Top 10 IR35 stories of 2021

1. Zurich Insurance blanket bans contractors

In the lead up to the IR35 reforms coming in, details of how some firms were reacting to the shift in responsibility the changes would confer on them began to emerge.

In early 2021, Zurich Insurance became the latest in a long line of financial services companies to declare that any contractors that wanted to remain working at the firm would need to provide their services in future through an umbrella company.

2. Argos responds to IR35 with offshoring push

The impending roll-out date for the reforms prompted some firms to look for other ways to wind down their reliance on limited company contractors, with retailer Argos opting to offshore the tasks of its digital team having determined them all to be working inside IR35.

The decision was described as a “lose-lose” situation for the UK economy, but also the Treasury, as the off-shore workers will not have to pay tax in the UK.

3. Contractor calls for further delays to April 2021 start date denied

After the government pressed pause on its plans to roll out the IR35 reforms to the private sector due to the pandemic, the revised April 2021 start date had contracting industry stakeholders calling for the onset of the changes to be delayed further as the pandemic continued to play out.

The government, however, declined to heed their calls and the delayed reforms took effect in the private sector in April 2021.

4. DWP hit with £87.9m tax bill over IR35 compliance failings

The release of the Department for Work and Pensions’ (DWP) annual accounts raised eyebrows after it revealed the department had been ordered to pay £87.9m to HMRC after a review of its IR35 compliance procedures revealed it had incorrectly assessed the employment status of its contractors over several years.

The document confirmed the errors came to light in March 2020, just under three years after the IR35 reforms came into force in the public sector, following a review by HMRC of DWP’s compliance processes that brought to light “historical errors” in its procedures.

5. The Home Office gets billed for “careless application” of IR35 rules

The DWP was far from the only government department whose implementation of the IR35 reforms was weighed and found wanting by HMRC. A trawl of the Home Office’s accounts revealed it had been hit with a double-whammy of tax charges and penalties during the 2020-2021 financial year.

The department incurred a bill of £29.5m to cover the income tax, national insurance contributions and interest that HMRC claims was lost as a result of it incorrectly classifying its contractors as working outside IR35. It also incurred a further £4m penalty for its “careless” application of the IR35 rules.

6. Confusion over who pays employers’ NI leaves contractors out of pocket

As well as a shift in responsibility for who is responsible for determining how contractors should be taxed, the reforms also introduced changes that mean limited company contractors are no longer required to cover the cost of employers’ NI on assignment deemed in-scope of the IR35 rules.

However, anecdotal evidence suggests that many contractors have, and still are, erroneously picking up the tab for employers’ NI, with litigators suggesting that thousands of contractors could have been left out of pocket as a result.

Details then emerged about the legal actions being waged against umbrella companies, employment agencies and even end-clients as contractors look to claw back the money they are owed.

7. Pressure grows on the government to roll out regulation for umbrella companies

The onset of the reforms has been linked to a dramatic increase in the number of contractors that provide their services to end-clients via payroll processing umbrella companies.

Despite having huge numbers of contractors on their books, and the fact these firms are responsible for handling large sums of money, the fact they are unregulated has become a recurring topic of discussion among stakeholders in the contracting market this year.

This is on the back of reports about non-compliant umbrella companies withholding holiday pay from their contractors, “skimming” money from their pay packets and – in some instances – acting as fronts for disguised remuneration schemes that are linked to tax avoidance.

For all these reasons, there has been growing calls this year from MPs, policy advisors, contracting authorities and others for umbrella companies to be regulated.

8. Giant Group umbrella company suffers cyber attack

There were renewed calls for umbrella companies to be regulated in the wake of a suspected ransomware attack on the Giant Group payroll processing firm in September 2021.

The incident prevented the company from paying wages to thousands of contractors across the UK after the firm was forced to suspend its entire operations from 22 September for several days following the discovery of suspicious activity in its network that suggested it had fallen victim to a cyber attack.

9. Network Rail backtracks on blanket inside IR35 contractor determinations

Contracting market experts have long-predicted that firms that were rash in pushing through blanket bans on hiring limited company contractors on an outside IR35 basis would reconsider their position in time, on the basis that many IT contractors would be unwilling to work on an inside basis.

In September 2021, the publication of the Department for Transport’s (DfT) 2020-2021 accounts suggested Network Rail had U-turned on its blanket inside IR35 contractor stance, with the document revealing that 1,025 of its 1,912 contractors were designated as being outside IR35.

This marked a considerable turnaround for Network Rail, given the previous year’s accounts showed that 99% of the 538 contractors on its books during the 2019-2020 financial year were working inside IR35.

10. Government ramps up efforts to push through regulation for umbrella companies

As 2021 drew to a close, there were signs on the horizon that after years of slow-to-no progress that the government has started to ramp up its efforts to push through regulation for umbrella companies.

This is on the back of HMRC joining forces with HM Treasury and the Department for Business, Energy and Industrial Strategy (BEIS) to launch a consultation into how the umbrella market operates so it can find out more about the role these firms play in the wider labour market supply chain.

On top of this, BEIS set out plans in 2021 to create a Single Enforcement Body that will protect workers from rogue employers and workplace malpractice, which will offer protection for umbrella workers.