HMRC reforms survey highlights damage HMRC is causing

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Public sector organisations are shouldering the costs of recent changes to legislation around ‘Off-Payroll’ working. That is according to the latest research from The Association of Professional Staffing Companies (APSCo).

Key findings of the report include:

·       70% of recruiters say contract placements in the oublic sector have dropped

·       45% report charge rates for contractors working in the public sector are increasing

·       78% believe extending rules to the private sector will impact UK economy’s ability to source flexible labour

What are the IR35 reform changes?

Since April this year, hirers in the public sector have been responsible for determining the status of an assignment to supply services through a Personal Services Company (PSC). Contractors deemed to be working ‘inside’ IR35 legislation are taxed in the same way as employees, even though professionals operating through this model have no employment protection rights and have no certainty of continuity of work.

Those responsible for deciding status within the public sector often have little visibility over how the contractor works, and so are arguably not best placed to make the determination. As the organisations fears liability for any outstanding employment taxes or National Insurance contributions, many ‘err on the side of caution’ and automatically place assignments ‘inside’.

APSCo survey results

The APSCo survey found that 45% have witnessed the costs of resourcing contractors increasing since the new rules were introduced. Of these, 46% reported that rate rises were in excess of 15%.

As well as increasing spend, public sector organisations are also having to contend with shrinking talent pools, with the majority (70%) of respondents reporting that contract numbers in the public sector have decreased since April 2017.

Public sector bodies unable to make proper determinations

When asked about their perceptions of how public sector organisations are managing changes, over half (51%) said that clients have not got access to the tools and expertise necessary to make the correct determination, while 43% said that, in their opinion, the HMRC employment status tool does not generally produce reasonable status decisions.

Likely impact if rolled out to private sector?

A robust 78% of respondents agreed that the extension of the IR35 Off Payroll rules to the private sector will impact the ability of the UK economy to source flexible labour.

Higher rates, adverse supply, and higher costs

It seems that these changes have had an adverse effect on the supply of contractors to the public sector. The increase in rates which has been noted can be attributed to two factors: the scarcity of resource created by candidates moving into the private sector and the market adjusting by passing on additional tax and NI costs to the public sector client.

It would appear that HMRC’s calculations of anticipated savings, which didn’t take into account additional expense to the public sector, will be over ambitious..

It is assumed that HMRC is continuing to consider an extension of the Off Payroll rules into the private sector. This will likely have an adverse impact on the strength of the UK’s labour market and wider economy.

The rise of professional contracting delivers multiple benefits to the UK economy through a highly productive and skilled labour force available on demand. Introducing the Off Payroll rules into the private sector without a full understanding of the market and the impact that an increase in costs will have on private sector productivity could have a devastating effect on UK competitiveness.

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