Bad reaction to public sector IR35 proposal

Bad reaction to public sector IR35 proposal

22 August 2016

Industry insiders have responded negatively to a consultation on the government’s latest IR35 proposal.

The proposal would see public sector organisations made responsible for determining the IR35 status of a contractor. Practically, this means that many more Personal Service Company contractors will be caught out by the IR35 legislation.

The contractors would be forced to pay tax as if they were traditional full-time employees, without enjoying any of the same employment rights and benefits.

Many inside and outside the industry see this as unfair. There is also a large amount of concern about some of the proposal’s unintended consequences.

The Freelancer & Contractor Services Association (FCSA) warned against leaving the decision to parties that will struggle to make an accurate IR35 assessment.

Julia Kermode, Chief Executive of FCSA said: “The proposed change shifts liability for IR35 status from the individual contractor to an unconnected collection of parties who are less well placed to come to any true conclusion about an individual’s working practices.  No one party in the supply chain holds sufficient information alone to make a complete and accurate assessment of the application of IR35, so implementing HMRC’s proposals properly will require all parties to share timely information which we believe will be difficult to achieve in practice.”

Others were more directly concerned about the impact on contractors and some of the wider consequences too.

A survey from the Association of Independent Professionals and the Self Employed (IPSE) found that more than half (54%) of individuals working through Personal Service Companies in the public sector would leave if the proposal came into effect.

Nearly four in ten (39%) of the Personal Service Company respondents indicated that they would be forced to increase their day rate to compensate from tax losses. 

IPSE Chief Executive Chris Bryce argued that the proposals would have a negative impact on contractors and on the wider public.

"This proposal will damage not only the affected 26,000 Personal Service Companies (PSCs) working in the public sector, which contribute £3.5 billion to the economy, but their clients and agencies too,” he said

He continued: "Public services will ultimately suffer most from this proposal. Public sector bodies, seeking to salvage and maintain large scale projects, would have to find alternative resources - or hire PSCs at an increased rate - leading to significant cost to the taxpayer. Even HMRC's own published research has shown it to be a bad idea. And what of the future? So far this proposal applies to only public sector contracts - but for how long? If these rules were applied to the private sector the consequences would be beyond disastrous.”

Concerns have also been raised by agents in the public sector. A survey completed by the Recruitment & Employment Confederation found that seven in ten HR managers at public sector outfits believed that the proposals would have a negative impact on councils, hospitals and schools.

Managers complained that the proposal would put the public sector’s ability to attract and afford senior contractors in doubt.

“Highly skilled contractors, who are able to work flexibly, clearly play a hugely important role in the modern economy. The government should take these responses into account before enacting legislation.” Neil Armitage, Operations Director

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