Public sector organisations are shouldering the costs of recent changes to legislation around ‘Off-Payroll’ working. That is according to the latest research from The Association of Professional Staffing Companies (APSCo).
Key findings of the report include:
- 70% of recruiters say contract placements in the public sector have dropped
- 45% report charge rates for contractors working in the public sector are increasing
- 78% believe extending rules to the private sector will impact UK economy’s ability to source flexible labour
The findings from this survey, sent to 1494 professional recruitment firms, aligns with the recent conclusions drawn from a survey by ContractorCalculator of over 1600 contractors.
What are the IR35 reform changes?
Since April this year, hirers in the public sector have been responsible for determining the status of an assignment to supply services through a Personal Services Company (PSC). Contractors deemed to be working ‘inside’ IR35 legislation are taxed in the same way as employees, even though professionals operating through this model have no employment protection rights and have no certainty of continuity of work.
Those responsible for deciding status within the public sector often have little visibility over how the contractor works, and so are arguably not best placed to make the determination. As the organisations fears liability for any outstanding employment taxes or National Insurance contributions, many ‘err on the side of caution’ and automatically place assignments ‘inside’.
APSCo survey results
The APSCo survey found that 45% have witnessed the costs of resourcing contractors increasing since the new rules were introduced. Of these, 46% reported that rate rises were in excess of 15%.
As well as increasing spend, public sector organisations are also having to contend with shrinking talent pools, with the majority (70%) of respondents reporting that contract numbers in the public sector have decreased since April 2017.
Public sector bodies unable to make proper determinations
When asked about their perceptions of how public sector organisations are managing changes, over half (51%) said that clients have not got access to the tools and expertise necessary to make the correct determination, while 43% said that, in their opinion, the HMRC employment status tool does not generally produce reasonable status decisions.
Likely impact if rolled out to private sector?
A robust 78% of respondents agreed that the extension of the IR35 Off Payroll rules to the private sector will impact the ability of the UK economy to source flexible labour.
Higher rates, adverse supply, and higher costs
Samantha Hurley, Director of Operations at APSCo, said: “As we feared, it seems that these changes have had an adverse effect on the supply of contractors to the public sector. The increase in rates which has been noted can be attributed to two factors: the scarcity of resource created by candidates moving into the private sector and the market adjusting by passing on additional tax and NI costs to the public sector client.”
“As APSCo warned, it would appear that HMRC’s calculations of anticipated savings, which didn’t take into account additional expense to the public sector, will be over ambitious.”
“We assume that HMRC is continuing to consider an extension of the Off Payroll rules into the private sector. Like our members, we believe that this will have an adverse impact on the strength of the UK’s labour market and wider economy.”
“The rise of professional contracting delivers multiple benefits to the UK economy through a highly productive and skilled labour force available on demand. Introducing the Off Payroll rules into the private sector without a full understanding of the market and the impact that an increase in costs will have on private sector productivity could have a devastating effect on UK competitiveness.”
ContractorCalculator comment on the APSCo survey
Commenting on APSCo’s members survey on IR35 in the public sector Dave Chaplin, CEO of ContractorCalculator said: “The Apsco survey of agencies aligns with the results from our own IR35 survey of public sector contractors, and reinforces the damage and chaos caused since the IR35 Reforms came into effect in the public sector in April."
"HMRC cannot continue to deny the facts being presented from multiple sources but they continue to blatantly ignore the damage that has been inflicted on the public sector under the new legislation. Our research along with this latest APSCo survey supports the overwhelming evidence that any further roll out to the private sector would be hugely damaging to the UK overall."
"HMRC’s employment status tool (CEST) is clearly not fit for purpose, as many sources are now saying, and HMRC needs to stop trying to strong arm public sector bodies into using a tool that effectively tries to override the laws set in the courts."
"43% of APSCO’s members said that ‘the HMRC tool does not generally produce reasonable status decisions in light of the factual realities of placements’. When will HMRC listen – we have been highlighting the failure of their tool for months."
"They cannot appoint themselves judge and jury on matters of employment status – they do not have those powers and their attempts with their CEST tool have not worked. They need to pause, reconsider, and park the juggernaut approach they have taken to IR35 Reform before they cause more damage to UK Plc. and the entire economy.”