Evidence of the mess and havoc created in the public sector by rebooted IR35 legislation has been compiled in an article for the online IT news source ITPro.
The revamped legislation was widely criticised as unworkable and unfair during the consultation phase by a broad range of professional bodies representing contracting professionals and the staffing industry.
The aim of the revised legislation was clearly to sweep significantly more contractors into the new rules, re-designating them as employees for tax purposes. None of those affected, however, will be entitled to any of the statutory benefits that employee income tax and NICs pay for (e.g., paid sick leave, paid holiday leave, maternity or paternity leave). Unless they work via Umbrella Companies, neither will they be entitled to pension auto-enrolment.
ITPro journalist Joe Curtis cites the estimate by online resource ContractorCalculator that affected contractors could lose as much as 25 per cent of their income as a result of being “caught” by the IR35 rules.
He also references findings from a survey of 1,947 British contractors from tax advisory service Qdos Contractor. Revealingly, while 95 per cent of these respondents believe that IR35 will make contracting via a personal service company less attractive, a mere four per cent said that they would switch to becoming a full-time salaried employee.
The same study found that 85 per cent of contractors would exit the public sector completely if they were caught by the new rules, taking their much-needed skills and talents to the private sector instead.
HMRC claims that its online tool will help contractors determine their tax status by answering a series of questions, but evidence from ContractorCalculator has exposed serious inconsistencies in the instrument: of 21 historic IR35 court cases fed through the tool, it delivered wholly incorrect verdicts in more than a third of them.
Last week, IT jobs board CW Jobs published research in which almost half of the 1,000 contractors polled said that IR35 has already driven contractors out of the public sector, and 83 per cent saw private sector contracting roles as more attractive.
Umbrella Company trade body PRISM told Mr Curtis that it has identified more than a dozen cases in which the Revenue made the wrong decision as a result of the sheer complexity of the tax rules that public sector bodies must use on their contractor workforce.
PRISM CEO Crawford Temple said, “This is the most recent change to the tax legislation affecting contractors, and the mistakes being made by HMRC are causing confusion and further tensions across the market.
“This is more evidence, if any were needed, that the whole system of tax and employment legislation is too complicated for people to understand.”