With the recent IR35 changes to the public sector having caused such chaos in certain sectors (such as the critical nurse shortages in the NHS), PRISM is urging for the government to look for other options before having the private sector face the same fate.
The association notes that the IR35 changes have already resulted in:
Increased complexity:
- For the public sector who do not understand the rules and who have often taken a “no risk” blanket approach to the application of IR35 to the detriment of the workers
- For the workers who have been given conflicting advice by their accountants and engagers as to whether they are inside/outside IR35. Many have seen pay reduced to employed levels while acquiring no employment rights
- For the accounting profession since invoiced amounts do not match amounts paid
- For agencies since software has been unable to deal with the new rules. This is not yet fixed.
Reduced compliance
- As previously stated the rules are not being applied correctly
- Workers who feel unfairly penalised are seeking out tax avoidance schemes to retain a net pay figure. HMRC needs to ensure that it is on top of these schemes since the tax leakage is substantial.
Increased costs
- The Public Sector has had to increase rates to retain staff. Although this may be offset in the Public Sector by extra taxes in the private sector this will not be the case
- The cost of taking advice (from IR35 experts and lawyers). These costs would not be easy to bear for private sector companies
- The cost of outsourcing calculations (since software not compatible).
PRISM is concerned that if changes are put in place and they are rushed, this will put private businesses under too much pressure, as ongoing / future projects will already have been accounted and costed for.
Crawford Temple, CEO of PRISM, commented, “We have just seen one of the largest construction companies fail with one reason being cited as increasing costs to deliver. In 2014 there were significant changes that affected the construction industry with many expert commentators warning that the changes would hit many companies in the sector who run long term contracts that have already been costed, Carillion being a good example. This shows the importance of not rushing legislation through and giving businesses a clear direction and timeframe to amend their structures.”
Temple added, “A good example of this is the notice given to the soft drinks industry on the introduction of the sugar tax. Businesses were given 3 years notice of the change and the market has moved significantly, so much so that the chancellor confirmed that they would not collect as much tax as predicted.
“Business can and will adapt when given clear notice and direction together with adequate time to implement the changes.”
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