IR35 private sector reforms: National Grid contractors up in arms over tax status assessments

IT and engineering contractors working for National Grid are understood to be up in arms because of the utility company’s recent efforts to comply with the incoming IR35 tax avoidance reforms.

Computer Weekly understands that contractors working across National Grid’s business had their engagements assessed earlier this month by auditing firm KPMG, in preparation for the IR35 reforms coming into force within the private sector on 6 April 2020.

This work is said to have resulted in “99%” of the firm’s off-payroll workers having their roles reclassified as inside IR35, which means the contractors are now on course to be taxed in the same way as permanent employees.

According to sources working within the organisation, there are thousands of contractors – including those working in IT, engineering and data science functions – who are currently engaged on outside IR35 contracts who are affected by the change, and are now are plotting to leave on 20 March 2020.

“All of these individuals have specialised skills that are key to a niche business like this,” said one contractor, who spoke to Computer Weekly on condition of anonymity. 

Some of the affected contractors are known to have worked at National Grid for several years, and claim the “brain drain” that may occur after March 2020 could paralyse the business, which is concerned with managing the UK’s gas and electricity networks. 

“I’m not sure if [regulator] Ofgem is aware of the knowledge gap and the risk this will pose if most of the contractors working here leave,” the contractor added. 

Computer Weekly understands that National Grid has mooted the idea of increasing day rates for those affected, but the sums being offered are unlikely to make up the shortfall in take-home pay that contractors will suffer as a result of moving from outside to inside IR35.   

At the same time, some of the affected contractors Computer Weekly has spoken to said the company is offering them permanent roles, but again at pay rates significantly down on what they currently make. 

An inside-IR35 contractor will be liable to pay the same employment taxes as a permanent employee, but is not eligible to receive paid holiday, travel expenses and other perks that salaried workers are typically entitled to.   

In recent days, numerous contractors have also anonymously shared insights into how National Grid is conducting its IR35 assessments on the Offpayroll.org.uk website, where the lack of travel expenses that inside-IR35 contractors will be entitled to has emerged as a recurring bugbear.

“People who work away from home are not prepared to do it for a pittance,” said one contributor to the website. “A lot of National Grid sites are in remote locations… good luck with finding people locally or convincing ex-contractors to travel these distances.”  

Computer Weekly contacted National Grid for comment on its IR35 compliance strategy, and received this statement from a spokesperson: “In response to new government legislation around off-payroll working rules (or IR35), National Grid is reviewing arrangements with current contractors to make sure any required changes are implemented as smoothly as possible.”

Switching from an outside-IR35 to an inside-IR35 contract while working for the same employer is considered a risky move within the contractor community, which is why it is something so many are loath to do.

The main fear is that it could potentially leave contractors open to an investigation into their tax affairs by HM Revenue & Customs (HMRC) at a later date.

After all, one of the major reasons for the reforms being introduced in the first place is to clamp down on disguised employment within the contractor community, which HMRC hopes to tackle by shifting responsibility away from contractors when determining how they should be taxed.

Currently, it is down to contractors to declare if the work they do means they should be classed as inside or outside IR35, but medium-to-large businesses within the private sector will soon assume this responsibility.

This is because HMRC is of the view that HM Treasury is losing billions in tax revenue each year because of contractors mis-classifying themselves as working outside IR35 in order to reduce their employment tax liabilities.

Switching from outside to inside, therefore, could be interpreted by HMRC as a sign that the contractor in question may have previously sought to minimise the amount of employment taxes they pay by deliberately mis-identifying as an off-payroll worker.