Local Government Lawyer Insight July 2017 LocalGovernmentLawyer 4 Hundreds of locum lawyers are facing the prospect of 30% falls in their take-home pay as many temporary lawyers are switched from contractor to employee status following changes to tax rules in April known as IR35. Faced with the choice between accepting pay cuts or changing career strategy, recruiters predict that many of the estimated 1,000 locum lawyers working for local authorities will vote with their feet. Local authorities, they say, will have to rethink their approach by the autumn or winter. If not, local government could face severe shortages in this part of the recruitment market. The aim of IR35 is to prevent “disguised employees” from working on a self- employed basis and claiming the tax benefits that come from self-employment. Which working patterns should be considered as “employment” can be subjective, however, and since the rules were changed most councils have erred on the side of caution, re-classifying locum lawyers as employees rather than contractors. Room for compromise lies, however, in the way that the IR35 legislation is being implemented. Councils to date are tending to rely on the rather limited interpretation of the law which underpins a tool that many of them are using - the IR35 calculator (www.gov.uk/guidance/check- employment-status-for-tax) produced by HM Revenue and Customs (HMRC). Chris Lee, founder of Fiscability UK and a former tax inspector, told Local Government Lawyer: “HMRC's IR35 calculator will probably give the correct answer in straightforward cases, but it can prove wrong (in either direction) and most borderline cases come up with a ‘don't know’ answer.” Sellick Partnership is the market leader in recruiting local authority temps, placing about half of the 1,000 people that it estimates work in this role. “IR35 is, by far, the most serious issue I’ve seen in my 13 years in this sector,” says Sellick Partnership Group Director Hannah Cottam, head of the legal team in Manchester and Leeds. She gives an example of a temp earning £40 an hour who took home £34 when taxed as a contractor but who would receive £24 if paying tax and NI under IR35. At specialist law firm HY Legal, Director David Yazdi comes to a similar figure. HY is a modern legal practice which offers its ‘Lawyers on Demand’ service to enable freelance working for local authorities within HMRC’s calculator assumptions. Taxing times Changes to the tax regime for locum lawyers threaten to disrupt the supply of a vital source of staff for local authority legal departments, writes Neasa McErlean. Local authorities will have to rethink their approach to IR35 [or] many of the estimated 1,000 locum lawyers working for local authorities will vote with their feet.