The reality of public sector IR35 reform begins to emerge

17th October 2017
Written by Nigel Nordone

APSCo survey reveals impact on public sector recruitment

The recent IR35 Forum minutes following the meeting held on 17 July 2017, paints a picture of success regarding the off-payroll reform in the public sector, celebrating that the CEST (Check Employment Status for Tax - previously named the ESS) tool has been used 450,000 times and provided a determination in 85% of cases.

The Forum minutes suggest that HMRC remain unconcerned about masses of contractors leaving the public sector, nor are they troubled about contractors who are forced to take a lower rate of pay to continue to provide their services.
Shortly after the Forum minutes were published, attendees heavily criticised HMRC for not telling the whole story, leaving out serious concerns about the reform which were mentioned in the meeting.

Reported drop in contract placements

Whilst HMRC continue with rose-tinted glasses about the reform, recruiters have revealed the negative impacts of the reform on the industry.

The Association of Professional Companies (APSCo), have recently undertaken a survey which has revealed that the costs of engaging contractors in the public sector has risen considerably since reform was introduced in April this year.

Additionally, 70% of APSCo members surveyed have noticed a drop in the number of contractors placed, and 50% of members noted a decrease in PSC (personal service company) contractors from 75% in April 2016, to 20%, whilst here was an 82% increase in the number of contractors using an umbrella company.

An unnamed APSCo member commented:

“The negative impact on the public sector has been huge – partly due to the fact that many contractors might leave the sector, but primarily because the majority of the clients do not understand the changes and are still either making blanket decisions or doing what they can to ensure the roles fall inside the legislation, for whatever reason. Many managers who understand the role in detail are having status decisions overruled by either procurement or finance.”

A bold budget proposed for November

Philip Hammond is due to announce the Autumn Budget on 22nd November, which is reported to encourage “bold” solutions, including housing and tax relief, in a seemingly desperate bid to regain some popularity – particularly among younger voters.

The contracting community has its fingers crossed that IR35 reform in the private sector will not be on the agenda – with 78% of APSCo survey respondents agreeing that potential private sector reform would affect the ability of the UK economy to source flexible labour. Despite the growing concern around reform coming to the private sector however, 62% of contractors surveyed by Qdos Contractor remain positive that reform can be managed.

This is surely just the tip of the iceberg and further news along the same lines will undoubtedly emerge as the consequences of the reform unfold. For now, HMRC remain seemingly oblivious and the notes of the meeting suggest they do not intend to listen to reason anytime soon.

Nigel Nordone
Written by
Nigel Nordone
Nigel Nordone is the Head of Tax at Qdos, after working for HMRC for over 20 years as a tax inspector. We’ve decided to forgive him for this little transgression as his knowledge of how HMRC handle enquiries and compliance checks is really beneficial for both Qdos and our clients. Nigel specialises in employment status and has personally represented hundreds of clients who have been subject to a HMRC IR35/employment status enquiry.

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