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Harvey Nash: 90% of contractors admit post-IR35 reform stress

Harvey Nash Recruitment polls contractors about how they feel the IR35 reforms have affected their livelihoods one year on from launch

The economic and emotional toll the IR35 reforms have taken on the contractor community has been laid bare in a report by Harvey Nash Recruitment.

The company asked 500 contractors, business leaders and line managers for feedback on how the roll-out of the IR35 tax avoidance reforms in April 2017 have affected their day-to-day lives.

In response, 90% of respondents said they felt stressed, worried or angry when thinking about what the IR35 changes have done to their livelihood, with 50% claiming to have seen a downturn in “available contracts” in the last 12 months.

Before the reforms came into force, it was up to contractors to self-declare whether or not they should be taxed in the same way as off-payroll workers (outside IR35) or as salaried employees (inside IR35), whereas now it is up to the public sector organisations they engage with to make that determination.

If the public sector organisation decides the nature of the contractor’s engagement means they should be taxed in the same way as permanent employees, that means they are liable to make the same national insurance and PAYE contributions as their on-payroll counterparts.

As a consequence, some contractors – whose engagements are determined to be inside IR35 – have taken to increasing their day rates to offset the resultant drop in their take-home pay.

This, in turn, is having a knock-on impact on the finances of public sector organisations, the report claims, as staff costs rise.

“Accepting this increase in cost is one way public sector bodies are responding, but with just 5% of contractors considering full-time, permanent employment, the remaining options are indeed limited,” says the report.

Read more about IR35

As previously reported by Computer Weekly, HM Revenue & Customs (HMRC) is currently weighing up whether it should extend the IR35 reforms to the private sector, despite fierce opposition to the plan.

In the light of the report’s findings, Colin Morley, professional services director at Harvey Nash Recruitment Solutions, said it would be “irresponsible” for HMRC to follow through with its proposals at this time.

“One year on and the introduction of IR35 to the public sector has proved highly problematic,” he said. “Impact assessments have not been conducted within the public sector to investigate the effectiveness of IR35. Has it returned the circa £400m to the Treasury that it promised to do so?
 
“Without concrete data, it seems irresponsible to roll out the same set of rules into the private sector when the consequences could be significantly contentious.”
 
Kate Cottrell, managing director of accountancy firm Bauer & Cottrell, backed Morley’s view that extending the reforms to the private sector should be considered off the table for now.

“We are still waiting for HMRC to publish guidance, research and the consultation document on the proposed roll-out of the rules in the private sector,” she said. “The public sector has been the guinea pig in this and it is time to call a halt to this experiment before considering a roll-out to the private sector.”

Read more on IT for government and public sector

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