gears up for IR35 private sector crackdown – say industry folk

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The UK government is gearing up for a massive tax clampdown on private sector contractors, in an extension of its IR35 regime to hundreds of thousands of freelancers outside the public sector.

This according to multiple contractor recruitment heads, with one claiming those plans have already started and will be introduced next year.

In just three weeks, the government will shift the responsibility for compliance with the intermediaries legislation onto the public body or recruitment agency employing them. The Treasury estimated in its budget document last week that this will swell its coffers by £185m for the year 2017/18.

Dave Chaplin, chief exec of ContractorCalculator, said: "All the experts think the public sector plans are a dry run for rolling it out to the private sector, as it does not make sense to have two sets of rules. Although the process has been chaotic, the dust will settle and they will be looking to extend it."

Gerry McLaughlin, chief exec of IT Contractor, said he has already heard reports of large consultancies funnelling their contractors through umbrella companies rather than their personal service companies in anticipation of a broader crackdown.

"There seems to be no reason why the government would want these changes to be made in the public sector only. If they think it is wrong, as they have said, that someone who is incorporated pays less tax and national insurance than an employee on the same income, it's highly unlikely that they only think it is unfair in the public sector."

Project self-harm

A survey by Qdos Contractor revealed that 85 per cent of public sector contractors would leave their roles should they be caught inside IR35 after 6 April. Of the 2,000 surveyed, 95 per cent said this would be to the detriment of current in-flight projects.

Seb Maley, chef exec of the site, said: "It is very damaging to have the two systems running, as the public sector will suffer as a result of that. Many of our contractors are already doing that before their status [was] even determined. The whole process has been so badly handled."

But he said it "will be a different kettle of fish when they do introduce this to the private sector, which will be far more commercially resistant." There are huge numbers of contractors currently working for private sector companies, said Maley. Of Qdos' own 70,000 members, 80 per cent work privately.

"Hopefully the government will have learnt its lesson from how it has been handled in the public sector and introduce the changes with greater consideration, preparation and communication."

But according to some, the government is already pushing ahead with plans of tax changes for next year. Richard Harrison, managing director at Xpertise Recruitment, said on a LinkedIn post that a contractor had been privy to the changes.

Secret plans?

"[We've] found out a contractor working at HMRC is working on a project to bring these new stricter IR35 regs to the private sector in 12 months," Harrison said.

However, the government denied it has any "current plans," in a noncommittal parliamentary response earlier this month on when the plans would be extended to the private sector.

Financial Secretary to the Treasury Jane Ellison said: "The government has no current plans to extend these changes to the private sector, but keeps all taxes under review."

But others in Parliament have also expressed concern about the damaging effects of the crackdown on public sector operations.

Labour MP Tulip Siddiq said she was disappointed at the lack of certainty in the budget for those who are anxious over changes to the IR35 tax system.

"It seems that the Chancellor will press ahead with these populist changes, doing little to ensure a fairer tax system, and could push thousands of contractors away from the public sector," she told The Register.

"As a result, the government will have to contend with the possibility of a greater skills gap and threats to the viability of major government projects. Given the challenges facing our economy over the next few years, the government would be wise to give public sector contractors the long-term security they need."

By extending the rules to the private sector, not only would the government raise some much-needed cash, but it could also stem the exodus of contractors to the private sector. In the medium-to-long term, at least.

When it does, freelancers will have nowhere to turn. ®

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