Autumn Statement: Bad news for contractors; bad news for economy

The headline news from this Autumn Statement is not good. Not good at all. The Government is going to push ahead with changes to the way IR35 works in the public sector. IPSE believes the changes will result in contractors being unfairly taxed more than they should be. These businesses will turn their back on public sector contracts and this will mean projects will be under resourced and vital public services will not be delivered. It’s is a disastrous measure and the Government is making a big mistake.

From April 2017, public sector organisations or the agency (where one exists in the chain) will determine the IR35 status of engagements and then, if caught, apply taxes as they would for their employees, through the RTI system.

Over the Summer IPSE spared no effort in pointing out the flaws in this plan. It will lead to over compliance as clients and agencies will be risk-averse. Because the rules are so complex, they will not know whether IR35 should apply and they will be unwilling to assess every engagement individually. Instead they will say the new rules apply to all engagements, and in a stroke, thousands of entirely tax compliant businesses will have an artificially high rate of tax applied without even being given the chance to object.

This will not end well for the public sector. Our research has shown it will force over half of contractors out of the public sector while the rest increase their pay rate. So public sector organisations will not be able to attract the talent needed to get the work done, or they have to pay more to get it. It is likely organisations will turn to the ‘big four’ consultancies to fill the void and then the costs will really soar.

It will also create huge problems around employment rights. Suddenly contractors will be paying tax at the same rate and in the same way as employees, yet they will not have any of the associated employment rights. The Government believes they will accept this; I am not so sure. To me it seems logical that those paying employment taxes might expect employment rights and IPSE will be seeking a legal opinion on whether this point can be challenged.

IPSE is very disappointed by this outcome, but we are not going to stop shouting about it. It is such an unfair measure, and it will be so damaging, it is incumbent on us to continue to point out its flaws. At the very least we need to hold the Government to account and make sure they recognise the problems this will cause. If we don’t, they may just look to roll out the same rules in the private sector too, and that would destroy one of the UK’s greatest resources – it’s flexible labour market.

Read more on this and other announcements from the Autumn Statement in our round up

 

Tax

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