Changes to current IR35 legislation after April 6th have left many worried about the potential loss of contractors working in the public sector as a result.
According to research from contractor tax adviser, Qdos Contractor, 85% of public sector contractors are planning to leave the public sector should they be subject to new IR35 changes in April.
After April 6th, the responsibility for determining the status of a contractor will no longer be down to the intermediary agent and instead will be down to the end client, the public sector bodies themselves.
These changes will only apply to the public sector, with no plans currently to roll it out into the private sector too. This means that those hurt by the changes are more likely to seek work in the private sector instead, meaning that the public sector is potentially going to see a skills and talent drain.
If the end client decides that IR35 does apply then the contractor will be charged tax as if they were an employee. However, this will not change their employment status and means that they will still miss out on employee benefits like pensions, holiday and sick pay that other employees are entitled to.
Will government departments be hit worst?
Most of the 2000 contractors in the survey believe that government departments will be hit the most by the potential walkout of many contractors from the public sector. 42% of those surveyed are currently working in the public sector.
95% of those surveyed say they believe that large scale public sector projects are likely to suffer as a result of this. 12% said that projects like the HS2 will face problems.
26% say that they are concerned for the future of the NHS who will struggle with a loss of contractor. 13% say that they also worry that the BBC and the Ministry of Defence will suffer.
CEO of Qdos, Seb Maley said the “Budget did little to improve the already fractured relationship between contractors and government. But whether it’s the NHS, HS2 or government departments for that matter, it’s fair to say that every public sector body or project will be worse off should there be a walkout.
“Changes are a matter of weeks away, and HMRC’s tool for determining IR35 status has only just been released. Questions remain over its effectiveness and accuracy, and put simply people are still wondering what to do.”
Due to the complex nature of this legislation, it’s thought that some clients under any doubt would rather apply IR35 to be on the safe side as they will be held liable if they falsely claim that someone is outside it.
In order to address these concerns a new clause has been added to IR35 legislation. Public sector bodies are now urged to treat IR35 decisions with “reasonable care”.
If they fail to do this, they then become the “fee-payer”. This means that they are then responsible for deducting PAYE and National Insurance as well as paying Employer National Insurance.
Clients should ensure every contractor case is considered independently and fairy or face liability. The same rules will apply if public sector bodies do not give their IR35 decision within 31 days.
Maley says: “Put simply, this means that public sector clients must not make general, blanket determinations” of freelancers’ IR35 status.
“Wrongly placing freelance contractors inside IR35 will come at a significant cost to contractors themselves, with public sector bodies and agencies suffering too if a lack of care is taken.”
Are you worried about the changes next month? If you’re a public sector contractor, what are your plans? Share your thoughts in the comments section.