IR35 ‘highly destructive to public and private sectors’

Some 80% of contractors believe the impact of IR35 on the public sector has been ‘very negative’.

That’s the finding of a new survey of more than 500 UK contractors of public and private sector professionals, business leaders and line managers, conducted by Harvey Nash Recruitment Solutions.

One year since IR35 was rolled out into the public sector, the findings reveal a significant and synchronistic attitude towards the new legislation. HMRC has been heavily scrutinised by tax experts and the business community for its poor implementation of IR35, causing unnecessary costs and destitutions for small businesses.

In fact, of those surveyed: 50% have noticed a reduction in available contracts; 49% have only sought contract opportunities in the private sector; and 43% have paid more tax.
If contractors are found to fall within IR35, payments made cannot be gross and must include tax and NIC deductions. The deductions can therefore amount to a significant drop in earnings. In response to this, 42% of contractors have increased rates to balance the cost of being caught within IR35, compared to just 16% in 2017.

The issue here is that public sector authorities are already struggling to budget for such a rise in cost across the board. Accepting this increase in cost is one way public sector bodies are responding, but with just 5% of contractors considering full time, permanent employment, the remaining options are indeed limited.

If (or when) IR35 is introduced to the private sector, one out of two contractors said they will continue to contract in the UK, however they will seek contracts outside IR35. The survey also found that HMRC is failing to provide the affected parties with clear information, with just 8% of contractors citing it as a reliable source of information. Many are turning to industry press (20%), their accountant (24%) and external experts within the industry (24%) for advice.Furthermore, one year on since HMRC introduced their IR35 Check Employment Status for Tax (CEST) tool, 1 in 3 found the tool to be ‘very ineffective’. The tool has proved unreliable, often determining incorrect results.

Colin Morley, professional services director at Harvey Nash Recruitment Solutions summarised: “One year on and the introduction of IR35 to the public sector has proved highly problematic. The levels of frustration, fuelled by the rudderless and sometimes contradictory IR35 forum meetings, have resulted in mistrust.

“Impact assessments have not been conducted within the public sector to investigate the effectiveness of IR35. Has it returned the circa £400 million to the Treasury that it promised to do? Without concrete data, it seems irresponsible to roll out the same set of rules into the private sector when the consequences could be significantly contentious.”