Back in June I attended a seminar run by my local branch of the Chartered Institute of Taxation. It was supposed to discuss the recent changes introduced by Finance Act 2017 but as many clauses had been removed due to the General Election, the format was partly changed. However, the off-payroll rules were afforded a mention and the speaker, a most respected and wise tax lecturer, voiced his belief that, in two years’ time, the contracting market will be decimated due to the new rules. His opinion was grounded in the confidence that the public sector rules would be rolled out to the private sector. A show of hands in the room, confirmed that the majority of my counterparts agreed with this view.
Contractors have taken a hammering from the Government over recent years, with the restriction on travel and subsistence (T & S) expenses, dividend taxation and, of course, the off-payroll rules. Yet, freelancers have survived over 17 years of IR35 and are a hardy and resilient bunch. There is, however, only so much they can take.
In the months of May and June of this year, 1,131 connected PSC’s went into liquidation, the cause of which was attributed to the T & S rules by the Insolvency Service. This cannot be considered to be an isolated event as in 2016, the same legislation caused 1,796 PSC’s to go to the wall.
Many contractors working within the public sector have, until recently, been faced with risk averse end clients taking a default position that all contractors fall within IR35, rather than actually taking the time and trouble to review working practices properly.
Accounting Web recently reported that statistics extracted in June from IT job board CW jobs showed that 71% of IT contractors suffered a reduction in their income by as much as 30% because of the off-payroll rules. Of 1,000 candidates surveyed, 47% said they had no choice but to leave the public sector, with the majority heading towards the private sector.
Anecdotal evidence that the majority of IT contractors working on HMRC’s Making Tax Digital programme resigned en masse, and 18 contractors who helped construct the ESS tool downed tools because of HMRC’s disgraceful treatment in seizing the opportunity to tar them all with the IR35 brush, is a signal that freelancers are beginning to fight back and not take this lying down.
There is an IT skill shortage within the public sector and they need contractors to bridge that gap and help deliver ongoing IT projects, MTD being a high profile one. Treating contractors as IR35 lepers will only serve to drive these highly skilled individuals into the arms of the private sector or even abroad, thereby jeopardising the future delivery of these projects.
If the off-payroll rules are eventually imposed upon the private sector, then there is a real concern that the UK will experience a brain drain and leave the contracting landscape barren. The quicker the Government recognise this and relax the rules the better it will be for all concerned.