Hard-hitting changes to the IR35 rules come into force today, affecting thousands of public sector contractors. But despite warnings from industry experts that the reforms will cause a crisis in the public sector, coverage in the mainstream press has been conspicuous in its absence.
As of 6th April (today), limited company contractors can no longer decide and declare for themselves the IR35 status of their contract. This decision is now down to the public sector body they are working for.
At the same time, responsibility for making the necessary deductions is now that of the “fee payer” – the party paying the limited company – be it an employment intermediary, recruitment agency or public sector body.
With many contractors choosing to leave the public sector because of fear and uncertainty surrounding the changes, HMRC has been accused by some stakeholders of “sabotaging” the public sector.
Although the reforms were trailed in 2016’s Spring Budget and November’s Autumn statement, the final legislation did not emerge until just a few weeks ago in the Finance Bill 2017.
Many public sector bodies and fee payers were waiting on this before deciding how they were going to act. Further hesitancy was caused by the delayed release of HMRC’s online tax status tool, which was only launched a month ago. As a result the introduction of the new rules has been somewhat chaotic, with many still struggling to understand exactly what they need to do to comply.
Commenting on the tight timescale, Seb Maley, CEO of consultancy firm QDOS Contractor said:
“It’s not left people with a great deal of time to finalise their plans, and there is a lot of panic and confusion going on in the market as a result. Back when it was the Budget (March 2017), we were saying they should delay it or introduce a grace period or delay the reforms until the autumn, because it’s clear that no-one is prepared.”
With no such stay of execution, many public sector bodies have imposed blanket decisions on the IR35 status of the limited companies they are engaging. However this goes against the “reasonable care” provision in the final legislation, as Julia Kermode, CEO of the The Freelancer and Contractor Services Association (FCSA) explained:
“The final IR35 legislation states public sector bodies have a duty to take reasonable care over making these determinations, but this is not what we are seeing in practice. Although what these public sector bodies are doing is not right, I don’t know what else they can do at this juncture because they have (had) to give everyone a determination before 6 April”.
This certainly adds weight to industry reports that contractors are voting with their feet to leave the public sector if they are caught by IR35 because of the reforms, or demanding higher assignment rates if they stay.
It is clear that this could potentially have a devastating impact on front-line services, particularly health and social care. Indeed BBC Kent reports that Margate’s QEQM hospital is anticipating a shortage of doctors amid fears that locums will refuse to work because of these changes and this is surely not an isolated scenario.
Wider awareness of this seems to be in the public interest which begs the question – why it has not attracted the attention of the national mainstream media?
But even if Joe Public remains oblivious, the experienced team at IR35helpline are sticking to our mission to support contractors and agencies as they find their feet under the new rules.