in Careers Advice, Employers, Legal Profession

IR35 and Local Authority Contractors – are we heading towards the same regime for Private Practice?

Minutes from HMRC’s latest IR35 forum indicate that similar reform could hit the private sector soon. This could be a worry to a good number of law firms who regularly use locums. Our own thoughts on it are that provided the contractual position is clear and the locum is a senior lawyer who is able to determine their own working conditions, there should be no problems using self-employed locums. The effect of enforcing IR35 obligations is simply a huge hike in hourly rates, which is what has occurred in the local authority legal departments.

What is IR35?

Since IR35 legislation began in 2000, contractors working via their limited companies have been responsible for determining their own employment status.
But IR35 rules for the public sector introduced in April 2017 have shifted the responsibility from the contractor to the public sector client or hirer. If the public sector client or hirer gets that decision wrong, the liability for any missing tax sits with them.

The timeline for IR35 reform in the private sector

HMRC has published minutes from its IR35 forum in December, in which it says that IR35 reform in the public sector has increased compliance. HMRC’s “possible next step” is to extend that reform to the private sector. Later in the same document, HMRC identifies a “growing and immediate Exchequer risk” of IR35 non-compliance in the private sector, which has stoked speculation that private sector IR35 reform is imminent. Experts believe that any proposed private sector changes will be announced in 2018’s Autumn Budget – with legislation then going live in April 2019.

What has IR35 reform meant for public sector contractors?

A complete nightmare for all concerned! Mainly resulting in lots of extra PAYE tax arrangements being put into place for locum lawyers.
Continued non-compliance – tax avoidance schemes are being promoted to contractors as a way of getting around the legislation.
HMRC’s online testing tool checking employment status is unreliable
‘Blanket rules’ – because getting it wrong could be costly, public sector bodies are supposedly taking a risk-averse approach and ruling contractors within IR35, when the role may fall outside
Employment rights – those determined within IR35 pay tax and National Insurance, but do not have the same rights as employees. HMRC considers employment status a separate issue.

The Future

We think this is the end result of local authorities using sub-contractors rather than employees for inordinate lengths of time and everyone enjoying the tax savings a little bit too much! Similarly the use of self-employed staff in the construction trade at a junior end where the self-employment status is blatantly inaccurate has concentrated HMRC’s attention on the issue. We suspect that contracts will have to be agreed for all locum assignments detailing the specifics of self-employment in order to avoid the issues surrounding IR35 and the inevitable tax obligations that arise.


Jonathan Fagan

Jonathan Fagan LLM FIRP is Managing Director of Ten-Percent Legal Recruitment. He has been recruiting solicitors and legal support staff for law firms and in house legal departments for over 20 years and handles roles from junior fee earners through to partners and law firm sales/purchases. A non-practising solicitor on the Roll since 2000, he is also the author of a number of legal career books, which are available at You can contact Jonathan at