The freelance sector is anxiously waiting as Mr Hammond prepares for his Budget on November 22nd.
There are strong hints that the IR35 reforms that came into effect in the public sector in April will be rolled out into the private sector, perhaps as soon as April 2018. This is in spite of the devastation that the changes have caused to the public sector, particularly the NHS.
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 might be inevitable. Dave Chaplin is CEO and founder of online contracting site ContractorCalculator. Here is his take on some of the reasons why the private sector might be hit and some reasons why the Government might pause for thought and reconsider.
Reasons why the IR35 reforms will hit the private sector
- A two-tiered system is crippling: 98% of the contractors ContractorCalculator 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.
- The public sector is 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%.
- A solution is 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 has not been met: HMRC claims IR35 non-compliance costs the Treasury £400m each year, but only expects the partial reforms to yield £45m over the next two years. Where will the remaining tax come from?
- HMRC is in denial about the real 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 are 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 get the go ahead.
- The 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
- Huge business backlash is likely: Proposing a private sector rollout would spark a furious response from contractors and business as a whole.
- The 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.
- The fear of crippling the 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 its strategy and next steps.
One of two possibilities
Over the last 18 years there has been considerable misjudged and damaging legislation heaped on the contracting sector and the sensible option would be to repeal the IR35 reforms altogether. A two-tier system is of course also wrong. However, repeals rarely happen, and neither the Government nor HMRC are in the habit of admitting when they have made a mistake.
So, I think there are two possibilities. We will see HMRC and the policy makers go full steam ahead and announce a rollout in April 2018. Or Government will relax the stringent application of the IR35 reforms in the public sector for a year whilst they take stock, and then consider how to roll out a tweaked version in April 2019. Either way it spells disaster for the private sector, UK plc. and the UK economy overall.
About Dave Chaplin
Dave Chaplin is a former IT contractor in the City of London, and is founder and CEO of ContractorCalculator, and author of the Contractors' Handbook and Beat IR35: The ultimate guide to IR35 for contractors, agencies and clients.
Started in 1999, ContractorCalculator.co.uk is the leading independent website for the UK contracting industry – most of whom are highly skilled knowledge workers.
Dave Chaplin has lived and breathed contracting since he first took the plunge and became ‘one of the chosen’ in 1997. He spent seven years working as an IT contractor in the City of London on critical, cutting-edge IT infrastructure and development projects for global players like HSBC, Merrill Lynch, Cable and Wireless, and many others.