AS2016 (3): Fury at clampdown on public sector contractors

by Susie Hughes at 11:47 24/11/16 (Political News)

The Autumn Statement dealt a blow to freelancers who work in the public sector, as the Government ignored pleas from industry and trade bodies to rethink their clampdown.

The Government had proposed to change IR35 to tackle the so-called ‘false self-employment’ in the public sector. Currently it is up to the individual doing the work to determine their IR35 status. However, this proposal would shift the liability onto the public sector organisation or recruitment agency which engages the individual’s business. The client/agency will then be responsible for applying employment taxes to those businesses that are deemed to be ‘caught’ by the new rules. Many business organisations warned the Government of the potential for disaster on the delivery of public services if the measures were pushed through. However, a paragraph in the supplementary documents published after the Chancellor's Autumn Statement dashed hopes of a reprieve. It said: Advertisement "Off-payroll working rules – Following consultation, the government will reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company. The government believes public sector bodies have a duty to ensure that those who work for them pay the right amount of tax. This reform will help to tackle the high levels of non-compliance with the current rules and means that those working in a similar way to employees in the public sector will pay the same taxes as employees. In response to feedback during the consultation, the five per cent tax-free allowance will be removed for those working in the public sector, reflecting the fact that workers no longer bear the administrative burden of deciding whether the rules apply." This means that the 'burden' of ensuring that the 'right' amount of tax is paid shifts from the contractor to the agent or possibly the client. Trade bodies were dismayed at the news. There was even a 'sting-in-the-tail, as it was revealed that the five per cent tax-free allowance, originally brought in as an IR35 'sweetener' would be removed for those working in the public sector. Agency group, APSCo, who had previously warned that their members were 'frustrated' with the proposals, described it as a 'disaster for public sector talent supply' and predicted that the UK would now have one of the most inflexible labour markets in the world'. The freelancers representatives, IPSE, were equally concerned and saw it as targeting the self-employed for a 'cash grab'. They thought that the changes to rules would inflict irreparable damage to the public sector at a time it needs its contractors the most. Chris Bryce, IPSE Chief Executive, said: “The Government must now justify this decision. It has chosen to ignore the advice of the business and freelance community. We want to know why. It would be totally justified for contractors to walk away from the public sector." Reaction: APSCo - 'furious' Samantha Hurley, Operations Director at The Association of Professional Staffing Companies (APSCo) said: “The Government has announced that it is to introduce IR35 tax changes, which will result in Personal Service Company contractors in the public sector losing their right to determine their tax status. We are furious that the Government has ignored all industry stakeholders and has overridden the concerns of its own departments. This change will give recruitment firms and other engagers, who pay the contractor, liability and responsibility for operating payroll and paying the correct taxes to HMRC. "These changes will convert the UK from having one of the most flexible labour markets in the world to having one of the most inflexible labour markets in the world. "Despite the Government framing this as a duty on the public sector to ensure that those who work for them pay the correct tax, the reality is that the vast number of contractors work via recruitment firms and other engagers. In fact, it is these unconnected third parties that will bear the responsibility and legal liability for making the correct decision on tax status - namely whether the contractor is working in a similar way to an employee, and therefore liable for paying same taxes as an employee, which is an over-simplification of IR35. Advertisement "This is a disappointing and illogical move. The public sector will inevitably see its costs rise at a time when budgets are already very tight. A survey of independent professionals undertaken in July this year by IPSE, a membership body for independent professionals and the self-employed, revealed that 39% of respondents would work on public sector contracts but would increase their day rate to compensate for the extra tax liability. The same survey showed that over 50 per cent of respondents would refuse to work on public sector contracts – or would terminate contracts if required to pay tax and NICs as an employee when delivering services independently. We are already seeing the public sector’s access to talent being severely impacted – there have been walkouts from a Ministry of Defence Agency which has left several major IT projects on hold. “The Chancellor has just promised large scale investment in infrastructure and science and digital innovation to the tune of £23bn over the next five years. However we would question how the public sector will deliver on this promise when HMRC has just destabilised the flexible labour market in the UK, which Government Departments and local& regional Government rely on.” APSCo questioned what assessment HM Treasury had made of the impact of these changes on the delivery of these projects. The group was also sceptical about the reliability of an online tool which it says will determine an individual’s tax status. As a result, it believed that most placements will be treated as within IR35 in order to mitigate risk- this is likely to result in multiple appeals and employment claims against the public sector. Ms Hurley concluded: "We are also extremely disappointed that the Government has chosen to act now rather than take the more logical approach of waiting for the review of self-employment taxation announced in the Autumn Statement.” Further news and information Shout99 will provide comprehensive coverage, reactions and expert comment on all issues relating to freelancers and small businesses in our Political News section. Tweet -- If you wish to comment on this article, please log in and use the Reply button below. Registering is free and easy - see 'Join Shout99'. - Susie Hughes © Shout99 2016

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