IR35 Lessons to be Learnt from the Public Sector
Just over a year since the government introduced its controversial changes to off-payroll rules, known as IR35, within the public sector, it has opened its consultation on similar reforms planned for the private sector.
These off-payroll rules apply to contractors working through their own personal service companies (PSCs), who would otherwise be considered employees if directly engaged.
In April 2017 the government shifted the responsibility for determining an individual’s employment status to the public authority hiring them. This led to a sharp increase in the number of re-classified workers, required to pay broadly the same income tax and national insurance contributions as employees.
Impact of IR35 changes on the Public Sector
The principle of equitable taxation seems fair enough, but the way the 2017 changes were undertaken were ill-thought out, affecting the lives of thousands of people.
Rushed assessments and botched decision-making caused an exodus of contractors from the public sector, creating significant resourcing and recruitment problems for some sectors, including the NHS. Many public authorities reported project delays, skills shortages and increased pay rates for contractors trying to offset sudden tax bills. The HMRC has since admitted that the much maligned online system for deciding employment status, called CEST (Check Employment Status for Tax), is not fit for purpose and needs to be revised.
Since the 2017 changes, the government has tried to play down the impact and imply the effect on public sector recruitment was minimal, but there has since been a growing body of evidence that shows it was not only poorly conceived, but was executed without a thorough understanding of the initial and longer term impact on individual workers.
IR35 and the BBC
Recent evidence presented at the Digital, Culture, Media and Sport Committee by BBC presenters has also hinted at the human cost, along with the potential complications and dangers of rolling out such a process to the private sector. Harrowing personal stories from individuals facing financial ruin, extreme cases of stress, depression and attempted suicide, make uncomfortable reading. Further compounded by revelations that the BBC actually coerced hundreds of workers into PSCs in the first place, yet is now failing to recognise them back as workers or employees, with little or no employment rights. This presents just one example of the complexities that surround the UK taxation system and worker status definitions.
IR35 and the Private Sector
The IPSE (the Association of Independent Professionals and the Self Employed) believes that:
“Extending the IR35 changes to the private sector will cause further chaos, and will damage the competitive advantage of the UK workforce – its flexibility – at a time when it is needed the most.”
With over 5.5 million private businesses in the UK, compared to 50,000 public sector bodies, the government will need to learn from its mistakes and do a lot of careful planning and groundwork if it is going to succeed in pushing through the next phase of IR35 reforms on such a massive scale.
This latest consultation process at least acknowledges that timeframes need to be significantly extended and is giving people an opportunity to comment and provide alternative ideas and suggestions, but plays down the recent negative press and implementation problems.
If off-payroll rules are likely to affect your business and your workers, please make sure you have your say at:
https://www.gov.uk/government/consultations/off-payroll-working-in-the-private-sector