• Prospect of IR35 extension to private sector tops contractors’ concerns

  • 2 Aug 2017
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Experts say worries unsurprising given ‘havoc’ caused by public sector changes

The prospect of the IR35 rules being extended into the private sector is contractors’ top concern, research has revealed.

Almost half (48 per cent) of contractors surveyed by Qdos Contractor said the possibility of the recent IR35 rule changes – which have lead to public sector contractors having their employment status determined by the organisations which hire them since April, costing many a substantial proportion of their pay – being rolled out into the private sector is what keeps them up at night the most. This beat competition for getting contracts, cited by 18 per cent, lack of support for self-employed workers (17 per cent) and other concerns such as Brexit, declining rates, and issues surrounding scaling up as a business (7 per cent).

While over a third (36 per cent) of the 777 contractors surveyed would continue their current work if IR35 was rolled out more widely, 33 per cent would turn to full-time employment, 19 per cent would try out a different career, and 12 per cent would consider emigrating or taking early retirement.

Speculation about the rules extending into the private sector remains rife, and separate research from consultancy Green Park found that over half (56 per cent) of HR directors believed the government will broaden the regulations in this way. Around two-thirds (67 per cent) warned they would have trouble recruiting contractors and interims if this extension happened.

Julia Kermode, chief executive of the Freelancer & Contractor Services Association, told People Management that the research results did not surprise her given the “havoc we have seen unfurling since the reforms came into effect”.

“This requires a structural change to the regulations, not knee-jerk changes driven by tax collection for the Treasury’s coffers which have the potential to starve the growth of the economy and strangle the flexibility of the labour market,” she said.

Meanwhile, Andy Chamberlain, deputy director of policy for the Association of Independent Professionals and the Self-Employed, said the findings are a “clear warning to government that this measure, if introduced in the private sector, will result in a reduction in economic activity and ultimately, less revenue for the exchequer”.

And Crawford Temple, chief executive of the trade body for umbrella companies, PRISM, added: “Rolling out changes that are constrained by current systems will not be a long-term solution and will just perpetuate the sticking-plaster cycle of legislation.”

However, Dave Chaplin, chief executive and founder of ContractorCalculator, said he was surprised more contractors were not concerned about the rules being extended into the private sector

“They either don’t think it will happen, or perhaps naively think that they will be ok and stay working outside IR35,” Chaplin said. “The latter group will be failing to understand that actual status won’t help them if blanket decisions are used to mitigate risk, as we have seen happening in the public sector.”

An earlier investigation by People Management revealed a number of public sector contractors were opting to retire early rather than work under the IR35 rules.

A spokesperson for the Treasury, said: “This reform only applies to the public sector. However, the government of course wants to see improved compliance with the off-payroll working rules across all sectors. As with all areas of government policy, we will keep this under review.”

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  • I am concerned that once HMRC manages to push this through, they will then start to look at those smaller firms supplying professional services where the person supplying a service is on their premises for some time and carrying out work which the ultimate client has specifically requested to be done in a particular way. Some Accounting firms, Construction Surveyors and Consulting Engineers work this way. All this will do is drive small firms out of the market. It is already happening to the IT industry: Which industry will be next?

    Unfortunately IT contractors haven't been strong enough to demonstrate that they are genuine businesses or perhaps they don't feel themselves that they are genuine businesses. I don't understand why some contractors have taken this stance: some simple organisation and a bit of spending (and its only a bit) would demonstrate a genuine business organisation.

    Hopefully HMRC will try it on a few firms of lawyers and find that they wont roll over quite so quickly!