Some public sector contractors missing out on 30% of income after IR35 changes

Some public sector contractors missing out on 30% of income after IR35 changes

16 August 2017

Some self-employed contractors lost 30% of their income in the wake of IR35 reforms that took effect in the public sector this in April.

As the dust settles around the changes IT recruitment company, CW Jobs, found that more than 70% of their clients saw a reduction in income after the IR35 reforms.

Of these contractors, a quarter saw a reduction close to 30%.

The IR35 reforms mean that contractors who work solely or primarily for public sector bodies are being taxed as if they were regular employees of that company. But are no receiving any of the accompanying benefits such as such pay or holiday entitlement.

Before the April reforms took effect, responsibility for determining a contractor’s IR35 status fell on the contractor.

Now, in the public sector, this responsibility lies with the company that engages the contractor.

Because there is no direct financial impact on them and they don’t want to get investigated by HM Revenue and Customs, these hiring companies are much more cautious in how they apply the rules.

There have been several problems in how the rules are interpreted, not least because some of the rulings from HMRC’s online tool sit awkwardly with examples of case law.

For a variety of reasons, reports have emerged of contractors are wrongfully being labelled inside IR35.

Significant income losses have driven many contractors to the private sector. And consequently, the public sector has experienced higher prices and a shortage of workers.

A director of CW Jobs said: “The IR35 changes have clearly had a huge impact and it is really worrying to see IT contractors leave the public sector in their droves.

“We are now facing a perfect storm of a brain drain from the public sector, questions over future project delivery, and an increase in fees from those contractors choosing to stay put: all are a real cause for concern.”

Richard Perch, Account Director at Umbrella.co.uk said: “These IR35 changes have made life more difficult for everyone – contractors, recruitment companies and public sector bodies.

“HMRC says it is about making sure contractors pay the right amount of tax. But where’s the incentive to work flexibly if contractors pay the same amount of tax as employees and get none of the stability, sick pay or holiday entitlement.

“If the government extends these reforms to the private sector as well as the public sector then I would expect most contractors to sharply increase their rates and many drop out of the flexible workforce altogether. This would be a big shame because contractors have been instrumental in driving economic growth and keeping the unemployment rate at record lows.”

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