In IR35

Another major body in the recruitment and employment industry has joined APSCo and Umbrella Company trade bodies PRISM and the Freelancer and Contractor Services Association (FCSA) in calling for the Government to radically re-think plans to change IR35 rules in the public sector next April.

Following a survey of public sector employers by the Recruitment and Employment Confederation (REC), its Head of Policy & Public Affairs, Kate Shoesmith, concluded: “HMRC’s current consultation on ‘Off payroll working in the public sector’ is causing consternation amongst recruiters and employment intermediaries, their clients, as well as contractors and interims.”

HMRC proposes that liability for determining whether IR35 is or is not applicable to contracting professionals and interim managers should be shifted from the individual contractor (the present arrangement) to the hirer. That would include public sector end clients, recruitment agencies and employment intermediaries.

Should a contractor working via a Personal Service Company (PSC) be deemed “inside IR35,” the hirer will, under the proposed arrangements, become responsible for deducting National Insurance and Income Tax prior to paying the balance.

More worrying, however, was the finding that the changes, described by Ms Shoesmith as “deeply flawed,” will damage public sector employers’ ability to attract the highly skilled contracting professionals whom they desperately need to go on delivering public services. Should the proposed crackdown on PSCs proceed as planned, 43 per cent of employers believed that fewer contractors and interims would choose to work for them., while 26 per cent believed that they would be forced to decrease their use of these professionals. Just ten per cent thought that the proposals would make no difference.

HMRC’s belief that too few PSC contractors are currently paying the right amount of tax sits uneasily with its own research. A recent Revenue study into changes to intermediaries’ legislation concluded: “Many used temporary staff and considered them to be central to the success of their business – primarily in terms of the flexibility and skills they provided…Businesses saw the changes as being potentially costly, burdensome and constraining. This concern was shared even by those who rarely used PSCs.”

PRISM CEO Crawford Temple has recently re-asserted his organisation’s view that the only solution for a level playing field for contractors is a strategic review of the UK’s tax system, a project which PRISM is currently seeking to conduct with the independent Social Market Foundation think-tank.

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