The Telegraph has been exploring the implications of extending public sector IR35 rules to the private sector – and the outlook is not pretty.
The newspaper interviewed a range of contracting professionals and industry experts following the recent tax tribunal which upheld HMRC’s claim against BBC presenter Christa Ackroyd. The Revenue had argued that Ms Ackroyd, who had delivered her services through a personal service company (PSC), was in IR35 regulations and ought to be taxed as an employee. The tribunal agreed, and the presenter now faces a tax bill in excess of £400,000.
Citing research by contractor tax advice service Qdos Contractor showing that flexible workers have little confidence that they will be treated fairly if IR35 moves to the private sector, the Telegraph illustrates the financial impact of being redesignated as “inside” the rules. A PSC contractor earning £50,000 a year would find his or her annual tax bill soaring from the self-employed level of £2,000 to the employee level of £13,000, despite receiving none of the employment benefits employee tax and NICs pay for.
The newspaper also cites information from online contractor advice service ContractorCalculator, indicating an alarming exodus of self-employed contracting professionals from the public sector as a direct consequence of the new IR35 rules. For instance, as many as a quarter of NHS contractors, including nurses and locum doctors, abandoned the health service after the reforms were introduced in April last year.
Qdos Contractor CEO Seb Maley told the newspaper that most contractors fear being wrongly misclassified as inside IR35 by private sector engagers, with hugely negative financial implications for them.
He added, “It’s therefore essential that private sector engagers are ready to make well-informed decisions on a case-by-case basis – to protect contractors and the company’s own tax liability.”
One contractor, locum dermatologist Dr Sarwat Shah, told the Telegraph that she had undergone eight separate IR35 assessments, which included using HMRC’s online tool, each of which categorised her as falling outside the rules. Despite this, the NHS deemed her an employee, costing her thousands a year in tax and cutting her income by half. Dr Shah said she knew of lots of people in the NHS who had given up altogether, some emigrating to Australia, the US or India.
In a separate piece penned for the Telegraph, ContractorCalculator CEO Dave Chaplin cites a recommendation from the Taylor Review to grant employment rights to self-employed workers if they are taxed as employees. He continues:
“Curiously, Government doesn’t see fit to consider these recommendations in conjunction with the IR35 legislation. It needs to align its thinking soon. Otherwise, instances similar to Christa Ackroyd’s case will become increasingly commonplace.”