More industry experts have joined Contractor Calculator founder and CEO Dave Chaplin in expressing deep concerns about the implications for recruiters, contracting professionals and the public sector following newly-published draft legislation from HMRC concerning IR35 reforms for public sector contractors.

Mr Chaplin warned that the planned changes, which were confirmed by Chancellor Philip Hammond in his Autumn Statement, would cause significant damage to the public sector, as well as throwing the contracting sector into disorder. Taking issue with the new digital tool that the Revenue claims will accurately determine a contractor’s IR35 status, he dismissed it as an impossibility due to the inherent complexity of employment status.

Now Julia Kermode, CEO of Umbrella Company trade association the Freelancer and Contractor Services Association, has accused HMRC of powering ahead with a move that is ill-thought-through while disregarding the views of stakeholders in the sector, all of whom raised clear and logical concerns.

She said: “As widely predicted, we are starting to see public sector hirers managing their new liability through a wholesale ban on engaging freelance professionals through personal service companies, in at least one case I’ve heard of the hirer is instead turning to consultancy firms at significantly higher cost to taxpayers.”

Ms Kermode noted that there is no mention in the draft legislation of how a contractor may appeal a hirer’s decision concerning his or her IR35 status, suggesting that the Revenue either believes that there will be no disagreements or assumes that contractors will docilely accept a hirer’s decision.

While the draft contains measures to prevent double taxation of a PSC contractor’s income from public sector assignments, which may otherwise arise from PSC directors’ fees and dividend payments, Ms Kermode astutely pointed to a dearth of detail about how such protections would actually work. She added that until there is more clarity on the exact mechanism, there is no knowing if double taxation will be prevented or not.

Kate Shoesmith, Head of Policy at the Recruitment and Employment Confederation (REC) said: “We are deeply disappointed that the Government has introduced these plans despite opposition across all employer and contractor groups. Our research suggests that the IR35 changes could drive highly skilled contractors and interim managers away from the public sector. Even the HMRC’s own research earlier this year indicated that this could be problematic.”

Meanwhile, noting that the new rules will impose a statutory obligation on public sector end-clients to supply information to recruitment agencies as to whether the IR35 test is met, tax expert Patrick Ford of Squire Patton Boggs warned of an additional danger. Agencies will not be absolved of responsibility and will face substantial exposure if they are provided with inaccurate information by the public sector client.

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