Insight Paper 001
IR35 and Local Authority Models Managing Compliance and Delivering Control
Local Authorities continue to operate within a complex regulatory environment where financial stewardship governance and compliance are subject to increasing scrutiny. Within this context IR35 has become a central consideration in how councils engage interim resource and specialist capability.
However across the sector there remains a degree of misunderstanding regarding both the purpose of IR35 and the extent to which it should influence engagement decisions.
From a governance perspective the principles set out by the Chartered Institute of Public Finance and Accountancy emphasise transparency accountability and value for money. These principles do not prescribe a single route to market and do not mandate that roles must be engaged through specific frameworks or tax treatments. Instead they require Local Authorities to ensure that arrangements are appropriately assessed documented and aligned to organisational objectives.
IR35 legislation itself is focused on employment status for tax purposes. In the public sector the responsibility for determining status rests with the engaging authority. This determination is based on established case law principles including control substitution and mutuality of obligation rather than the procurement route or the use of an intermediary.
Importantly there is no requirement within IR35 legislation or associated guidance that roles must be engaged inside IR35 by default. Each engagement must be assessed on its individual facts. Where an arrangement demonstrates genuine independence with clearly defined deliverables and appropriate contractual terms an outside IR35 determination may be both appropriate and compliant.
The use of frameworks or managed service providers does not in itself determine IR35 status. Nor does it remove the responsibility of the Local Authority to make a reasoned and evidence based assessment. As such reliance on frameworks should not be conflated with compliance.
In practice some Local Authorities have adopted blanket approaches by defaulting roles inside IR35 or limiting engagements to framework routes in order to reduce perceived risk. While understandable this approach can be disproportionate. It may restrict access to specialist capability increase costs and reduce flexibility in delivery particularly in areas requiring niche expertise or outcome based support.
CIPFA guidance highlights that effective financial management requires a balance between control and delivery. Risk management should be proportionate and informed rather than purely precautionary. Overly cautious approaches can themselves create inefficiencies and impact value for money.
A more effective model involves applying IR35 assessments on a case by case basis supported by clear governance documented decision making and where appropriate specialist advice. This allows Local Authorities to remain compliant while also maintaining access to a broader range of engagement models.
Ultimately IR35 should be understood as a framework for assessing employment status rather than a directive to limit how capability is secured. When applied correctly it enables Local Authorities to combine compliance with flexibility ensuring that governance requirements are met without constraining delivery or organisational effectiveness.
