Will the IR35 reforms hit the private sector soon?

Since the public sector IR35 reforms were introduced, many experts have have concluded that expansion into the private sector is inevitable, and that it’s a matter of ‘when’, not ‘if’

Some think a roll out could be as soon as April 2018. This is in spite of the devastation that the changes have caused to the public sector.

A recent ContractorCalculator survey found that 71% of public sector projects that had been using contractors had been delayed or cancelled since the reforms went live.

There are countless compelling arguments opposing a private sector rollout, but many worrying signs that it is inevitable. Here's what we think. Please tell us your views.

Reasons why the IR35 reforms will hit the private sector

  • Two-tiered system is crippling: 98% of the contractors we surveyed said they won’t work in the public sector again unless they are able to work outside IR35, or if the Government pays the extra tax.
  • Public sector struggling to hire contractors: Projects are being delayed and even cancelled as a result. Many of those that are able to hire contractors are being charged premiums of at least 25%.
  • Solution needed before Brexit: The Government will be eager to address this imbalance before Britain leaves the EU. A private sector rollout may be seen as a quick and simple solution.
  • HMRC’s tax target not met: HMRC claims IR35 non-compliance costs the Treasury £400m each year, but only expects the reforms to yield £45m over the next two years. Where will the remaining tax come from?
  • HMRC in denial about impact: Despite mounting evidence proving that the reforms have been calamitous for project delivery and particularly health services, the taxman denies that there have been any problems.
  • MPs ill-informed by HMRC: HMRC’s job is to raise money for the Treasury. If the taxman tells the Government that the public sector reforms were a success, a private sector roll out is likely to be made law.
  • Taylor Review supports HMRC’s arguments: The taxman often promotes IR35 as a mechanism to eradicate false self-employment, protecting the vulnerable workers the Taylor Review concentrated on. This argument could be used to force through a private sector rollout.

Reasons why the IR35 reforms won’t hit the private sector

  • HMRC says it has no plans: The taxman claims the private sector is ‘a very different beast’ and won’t be subject to the changes, though it wouldn’t be the first time HMRC has gone back on a promise.
  • Business backlash: Proposing a private sector rollout would spark a furious response from contractors and business as a whole.
  • Government is weak: Without a majority to rely on, it may be considered unachievable for the Conservatives to get a private sector roll out through Parliament.
  • Fear of crippling flexible workforce: The Tories have an underlying policy that any job is better than no job – the evidence so far should persuade them that private sector changes would result in a loss of jobs.
  • Government needs to consider reviews: There have been countless reviews into employment status of late – they can’t go ignored. The Government at least needs to evaluate responses to the Taylor Review before considering strategy.

‘One of two possibilities’ – ContractorCalculator’s view

“After the 18 years that I’ve been following this saga and observing all the misjudged and damaging legislation being introduced into the sector, nothing surprises me anymore,” says ContractorCalculator CEO Dave Chaplin.

“The Government would be crazy to leave the two-tier system in place, and mad to expand the rules into the private sector. The sensible option would be to repeal the IR35 reforms.

“However, repeals rarely happen, and neither the Government nor HMRC are in the habit of admitting when they are wrong.

“So I think there are two possibilities. We will see them go full steam ahead and announce a rollout in April 2018. Or Government will turn a blind eye to the IR35 reforms for a year whilst they take stock – and consider how to roll out a tweaked version in April 2019. Either way it spells disaster for the private sector.”

Will the IR35 reforms hit the private sector? We want to hear from you

You’ve read what we have to say on the matter. Now we want to hear your thoughts. Are there any other factors that could make a private sector rollout either more or less likely? Let us know via email on info@contractorcalculator.co.uk, or get in touch via LinkedIn or Twitter.

Published: Wednesday, September 13, 2017

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