If the reforms go ahead, then public sector bodies and agencies would be responsible for deciding whether a contractor qualifies for IR35 restrictions. This differs from the current system where intermediaries like individual limited companies (commonly known as personal service companies) or umbrella companies decide IR35 status.

Experts believe that this will result in more public sector contractors being ‘caught out’ by IR35 legislation. Some fear that even the most independent contractors are at risk of paying more tax because of difficulties proving the absence of IR35. 
These reforms are likely to take effect from April 2017. At present, there are no plans for similar reforms for private sector contractors.

Backlash
Criticism of the policy has been widespread. One of the most vocal critics thus far has been the Freelancer & Contractor Services Association (FCSA), which suggested that reforms were unfair and could damage the modern workforce.

Julia Kermode, CEO of FCSA, said: “The Government seems intent on forcing the entire workforce to be employed which is an incredibly outdated stance and a real concern given the UK’s reliance on the flexible workforce to support the UK economy. 

“The consultation makes it very clear that employment rights will be outside the scope which means that an individual will be paying tax as an employee but will not automatically have the corresponding statutory employment rights.  This is unfair, unethical and fundamentally wrong.”

The trade association also suggested that the reforms would bring some quite severe unintended consequences. Kermode continued: “The implications of the proposed changes will be significant – the new legislation could see contractors falsely put on the payroll and taxed at a higher rate when they shouldn’t be, or worse, that freelancers will be discriminated against as hirers choose alternatives to fulfil their staffing needs. 

“It is a no win situation in an already stretched public sector that relies on temporary workers.”

The FCSA’s response to the consultation also questions the necessity of reform. They say that earlier in May, the FCSA presented evidence to the Public Accounts Committee implying that 90% of temporary workers in the public sector are tax compliant.
This flies in the face of the rationale behind the reforms which have been prompted by “evidence of widespread non-compliance” with the existing IR35 rules.

Nick Holmes, CEO of Umbrella.co.uk, will be working closely with the FCSA as they participate in the consultation and attempt to get the government to see reason.

Public sector contractors are also being urged to contact the government to tell them how the changes will affect them personally. Read the government’s consultation document and respond by clicking here.

For more information please visit us at www.umbrella.co.uk alternatively please email us at team@umbrella.co.uk