IR35: Who do the April 2017 Changes affect and what are your choices?

Ideology v. Pragmatism: the choice facing public sector contractors   

I grew up with an interesting mix of public sector and private sector parents - one a teacher all her working life, the other a printer, who spent most of his life in the private sector before joining the HMSO, only for it to become the Stationery Office and with it a swing back into the private sector. 

Inefficient, sluggish and poorly managed were terms frequently used to describe the public sector in my growing up and, from their anecdotes, I can’t disagree with their assessments based on their personal experiences.

But for all that, my Mum remained an ardent supporter of the public sector and my Dad an ardent critic from a practical perspective. Ideologically they were both supporters. 

And the essence of their difference of opinion is one facing many public sector contractors this spring. No doubt many are big fans of the public sector, but pragmatically, perhaps not so much.

On the 6th of April 2017, the recruitment industry faced a change to IR35 for contractors in the public sector. 

We’ve been moved from a position where the contractor makes an assessment of his or her IR35 status to a position where the end client has to make that assessment.

Now that in itself is a plan with many deficiencies.

2017_IR35_changes

For sure not all contractors are tax experts, but most contractors who work through their own limited companies will at least have a friendly accountant who helps them with their tax affairs on a month to month or year to year basis anyway. Usually they are at least reasonably well placed to get an explanation of what it means, even if they themselves are not immediately familiar with it. 

This is not the case for our public sector hiring managers who are – for example - IT managers, ward sisters and deputy heads of teaching staff, and it was with very little lead-time that the first publicly available guidance became available from HMRC. Not enough time for busy workers to familiarise themselves with what can be a complex topic.

So what the recruitment industry is facing is hundreds of thousands of hiring managers in the public sector who aren’t tax experts, but who are being asked to make tax assessments, when the guidance was only published two months before the change took effect. 

I think that may be outside even the bounds of the wide new vistas of training that the Apprenticeship Levy will be supposedly opening up: another change that came in on the same date, incidentally.

So what is clear is that many of our clients have been blindsided.

But where does this leave the contractors who will now have their tax status foisted upon them by someone ill trained - or even not trained at all - to make that choice?

In a similarly unsatisfactory position.

In the first instance, they have no right of appeal against a decision about their tax status which in many cases will be made by someone not qualified to make it. Secondarily, if they are deemed inside of IR35, they will be taxed at source so the payment they receive for their services will be net of PAYE and NICs.

Which brings me back to ideology vs. pragmatism. Some contractors are wedded to the public sector: it suits their ideology – they want it to work. Some have limited alternative options because most of the jobs in their chosen profession are in the public sector, so even if they wanted to jump ship, they have limited opportunities to do so.

But if your skill sector is not public sector dependent, then since the 6th of April, the private sector has become simply a less administratively burdensome place to work, leaving you with more control over both your business and your finances. Difficult choice? I don’t think so.

For sure this might be the last hurrah. We might be facing the end of IR35 as we have known it. It’s hard to imagine that a Government strapped for cash won’t seek to roll out the same legislation into the private sector in a year’s time; in two year’s time. But for now, this change doesn’t affect the private sector. And for now, the private sector is probably looking like a more appealing option for many, many contractors.


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