IR35 reform: what the contractors think


The UK public sector benefits from the expertise of around 26,000 contractors at one time. They’re the flexible, highly-skilled labour force propping up our NHS, our Civil Service, our police service and countless other vital organisations – and they’re under threat.

As IPSE members will no doubt be aware, the Government has proposed an extremely damaging change to the way these contractors can offer their services. While they’re currently responsible for assessing their own relationship with their client (and thus whether they’re taxed as a business or an employee), the Government may now shift this responsibility on to the client or the agency.

The problem is that clients and agencies, fearful of making the wrong call, will almost certainly play it safe and declare that their contractors actually work like employees, even in cases where they clearly do not. The contractor will then be taxed through the RTI system, but won’t receive any of the benefits of employment. Matt Cocker, for example, runs a small management consulting and marketing company, and he stands to lose out enormously. “I have no confidence that the interim agency would have any skills, or willingness, to take my company tax position into account,” he says. “They would err on the side of least risk and apply the tax regardless. The onus would then fall on me and my accountant to unwind and recover any overpayments, which could take a couple of years to recover”.

All the evidence suggests the Government has neither considered the full impact of these proposals nor whether they can be practically implemented. As Nigel Simpson, an independent contractor working for the MOD, points out, it simply isn’t appropriate to place the onus on a client who doesn’t have a grounding in tax law: “The tax status of my company is not a matter that can be fairly assessed by a third party. Despite the professional assessment of my legal advisers, I can never be sure when committing to a contract what its tax status will be judged to be at a later date by an unknown and unqualified party.

Chris Reilly is a contractor in the finance industry and suggests that the Government needs to recognise the value of flexible workers like him. “The Government needs to be encouraging, not hindering, contractors like me who stand ready to assist in shaping the UK economy during these uncertain times,” he says. “I would be a strong candidate to deliver value both to the taxpayer and other stakeholders, but I’m currently pondering whether to put myself in the running for these contracts.” He’s right; IPSE research shows that contractors working this way contributed a massive £37 billion to the UK economy last year and to penalise contractors would be to miss the point entirely.

One public sector contractor, who wishes to remain anonymous, goes further – they might be forced out of working in the public at all. “This is because,” they say, “it is very unlikely that I would be able to increase my day rate to compensate for the additional tax liability.”

Let’s be absolutely clear: if the IR35 proposals are implemented, there will be no winners. Contractors, unwilling to be taxed as employees without receiving employment benefits, will simply turn down public sector contracts and leave expensive consultancies to fill the void. There’s also the potential for these changes to be extended to the private sector too. So if you haven’t already done so, now’s the time to make your voice heard.

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