IR35: Contractors predict public sector suffering as reform lands

Most contractors report that they would stop working in the public sector should they be found ‘inside’ IR35, new research reveals.

Changes to IR35 in the public sector enforced today, will hit major public sector projects hard according to 95 per cent of contractors.

The responsibility for setting the IR35 status of public sector contractors now falls on public sector engagers, rather than contractors – 85 per cent of whom will stop working in the public sector should they be placed inside IR35 by their clients.

Leading contractor tax advisor, Qdos Contractor surveyed 2000 UK contractors.

  • 42 per cent of contractors were engaged in a public sector contract
  • 95 per cent of contractors believe major public sector projects will suffer
  • 85 per cent would stop working in the public sector should they be found ‘inside’ IR35
  • Despite hopes for fairness, 80 per cent of contractors do not think their clients are prepared
  • 95 per cent of contractors asked believe the benefits of self-employment are being reduced

20k walkout a big underestimation?

Qdos Contractor CEO, Seb Maley, comments, ‘Reports claim HMRC expects that 20,000 public sector contractors will be affected by IR35 reform. But this figure seems very low. Our research highlighted that 42 per cent of contractors surveyed worked on public sector projects.

And while that may not reflect wholly accurately on scale, it does raise the question of whether HMRC has dramatically underestimated the number of contractors affected – especially when you consider the sheer size of such as The NHS, which has a reported workforce of 1.4million.’

Public sector panic

‘Several public sector bodies have already made blanket decisions when it comes to determining IR35 status under the new rules. This contradicts the ‘Reasonable Care’ clause, outlined in the final IR35 legislation.

For the public sector to avoid the disaster of a contractor walkout, it’s vital that accurate IR35 decisions are made – with the input from contractors and agencies. A one-size-fits all, or blanket approach simply won’t do.’

Private sector overcrowding

‘The effect these changes will have on private sector contracts is often overlooked. With a massive influx of contractors, competition for private sector contracts would be sky-high, with day-rates inevitably taking a hit.’

Economic cost and time spent

‘Again, it’s been reported The Treasury hopes to raise £185million for the year 2017/18. But what has been the true economic cost of implementing these IR35 changes? Between HMRC, contractors, agencies, public sector bodies and the media, the total hours and money spent on this must have already surpassed the amount The Treasury hopes to recoup. And that’s before the economy takes the hit on any contractor walkout.’

Untested, untried ESS Tool

‘Since its release, HMRC’s ESS Tool has come under fire for its inaccuracies. And this criticism seems fair. IR35 is complex, and it takes time, expertise and the ability to look at each case individually in order to make accurate decisions. Relying so heavily on new, relatively untried and untested tool is a big risk – particularly when taking into account what’s at stake here.’

Further reading on IR35 changes

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the and titles before moving on to be a Digital Technology reporter for the

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