The Chartered Institute for Personnel and Development (CIPD) reports that new IR35 tax rules, which have to date caused enormous disruption in the public sector, may well be extended to the private sector “as early as spring 2018.”
The warning comes from Geoff Fawcett, Director of recruitment giant Hays, who told the CIPD: “It isn’t a matter of whether [the private sector extension] will be implemented, the question is when.
“It could be as early as spring 2018, but with the current political landscape and the ongoing uncertainty, it might be pushed back until 2019 or later.”
The controversial new rules, which were widely condemned by a range of professional bodies representing the staffing industry and contracting professionals, targeted independent professionals who are contracting via their own personal services companies in the public sector.
These contractors have, since April, had their tax status determined by their public sector hirers. If their contracts are designated as inside IR35, then they are automatically taxed as employees despite receiving none of the statutory benefits that income tax and employees’ NICs pay for (e.g., paid holiday leave, paid sick leave, maternity and paternity leave). Many have suffered substantial pay cuts as a result.
Crawford Temple, CEO of Umbrella Company trade association PRISM, fears the worst if the rules are extended beyond the public sector. He told People Management magazine: “As we negotiate our exit from the EU, it’s imperative that the UK remains an attractive place to do business. Pushing this damaging legislation into the private sector will have a catastrophic impact.”
Julia Kermode, CEO of the Freelancer and Contractor Services Association (FCSA), another Umbrella Company trade body, has expressed similar sentiments, stating: “The gig economy has been widely credited with enabling economic recovery so far, so it is unthinkable that the Government might be prepared to jeopardise this.”
Meanwhile, the CIPD’s performance and reward adviser, Charles Cotton, warns that if trends emerging in the public sector are replicated elsewhere, then private sector employers will run the risk of contractors raising their fees to offset the new tax burdens, a cost increase that some will not be able to afford.
Should the IR35 rollout to the private sector proceed as predicted in 2018, it will do so in distinctly obstinate denial of research findings from contractor tax specialist Qdos Contractor, which in April revealed that 85 per cent of the contractors polled were prepared to stop working in the public sector if they were designated as inside IR35. Virtually all (95 per cent) warned that the public sector would be thrown into crisis – a prediction that appears to be becoming truer with every passing week.