the ground, and has already taken action: “We have written to Crown Commercial Service chairman Bill Crothers, with a copy to Cabinet Office Minister Francis Maude, expressing our concern.”

No employment rights in exchange for removing self-employment rights

Chamberlain also highlights that contractors are effectively having their right to self-employment stripped away by the contract, but are being offered no employment rights from the ministry or Capita in return.

“We have highlighted that most contractors’ roles have not changed and they are still doing what they had been doing. But the contractors have been put on a different footing from an employment status perspective.”

ContractorCalculator has also learned that a group of contractors from within the MoJ have banded together to send a letter to Capita explaining why they are unable to sign the contract. The letter makes it clear that the contractors will not sign unless substantive changes to the contract are made.

We have written to Crown Commercial Service chairman Bill Crothers, with a copy to Cabinet Office Minister Francis Maude, expressing our concern

Andy Chamberlain, PCG

Who is the contract for, an individual or a company?

Analysis of the new contract issued by Capita suggests that from the outset a member of HMRC’s specialist IR35 team would have a field day with the wording. “It’s like a legal junior under time pressure threw together the contract from a bunch of templates,” notes ContractorCalculator CEO Dave Chaplin.

“Just the title of the contract, ‘Temporary Worker Conditions’, suggests an individual delivering personal service. Then immediately under the title it says ‘Contract for services’, which should mean the contract is with a business. Someone is clearly sending mixed messages, or doesn’t have much working knowledge of basic law.”

According to Chaplin, the contract is riddled with such inconsistencies, but one thing is very clear: it would put any contractor who signed it well inside IR35 and they would have to work hard at proving their working arrangements were different to avoid paying extra tax.

Confirming tax arrangements under the off-payroll rules has become impossible

Another more serious prospect faces contractors at the MoJ, and that is the requirement to demonstrate that their tax affairs are in order to their public sector client, to conform with the off-payroll rules.

Chaplin explains: “The off-payroll rules require contractors to provide assurance to their clients that they pay the right levels of income tax and National Insurance Contributions (NICs). This means in practice that they will have to prove they are outside IR35, or operating deemed payments or paying themselves a salary.

“The MoJ is institutionally reluctant to accept that any of its contractors are outside IR35. That’s why PCG had to go in earlier in the year to help them out. Although having an IR35-caught contract is not a problem when you can demonstrate through working arrangements and with an IR35 expert by your side that you are outside, public sector workers don’t have that luxury under the off-payroll rules.”

Is the contract part of a deliberate campaign, or just poor drafting?

Given the timing of the recent Alexander report on public sector contractor compliance with the off-payroll rules, Chaplin’s concern is that the contract might have been created specifically so MoJ contractors are left without a choice when confirming their tax arrangements.

“It could have been a bit of malice on the MoJ’s part to create this new framework and then insist that all their contractors sign the contract and so pay employment taxes, and without any employment rights in return, too.”

He continues: “My other concern is that if it is a ploy, it will backfire. It’s not like there is any shortage of interesting IT contracts offering high rates out there right now, so it won’t be hard for most of the MoJ contractors to find new contracts. But where does that leave us, the taxpayer?”

Chaplin concludes: “We can only hope that PCG’s efforts secure a fast response and a reversal of the decision. Otherwise, contractors deciding to sign the contracts should do so with their eyes wide open to the possibility that they must operate IR35, and take an effective 25% cut in earnings.”

ContractorCalculator will continue to report on the story as it unfolds.

Published: 24 March 2014

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