Business groups are seriously concerned about IR35 in the public sector

Last week IPSE responded to the government proposal to change the way IR35 works in the public sector. We are very concerned by plans to make the end client (or agency) responsible for determining IR35 status and then deducting tax and National Insurance at source, as they would for employees. IPSE believe the proposal will drive freelancers and contractors out of the public sector, damaging the delivery of vital public services. And we’re not the only ones expressing alarm.

Over the last few months IPSE has engaged with a range of business groups and affected individuals. There is universal concern the proposal will have unintended, negative consequences and many have urged the government to reconsider.

What the business groups are saying

IPSE is absolutely clear that public services and the flexible economy will be dangerously hurt. This view is echoed by the Recruitment and Employment Confederation (REC) who say the changes would cost public sector bodies talent and money. REC undertook a survey of the public sector organisations that would be directly hit by the proposal. It found seven out of ten of those surveyed were concerned by the proposal, leading REC’s Chief Executive, Kevin Green to say:

At a time when the public sector is struggling to recruit talent because of a declining pool of people with the right skills, this could really spell trouble for the effective running of the NHS and other vital public services.

The Association of Professional Staffing Companies (APSCo) has said from the outset that the proposal is “unworkable, disproportionate and unreasonable”. Samantha Hurley, APSCO’s Operations Director, goes on to say:

We believe that recruitment firms will not be able to take on this kind of unknown liability and so will have to assume that the contractor is inside IR35 which will result in large numbers of contractors in ‘false employment’ – and it will also mean that contractors lose control of their business tax affairs. Last but not least the public sector is likely to lose access to the skills they need as contractors will be too expensive – and will choose to work in the private sector.

The CBI is opposed any increase to the costs for businesses that engage contractors.

Employers are currently in no better position than HMRC to identify disguised employment,Josh Hardie, Deputy Director-General of the CBI told Contractor UK. He went on:

The proposal to transfer responsibility to employers for determining the employment status of flexible workers risks increasing the costs on business without properly addressing the issue.”

The Freelancer and Contractor Services Association (FCSA) believes the government’s plans will lead to deemed employment, incorrect calculations and overpaid taxes. Chief Executive Julia Kermode said:

The public sector is already stretched and relies on the invaluable skills of the flexible freelance workforce.  Evidence suggests that the introduction of these reforms will see contractors less likely to choose public sector assignments, which in turn will exacerbate current skills shortages and potentially generate new ones… It is unthinkable that Government might be prepared to jeopardise this essential workforce at the current time, and I hope that policymakers will listen to our concerns.

Accountants are worried too

Accountacy groups have technical concerns. The Institute of Chartered Accountants in England and Wales (ICAEW) believes end clients are likely to be more risk-averse than PSCs when assessing whether or not IR35 applies to a particular engagement. “This will result in the IR35 rules being applied more frequently and in cases where tax law does not indicate employment status,” it said.

The Association of Chartered Certified Accountants (ACCA) believe the proposal will lead to public sector bodies spending more tax payers money on the big consultatncies:

There are ways around it for the engager,” explained Jason Piper, senior manager of Tax and Business Law, to Contractor Calculator recently. “The likelihood is risk-averse public sector clients will attempt to de-risk their supply chain by engaging with companies that clearly aren’t intermediaries. The easiest way to do that is to engage with a huge plc.”

And finally, even HMRC itself has published its own research which found: “A common view among organisations was that they would ‘err on the side of caution’ in order to ensure compliance, this in turn would result in them using PSCs less or put them into the payroll more, either way undermining the PSCs’ key benefit of flexibility.

It seems like everywhere you turn the message is the same: this proposal will damage contractors, agencies and clients. It will reduce flexibility at exactly the time we need it most. And it will do all of this in the vain hope it will generate a small amount of additional taxes – which many believe won’t materialise anyway.

The sheer weight of opposition to this proposal gives IPSE hope that the government might reconsider, but we’re not being complacent. We have taken every opportunity available to us to tell government just damaging this will be. Our CEO has spoken directly to the Prime Minister on this issue; we have sent a letter to the new Chancellor, signed by many of the associations featured in this blog; and we’ve complied survey and academic evidence to inform our consultation response. Now we are asking for your help.

What you can do

We want you to write to your MP to explain how the proposal will affect you. Help us to get the government to see sense. This proposal is deeply unpopular, it will do more harm than good and we, and many others, are urging the government to think again.




Tax, HMRC, IPSE News, ir35

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