A new survey of public and private sector professionals, conducted by Harvey Nash Recruitment Solutions, reveals that 80% of contractors believe the impact of IR35 on the public sector has been “very negative”. The survey of more than 500 UK contractors, as well as business leaders and line managers clearly demonstrates the deeply negative impact of the regulation.
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.
Impact on Public Sector
One year since IR35 was rolled out into the public sector, the survey reveals a significant and synchronistic attitude towards the new legislation.
In fact, of those surveyed:
- 50% have noticed a reduction in available contracts
- 49% have only sought contract opportunities in the private sector
- 43% have paid more tax
IR35 has created an uncertainty that hinders a contractor’s business by impeding on its financial strategy. This has led to 9 out of 10 people feeling stressed, worried or angry when they think about the impact of IR35 on their livelihood.
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.
Implications for Private Sector
Research from Qdos Contractor has found ‘76% of UK contractors believe that private sector IR35 reform will be announced in 2018’ – despite protestations from industry experts and representatives.
The majority of those surveyed believe that plans to extend IR35 to the private sector, will have a “very negative” impact on not only the economy (62%), but levels of productivity (62%) and innovation (68%). This will prove highly challenging in sectors where skills shortages are already causing strain.
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 reveals 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, research reveals that 1 in 3 found the tool to be “very ineffective”. The tool has proved unreliable, often determining incorrect results.
Seb Maley, CEO at Qdos Contractor commented: “Contractors are vital to the economy and contribute an estimated £119bn each year. It’s imperative these workers are able to continue working without the threat of being wrongly placed inside IR35.”
Kate Cottrell, Managing Director at Bauer & Cottrell, added: “The implementation of IR35 to the public sector continues to cause enormous disruption and, in some cases, real financial misery to those in the contractual chain.
“We are still waiting for HMRC to publish guidance, research and the consultation document on the proposed roll-out of the rules in the private sector. The public sector has been the guinea pig in this and it is time to call a halt to this experiment before considering a roll-out to the private sector.”
Colin Morley, Professional Services Director at Harvey Nash Recruitment Solutions summarises, “one year on and the introduction of IR35 to the public sector has proved highly problematic. The levels of frustration, fueled 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 so?
“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.