With the Autumn Statement nearly upon us, many of us in the limited company accountancy business are considering what impact the proposed changes to the treatment of “off payroll” workers in the public sector may have on UK PLC.
For those that don’t know, here’s a quick summary of how public sector contractors are treated now and how they are expecting to be treated post April 2017:
At present, a contractor providing their services to the public sector will often operate via their own Personal Services Company (PSC) and it is their own responsibility to decide whether they fall inside or outside IR35.
This means that if they declare themselves outside of the legislation and pay themselves dividends, should they be challenged and be found to be IR35 caught then the liability to repay tax and penalties falls on them alone.
Under the proposed changes, from April 2017, it will be the responsibility of public sector engagers to ensure that their contractors are paying tax correctly and will be forced to treat all of their workers as salaried individuals unless then can PROVE they are outside IR35.
The controversial IR35 changes coming in April 2017
These changes to the tax treatment of public sector contractors are proving controversial and have been greeted with dismay by both hirers and contractors.
Hirers will see a new layer of bureaucracy and paperwork – and potentially a huge cost should they get things wrong.
Contractors will see a new attack on their working practices and a potential reduction in their income.
Adverse effects of the proposed IR35 changes: a mass talent exodus
It’s easy to imagine what is likely to happen when highly paid contractors are told they are about to be taxed as employees. Most contractors have taken a decision to work flexibly, and have given up job security and benefits as a result.
They are normally highly skilled and have been taken on by clients to provide services that can’t be found in house. Often they are supplied by recruitment agencies who do not provide PAYE services.
These contractors operate via PSCs to protect themselves from potential labilities and to allow them to market themselves as professionals, not just to gain the tax benefits that limited companies can offer.
If a contractor is suddenly told that he’s about to be taxed as an employee then they face a stark choice – take the pay cut or simply walk out.
More bad news as some hirers won’t wait
Computer Weekly recently published a story concerning 30 contractors at the UK Hydrographic Office who walked out over this very issue.
The article says that IT contractors were told that the UKHO would no longer accept an independent contract review as proof of IR35 compliance and made tougher demands that led to be being difficult to work as a contractor.
They were further told that they could sidestep the issue if they agreed to be taxed as PAYE employees from 1st September 2016.
It is understood that 30 out of 32 IT contractors decided to leave.
The future of public sector contracting
The One Click Group will be keeping a close eye on developments and will of course be publishing details of any other mass walk outs that we may hear about.
In the meantime, we will continue to lobby and push for changes to the legislation and will provide more details once the Autumn Statement becomes public.