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IR35 in the Private & Public Sector
The public sector IR35 reform has now been in effect since April 2017, however it is too early to assess if the changes have been a success. It may well take well over a year before the full impact of the changes are known, however recent articles point to huge delays in public sector I.T contracts and a mass exodus of contracting talent.
Many organisation’s reacted by issuing a blanket assessment deeming contractors inside IR35, this effectively took away any liability from the public sector body who didn’t have the time or the expertise to conduct an accurate assessment. The potential financial impact of an incorrect assessment can result in harsh financial penalties for the contractor and government body making the assessment.
When the April deadline came, many public contractors moved to the private sector or sought permanent employment due to the confusion created by what many agree, was a lack of consultation before the legislation was introduced.
It is worth noting since April 2017 contractors in the public and private sector now work under two different versions of legislation for what is affectively, the same group of taxpayers.
HMRC’s ESS tool (now called CEST, Check Employment Status for Tax) was launched to help contractors establish if they are inside, or outside IR35 , however, to date there have been mixed reviews of the accuracy of the CEST tool. This has led to many contractors seeking professional advice rather than relying soley on the CEST tool.
HMRC have stated this tool can be used in both the public and private sector, so as you can see, there is legitimate concern that IR35 reform in the Private sector is penciled in for the near future.
Interestingly, this reform had been muted in the private sector long before the public sector, and many industry experts view this reform as a test-run for the private sector.
Included in the most recent budget it was announced that there would be consultations and discussion documents leading stake holders and contractors to believe they will have some input into the changes, unlike the quickly implement changes to the public sector. While there is no firm date as yet, it is widely expected these changes will implemented in April 2019.
Many expect an announcement regarding the reform to be made in 2018, giving contractors plenty of time to prepare, contractors will hope the government and stakeholders can learn lessons from the public sector implementation to ensure a smoother and better thought out template for the private sector.
It has not been all doom and gloom for public sector contractors, with many moving from their PSC to an Umbrella or employed option, something they may not have considering before the legislation was introduced. They found not only did they increase their take home pay but also removed the burden of administration whilst ensuring they stayed outside IR35.
There was also the added benefit of some public sector bodies increasing hourly rates in order to retain talent, this has resulted in a higher rate of pay on top of a higher return by using an umbrella provider.
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