A new study by global professional recruitment consultancy Harvey Nash has revealed the painful truth of public sector IR35 reforms, with 80% of the 500-plus contracting professionals polled reporting they believe the impact of the rules on the public sector has been “very negative.”
Business leaders and line managers were also polled in the survey. The impact of the regulation is described by the vast majority of respondents as deeply negative.
The study, conducted one year after the reforms were imposed on the public sector, reveals the extent of their damaging impact:
- 50% of those polled reported a reduction in available contracts
- 49% have abandoned the public sector, seeking contracts in the private sector only
- 43% have paid additional tax without receiving any of the statutory employment rights and benefits the extra tax pays for in the case of employees
9 out of 10 of the contracting professionals polled reported becoming stressed and worried when they contemplated the impact of IR35 on their livelihoods.
Tax deductions resulting from an “inside IR35” determination amount to an appreciable cut in income. To compensate, 42% of contractors say they have increased rates, a huge rise on the 16% who had done so last year.
Public sector bodies are predominantly accepting that increased contractor rates are a consequence of IR35 but are already struggling to budget for the across-the-board cost rises.
Recent research from Qdos Contractor found that 76% of contractors expect private sector IR35 reforms to be announced this year, despite widespread protests from industry experts and contractor representatives.
Colin Morley, professional service director at Harvey Nash Recruitment Solutions, said that it was plain that, one year after their introduction, the reforms were proving “highly problematic” with frustration and mistrust rising amidst “rudderless” IR35 forum meetings.
“Impact assessments have not been conducted within the public sector to investigate the effectiveness of IR35. Has it returned the circa £400 million to the Treasury that it promised to do so?” he says. “Without concrete data, it seems irresponsible to roll out the same set of rules into the private sector when the consequences could be significantly contentious.”
Noting that IR35 in the public sector had resulted in enormous disruption and real financial misery for some of those affected, Kate Cottrell, MD of contractor accountants Bauer & Cottrell said:
“We are still waiting for HMRC to publish guidance, research and the consultation document on the proposed roll-out of the rules in the private sector. The public sector has been the guinea pig in this and it is time to call a halt to this experiment before considering a roll-out to the private sector.