Contracting stakeholders are united in their belief that proposed reforms to IR35 in the public sector are unworkable and will result in huge additional costs to all parties involved.
Key members of the contracting industry gathered last week at a roundtable event hosted by the Association of Independent Professionals and the Self Employed (IPSE) to discuss the proposed reforms.
ContractorCalculator founder Dave Chaplin attended the meeting to share his expertise on IR35 and the complexities involved with building an online tool to assess IR35 status. He explained the reasons why he thinks HMRC will be unable to build a tool that will provide any level of certainty to anyone other than a very small proportion of contractors who are assessed.
Concerns were also raised with regards to the burden placed on contractor agencies, who would be required to assume responsibility for deducting contractor tax via real time information (RTI).
One expert commented that it would be almost impossible for an agency to reach an accurate calculation via RTI, as it would need to take the contractor’s whole tax year into account, including expenses incurred and whether they are tax deductible.
Attendees stated that the complexity involved would see many agencies outsource these duties, incurring further costs in the process. Meanwhile, many contractors would be expected to instead favour simpler payroll companies - such as umbrellas – ultimately placing the agency model at risk.
Agencies wouldn’t be the only ones to suffer. With 26,000 public sector contractors set to require testing, the burden on HMRC to provide support would be huge. The taxman estimates that the regime would cost £500,000 to implement. However, some stakeholders said the figure would in fact be much higher, adding that it would be cheaper for HMRC if it continued to police IR35 itself.
This is all dependent, however, on the notion that contractors would willingly be placed on a payroll. Stakeholders noted that contractors are likely to either turn down contracts marketed as inside IR35, or increase their rates to ensure that they receive the same net income. The former outcome would likely intensify public sector skills shortages, whilst the latter would render the scheme useless from the taxman’s perspective.
Questions were also raised as to whether a contractor should be able to opt out of an outside IR35 contract if it was subsequently determined to be within the legislation. Chaplin was amongst a number of experts advocating a clause to be written into contracts by agencies, granting contractors the right to terminate such contracts.
ContractorCalculator is currently conducting an important survey, the findings of which will be used to lobby Government against the proposed reforms. Please spare a moment of your time and take part, click here.