Autumn Budget: IR35 in private sector more ‘foolhardy’ than ‘fair’

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I was a contractor in the public sector working as a social worker in child protection. I had worked all over uk in remote areas and rented accommodation away from home during the week and traveled ...


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The extension of IR35 regulation has quickly become a topic no business relying on a contract workforce can ignore

Financial secretary to the Treasury Mel Stride was quoted saying that extending IR35 regulation of contract workers from the public to the private sector was “a matter of fairness”, and that there had been “no evidence of significant impact on attrition rates of contractors working in the public sector".

This has put the market on alert that the government will be applying the controversial changes to private sector businesses far sooner than many had hoped, and seemingly in complete disregard for the serious and ongoing impact it is having in the public sector.

The reaction from organisations close to the situation has been strong and largely uniform. The Association of Professional Staffing Companies (APSCo) predicted the move “will have a devastating impact on the flexible labour market”. The Association of Independent Professionals and the Self Employed (IPSE) has described HMRC as “in denial about the fallout from the public sector reforms".

As a business that places hundreds of contractors with both public and private companies every year, we’ve been actively advising businesses about what to expect and how to react to the changes.

1. Expect higher contractor costs...

When the regulation was first applied we saw a widespread movement of contractors from public sector contracts to avoid the burdensome regulation. This ‘boom’ in available contractors may soon turn to ‘bust’, as the increased burden on clients and candidates evens out across markets. Businesses must plan for an increase in contractor rates, particularly from areas where the workers are highly-skilled and business-critical.

2 …and shorter contract lengths

IR35 puts additional burden on contractors to prove that they are ‘genuinely’ self-employed and not beholden to one employer. This will apply pressure on contractors to seek shorter contract times so they can engage with multiple clients. For major projects this will require businesses to consider alternative resourcing, and will potentially increase the onboarding of permanent staff.

3. Status questions are coming

One of the most perplexing challenges set by IR35 is making it the hiring business’s responsibility to determine the tax status of its specialist skilled workers. Beyond having to hire or train in the skills to make such an assessment, companies can reasonably expect that their contractors may not always agree with the status they are given – which may cause frustration and delays.

The ambition for an effective consultation on IR35 is to encourage the creation of a more effective and easier to apply set of ‘tax statuses’; placing greater burden for clarity and categorisation on HMRC where it rightly belongs.

4. Get more consultancy from your recruitment consultants

As these changes come in it’s understandable that businesses will be looking to their recruitment partners for answers, solutions and support. IR35 is bringing significant new challenges to recruitment companies as well, and will fundamentally alter how they can provide candidates and manage their contracts. IR35 adds the need for recruitment companies to administer tax deductions on behalf of HMRC, and provide reports on the earnings and company details of self-employed workers.

The pressures this will add to recruitment companies will have a significant impact on the business and operating models of many. The age of ‘pile them high’ placement is quickly coming to an end, creating the environment for experienced, innovative and consultancy-focused recruitment to return.

Much of the above is based on a ‘worst case’ scenario where the lessons of IR35’s painful implementation in the public sector go unlearned. However, there remains reason to be hopeful. We, along with a number of our peers and leading industry bodies, will remain active in petitioning HMRC and the Treasury to accept consultation and advice from those who are closest to the impacts of this regulation. We are also encouraging our clients to join our calls for a better, more effective set of rules.

A healthy, thriving, flexible workforce is essential to the UK. It’s imperative for all organisations to become aware of IR35, and take an active role in ensuring business is not robbed of the skills, flexibility and power of a thriving contractor environment.

Pete Holliday is managing director of Sopra Steria Recruitment

Comments

Why is all this fear /comments I have seen about this all from recruitment agents? Wheres all the comments from consultants? If I was a betting man I would short Sthree and Robert Waters tommorow during the budget to drop 10% if this is announced


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I was a contractor in the public sector working as a social worker in child protection. I had worked all over uk in remote areas and rented accommodation away from home during the week and traveled home at weekends. There was thousands of social workers doing this Since IR35 changes came in April 7th this year the overwhelming majority of locum social workers left their roles. Remote areas like Whitehaven and Cornwall lost many staff which these Authorities will struggle to replace. Some Authorities like Gloucester and Devon are offering to pay the rent on accommodation for agency staff now in order to fill vacancies. Who suffers most is the children living in risky environments right now in these areas and whom no Social Worker is coming to keep safe. There are no Unicorns en route. I think it's important for organisations to get their heads around the fact that this Government does not care. Once I realised that it enlightened my thinking and I planned accordingly. Your arguments and lobbying are nobel and we'll meaning but it's not going to help. Understand this Government hates off payroll and is out to get you 100% regardless of the damage it causes. That's what not caring is. If you are contracting in the private sector your private company, from April 2018 will absolutely have tax and national insurance taken out of your income before it even gets to your limited company and you will not be able to offset any expenses. All you can do is plan ahead for this and if necessary changes jobs. I left my role in Devon and went to the Channel islands which is outside of IR35. After that I moved to Qatar. I understand not everyone can undertake such drastic action but when you are faced with your business and way of life getting taken off you buy HMRC. You may find the motivation because these changes are coming down the track like a train.


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I am a consultant for a council ALMO and they have taken the pathetic view that it is better to go safety first and deem everyone is inside IR35 if any aspect of the work that you do is covered in any job description within the council. This is not in the HMRC guidelines anywhere but is the typical ' let's not think outside the box' attitude the public sector bodies take. I have no doubt that the private sector will be a lot more innovative in engaging locum staff but it will take test cases going to court before public sector bodies adopt different attitudes. IR35 costs me in real terms £200 a week more than it would to be employed full time as PAYE member of staff without any of the benefits they enjoy. The government are trying to push everyone in to PAYE posts which is not practical or workable for most businesses. I am covering for a long term sickness and a lot of others in my sector are either being employed to do the same or for cover while a restructure takes place or maternity leave is taken. How are you supposed to operate as a business if locum staff are not available. As it's been said on other forums Locum rates have to increase substanitaly to allow for IR35 Or the locum sector of working will become full of poorly skilled people who can't get work PAYE. I am utterly dishearten by all this and i wait with anticipation to see if it does get rolled out in 2018 to the private sector. If it does, then i think we will see the legislation being exposed as being completely unfair by lots of disgruntled private companies..we will see


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