Private sector could face the same IR35 fate as the public sector

(2 minutes to read)

With the IR35 public sector reform causing such havoc with the NHS and London Underground, it has now been revealed that there are serious talks about whether these changes will apply to the private sector too.

Despite the recent IR35 reform having such a negative impact on the public sector, it seems that the Treasury is now considering applying these changes to the private sector too.

It has been a long running rumour since the IR35 public sector reform, however, Mel Stride, Financial Secretary to the Treasury has now said in an FT interview that there is an “issue of fairness” in deciding whether to apply the same rules to the private sector.

He said: “The public sector has undergone a behavioural change which means we are seeing far fewer [workers] offer their services through service companies and yet the private sector is able to carry on with that behaviour unchecked.”

Responding to this news, Samantha Hurley, Director of Operations at APSCo, said, “We have long assumed that HMRC is continuing to consider an extension of the Off Payroll rules into the private sector. However, like our members, we believe that this will have an adverse impact on the strength of the UK’s labour market and wider economy.

“Mr Stride has said that efforts to improve compliance in the public sector appeared to have had a “significant impact”, highlighting how 90,000 additional public sector workers have been taxed as employees in the three months after the reforms were introduced in April. However, he has conveniently glossed over the fact that these individuals are likely to be charging higher rates for their services as the market adjusts by passing on additional tax and NI costs to the public sector client.

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“We all pay taxes and subscribe to the fact that taxation should be fair, but there is little doubt that the Government is approaching this issue from a position of assuming that all self-employed workers are avoiding taxation, which is simply not the case.

“There is no doubt that such changes will have a significant impact on the dynamics of the UK flexible labour market, and cause damage to client organisations and contractors at a point when Brexit and EU negotiations are critical for UK business and jobs confidence. Flexibility is key to the competitiveness and the future growth of our economy.”

She added, “Self-employed contractors are a vital resource to the UK economy and to undermine this sector would cause significant damage at a point of uncertainty and instability. The Government is trying to compare ‘apples with pears’. A self-employed contractor does not have guaranteed continuity of work or benefits associated with ‘employee status’, such as sick pay, and so it is inappropriate to tax them in the same way.”

“We believe that a move to change legislation on off-payroll in the private sector at this time is ill-conceived, and for the Government to take this step would be immensely damaging to the professional flexible labour market and wider UK economy.”

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