The 2016 Autumn Statement has come been revealed, and, well, hmmm.
The big news is that the proposed IR35 reforms in the public sector – widely lamented by contractors and industry experts – will see the light of day.
Despite this vociferous opposition, from April 2017, public sector engagers will be responsible for whether a contractor is inside or outside of IR35, the liability of tax and the contractor status.
What does this mean? Well, with these new rules in place, it seems likely that the majority of public sector organisations who currently employ contractors will look to place them on their permanent payroll – giving the same tax and employment benefits that full time employees currently have.
But this will make a significant dent in the benefits contractors will have enjoyed previously, such as rate of take home play and the flexibility.
In many cases, the pros of being a contractor outweigh the cons, and somewhat inevitably, there has already been some pretty significant walk outs in the public sector due to organisations pre-empting the autumn statement and making changes ahead of time.
Chris Bryce of IPSE has not been backwards in coming forwards regarding his view on the statement.
“IPSE believes the changes will result in contractors being unfairly taxed more than they should be,” he said. “These businesses will turn their back on public sector contracts and this will mean projects will be under resourced and vital public services will not be delivered. It’s is a disastrous measure and the Government is making a big mistake.”
Colin Ben-Nathan, tax partner at KPMG in the UK, pointed to a series of logistical implications if the reforms are to be met by April 2017 – less than six months away from now (if a calendar isn’t close to hand).
“Under the new rules, it is the public sector body (or an agency in the supply chain) that will be responsible for determining whether IR35 applies,”he said. “But determining someone’s status for IR35 purposes is not straightforward and, even with the automated tool which HMRC are currently building to assist with this (which they say will be ready for April 2017), the likelihood is that public bodies (and agencies) will be tempted to ‘play it safe’ and deduct PAYE and NIC in most circumstances. This will then leave the contractor or personal service company (PSC) to pick up the pieces themselves if they disagree that deduction should apply. Added to this, the resulting employer NIC cost will fall on the public sector body which will likely need to negotiate a reduction in the PSC’s rate in order to cover the additional cost. This, coupled with the need to join-up the accounting and payroll departments, will all need to be done in time for April 2017…a tall order indeed!”
Let’s face it – the news isn’t great for the contractor community, and there are fears that the reforms may not be limited to the public sector in the future.
But some are less convinced that the news will have the massive effect others have predicted. Seb Maley, CEO at Qdos Contractor, believes that with the need for change now confirmed, the necessary parties will step up to the plate.
“Clearly agencies do not want the burden and risk of IR35 dumped at their door,” Maley explained. “Whilst they are the party paying the contractor, they are also the party furthest from the reality of the engagement – which is ultimately what IR35 revolves around. However, they are also acutely aware of the risk of losing highly skilled workers. For as long as the IR35 rules remain unchanged in the private sector (we’ll see how long that lasts) agencies risk a migration of workers out of public sector engagements. This is why I genuinely believe many agencies will do their best to implement a process which will not penalise contractors who are working - and will continue to work - compliantly. It is in everyone’s interest.”
Rightly or wrongly, the reforms are happening and they’re happening soon.
Should you want some peace of mind, we offer a full contract review amongst other services to help you prepare for IR35. We’ll give a pass or fail based on the current contract you hold, along with comprehensive comments on how to improve any problem areas.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news and contractor guides.