IR35 - public sector IT fall out and what’s next for the private sector?
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IR35 - public sector IT fall out and what’s next for the private sector?

IR35 - public sector IT fall out and what’s next for the private sector?

Posted on 22nd October 2017

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tax graphicEarlier this year everyone was rather exercised about IR35.  We wrote about it quite extensively on our blog pages at the time, warning that it might cause problems in the public sector if contractors left and projects slipped as a result.  Since then, it has largely disappeared from the radar, at least as far as mainstream media are concerned. 

However, I was interested to read in a recent issue of Recruiter magazine that a survey by the website ContractorCalculator claims that 76% of the public sector IT departments have since lost contractors and this has resulted in 71% of projects being delayed or even cancelled. Furthermore, they suggest that half of contractors say they will now never work in the public sector if they are affected by the IR35 changes.  Perhaps more significantly 27% of contractors have already left the public sector and 61% of these say this is because of the new rules.  In addition, there is anecdotal evidence from the recruitment industry that all this is happening.

Now, you might think that a website that deals exclusively with the contracting market would have a vested interest in revealing that the IR35 reforms introduced in April this year would cause problems – and of course that’s true, but doesn’t necessarily mean they are wrong.  However, it’s only fair to say that HMRC don’t recognise the figures that ContractorCalculator has published.  HMRC says that these findings are “unrepresentative” and that “there is no evidence of a drift from the public sector and there have been no delays to IT projects due to the new rules.”  

Who’s right?  Clearly, the recruitment industry and the contractors themselves have their own views, HMRC theirs, but it would be nice to see a robust survey that has the blessing of HMRC and whose results all parties can support.  That way lies clarity and sensible decision-making, but I’m not holding my breath.  For what it’s worth, at Be-IT we’ve seen examples of both HMRC and ContractorCalculator being correct: at some clients contractors are leaving, while others are not experiencing any problems. That said, in the early summer we did see a lot of contractors deciding whether to twist or stick.  For some, it’s clear that their expertise does lie in public sector work and consequently they are happy to stay, but, recognising what’s happened with IR35, they are increasing their rates.  This in turn means that the cost of at least some public sector projects is increasing, as we said it would.

Moreover, and this is something which I warned of in one of my very first blogs on this subject, ContractorCalculator is now warning of the dangers of IR35 being extended to the private sector. Their reasoning makes sense to me, particularly their quote from HMRC that “we do, of course, want to see compliance improve in the private sector.”

While this is something to be alarmed about, I think we also need to remember that all these things are driven by politics.  The problems the UK government has at present are, to put it mildly, a distraction for Ministers and they ought to be in no mood to do things that might alienate potential voters.  The number of self-employed has increased dramatically over the last few years, and their millions of votes could make a big difference to the next election.  Consequently, in the same way that HMRC’s Making Tax Digital proposals (which also affect only the self-employed - at present) are being kicked slowly into ever-lengthening grass, it is possible that this would also happen with any suggestion that IR35 is extended to the private sector. However, I’m not a seer, and we have a budget coming up in the next month (where the Chancellor will need to find money to pay for lifting the public sector pay cap, amongst other things), so let’s see what happens on Wednesday 22nd November.

Gareth Biggerstaff, CEO, Be-IT

Posted in Opinion, Recruitment News

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