IR35 coming to the private sector?
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IR35 – stress, confusion … and the private sector

IR35 – stress, confusion … and the private sector

Posted on 24th April 2018

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Of course, if you are a contractor working in the public sector you will already be aware of the issues involved, but a new study of the impact of the new IR35 rules on the public sector suggests that there is some confusion over what exactly constitutes an individual’s employment status. Moreover, this latest piece of research, as reported in various publications, including Computer Weekly, suggest that the overall impact of the change has been “very negative.” 
The research, by Harvey Nash, involved a survey of more than 500 UK contractors, business leaders and line managers.  They were asked how they were dealing with the regulation and – significantly - the impact they believe it would have if introduced to the private sector.

Respondents’ opinions were fairly consistent. Over 90% said they were “stressed, worried or angry when thinking about what the IR35 changes have done to their livelihood with 50% claiming to have seen a downturn in “available contracts” in the last 12 months.” In addition, 49% had sought only contract opportunities in the private sector and 43% said they had paid more tax.  62% of respondents felt if IR35 is extended into the private sector it would have a negative impact on the economy as well as on levels of productivity (62 per cent) and innovation (68 per cent).  

The whole IR35 issue is now tied up with the government’s framework for modern employment, based on the Taylor Review of Modern Working Practices. As reported on by the government’sresponseto the Business, Energy and Industrial Strategy (BEIS) and Work & Pensions committees’ report into this subject, it’s clear that there is a lot more going on than simply debate about the interpretation of the rules around IR35. However, it’s also clear that the results predicted at the outset, namely that some contractors would increase their day rates to offset the decrease in their pay due to their having to pay NI and PAYE contributions, have happened. In turn, again as predicted (and let’s face it, it wasn’t a difficult prediction), this has pushed up staff costs for the public sector and thus made government projects cost more money.  

Of course, the real issue for the individual contractor is their employment status – do they, in fact, come under the IR35 rules or not? The first recommendation from the BEIS committee to the government was:
We recommend the Government legislates to introduce greater clarity on definitions of employment status. This legislation should emphasise the importance of control and supervision of workers by a company, rather than a narrow focus on substitution, in distinguishing between workers and the genuine self-employed.

The response from the Secretary of State for Business, Energy and Industrial Efficiency (the Right Hon Greg Clark MP to be precise), was as follows:
The Government shares the BEIS and W&P Committees’ view that that for some people the current employment status framework does not provide the certainty and clarity that they need.
The Government agrees that this needs to be addressed, is committed to taking action in this area and is currently consulting on the best way to achieve this, including seeking detailed views and further input, but any potential changes will need to be considered carefully. It is for this reason that the Government has published the consultation authored jointly by BEIS, HM Treasury, and HM Revenue and Customs exploring the options for reforming employment status for both employment rights and tax in order to achieve greater clarity and certainty.

Translated from civilservantspeak, this seems to mean that the government realises that they have not been precise enough about IR35 status and they are wondering how to sort it out.

However, although many have railed against extending IR35 to the private sector (and there was nothing about it in the Chancellor’s Spring Statement), there is still an expectation that it’s something the government wants to do.  The People Management article referred to above notes that “experts said the results indicated that the changes were working positively and were already benefiting the economy.” 

This matters because a lot of people (including me) are genuinely concerned that the government intends to extend IR35 to the private sector. This possibility has been reported in a number of different publications, including People Management, where the expectation is that if this happens then contractors’ fees will rise even more, thus producing a concomitant rise in companies’ costs.  You don’t need Higher Economics to realise that this means prices for the goods and services affected will increase…

In reality, this is about self-employed people who don’t want to pay more tax than they do at present and a government, under a host of political pressures, wanting to prevent tax avoidance and deal with the disparity between the tax paid by people who work through an intermediary and those directly employed by a company.  I suspect that, despite the strenuous denials at the time of the 2017 changes to IR35 that it would not be extended to the private sector, it is only a matter of time before this happens. I hope I’m wrong.

Gareth Biggerstaff, CEO, Be-IT

Postscript: One of the reasons for the IR35 changes was to return money to the Treasury that was previously not available to HMRC.  The latter reportedly said that there was £400M per annum that would flow to the public coffers under the new system and it would be instructive to find out how much of this has been collected. Also, it would be interesting to know the extent to which the increase in this tax take has been offset by increased costs to the public purse from contractors raising their day rates.

Posted in Opinion, Recruitment News


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