Suggestion made that public sector contractor changes will come to private sector.
There are indications that the treasury is considering extending ‘off-payroll’ rules to the private sector. Changes to the IR35 regulations were introduced in in April this year when hirers in the public sector became responsible for determining the status of an assignment to supply services through a Personal Services Company (PSC), government sources have implied that the new rules may be extended to the public sector.
“The public sector has undergone a behavioural change which means we are seeing far fewer [workers] offer their services through service companies and yet the private sector is able to carry on with that behaviour unchecked.”
Mel Stride
Financial Secretary to the Treasury, Mel Stride, said in an interview with the FT this week that there was an “issue of fairness” in deciding whether to apply the same rules to the private sector as now exist in the public sector. He added that, “The public sector has undergone a behavioural change which means we are seeing far fewer [workers] offer their services through service companies and yet the private sector is able to carry on with that behaviour unchecked.”
According to research from APSCo found 45 per cent of professional recruitment consultancies have witnessed the costs of resourcing contractors within the public sector increasing since the new rules were introduced in April this year. Of these, 46 per cent reported that rate rises were in excess of 15 per cent. Furthermore, 78 per cent of respondents agreed that the extension of the IR35 Off Payroll rules to the private sector will impact the ability of the UK economy to source flexible labour.
“We have long assumed that HMRC is continuing to consider an extension of the Off Payroll rules into the private sector,” said Samantha Hurley, director of operations at APSCo. “However, like our members, we believe that this will have an adverse impact on the strength of the UK’s labour market and wider economy.”
“Mr Stride has said that efforts to improve compliance in the public sector appeared to have had a ‘significant impact’, highlighting how 90,000 additional public sector workers have been taxed as employees in the three months after the reforms were introduced in April,” she continued. “However, he has conveniently glossed over the fact that these individuals are likely to be charging higher rates for their services as the market adjusts by passing on additional tax and NI costs to the public sector client. Therefore, the cost to the public sector for the same resource is greater than before.”
Hurley added that the government seems to be approaching the issue from a position of assuming that all self-employed workers are avoiding taxation.
“There is no doubt that such changes will have a significant impact on the dynamics of the UK flexible labour market, and cause damage to client organisations and contractors at a point when Brexit and EU negotiations are critical for UK business and jobs confidence. Flexibility is key to the competitiveness and the future growth of our economy,” she said.
“Self-employed contractors are a vital resource to the UK economy and to undermine this sector would cause significant damage at a point of uncertainty and instability. The Government is trying to compare ‘apples with pears’. A self-employed contractor does not have guaranteed continuity of work or benefits associated with ’employee status’, such as sick pay, and so it is inappropriate to tax them in the same way.”
Meanwhile, Qdos Contractor has called for the Chancellor to shed light on this damaging speculation in the upcoming Budget on 22nd November. “If private sector reform is, in Mel Stride’s own words, ‘an issue of fairness’, then out of fairness our sector deserves to know the Treasury’s plans for the future of IR35 sooner rather than later,” said Seb Maley, CEO of Qdos Contractor. “We all know what happened when public sector changes were introduced in April following years of uncertainty.
“While further reform is ill-advised, it can in fact be managed. But the government must learn from its mistakes. The Chancellor has an opportunity to shed much needed light on plans for IR35, which we urge him to address in the upcoming Budget.”
Mr Stride’s comments follow his claim last week that public sector reform – introduced in April – has increased compliance in the sector. In Parliament, he explained: “Early analysis of tax receipts between April and June shows that around 90,000 additional new engagements occurred in the public sector above the level that would normally be expected. This indicates more individuals are being taxed as employees since the reforms, and is consistent with the Government’s expectations that the reforms would increase tax compliance in the public sector.”
Seb Maley notes: “That 90,000 contractors are now working inside IR35 in the public sector following reform does not necessarily indicate increased compliance. As a result of changes, numerous public engagers made blanket IR35 decisions to safeguard themselves. And let’s not forget that the very tool HMRC provided to set employment status is fundamentally flawed and in some cases provides inaccurate determinations.”
“IR35 is a complex and ambiguous legislation,” he concludes. “Working practices must be reviewed individually and on a case-by-case basis, by unbiased and experienced specialists. It’s concerning that a largely untrusted digital tool has been used some 450,000 times to help set IR35 status.”
Source: The Global Recruiter| 31st October 2017