In IR35

PRISM, a trade association for Umbrella Companies, has called on the government to carefully weigh up all options prior to launching its consultation on extending reformed IR35 rules to the private sector.

The organisation itemises the baleful effects these reforms have already had in the public sector:

Increased costs

  • To retain contract staff, PSBs have had to raise pay rates. While this can be offset by increased taxes in the public sector, private sector firms will not have this option
  • Advice from IR35 experts and lawyers has proven necessary – and costly – for PSBs. Private sector firms would struggle to bear these additional expenses
  • As HMRC software has proven woefully unreliable, additional costs are incurred by outsourcing calculations

Decreased compliance

  • The rules continue to be applied incorrectly
  • Contractors who feel unjustly penalised are being drawn toward tax avoidance schemes to maintain net income.

Greater complexity

  • For public sector bodies (PSBs): failing to understand the complex new rules, many PSBs adopted a “zero risk” blanket approach to IR35 determinations, which unfairly dragooned all their contracting staff into “inside IR35” status
  • For contractors, who have been given contradictory advice by their engagers and accountants about their IR35 status, with many taking substantial pay cuts due to being taxed as employees, despite receiving no employment rights
  • For accountants, who frequently find that involved amounts fail to match amounts paid
  • For recruitment agencies: existing software cannot adequately compute the new rules

PRISM cautions that these unintended but damaging consequences must be recognised and given due consideration before forging onwards with any extension of the rules to the private sector.

Private enterprises will require adequate time to plan and prepare for change. If the rules are imposed too quickly, as in the public sector, many firms will be placed under considerable financial pressure because many existing, active projects, which frequently run over several years, have already been costed and accounted for.

PRISM CEO Crawford Temple said:

“In 2014 there were significant changes that affected the construction industry with many expert commentators warning that the changes would hit many companies in the sector who run long term contracts that have already been costed, Carillion being a good example. This shows the importance of not rushing legislation through and giving businesses a clear direction and timeframe to amend their structures.”

PRISM recommends an alternative strategy based on Matthew Taylor’s recent work and its own Social Market Foundation study into modern employment. Drawing on both, it has produced clear proposals in its publication “The Case for Strategic Reform” which emphasises:

  • Simplification
  • Compliance
  • Enforcement

PRISM will continue to engage with ministers, MPs and civil servants to press the case.

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