Over the last few weeks, we’ve analysed the impacts of the IR35 application changes (off-payroll working rules) on both the public sector and the contracting market. As we approach the end of our IR35 series, we take a look at the likelihood of the public sector off-payroll working rules being rolled out to the private sector and how this might impact independent professionals and their future contracts.
Currently, there are nearly 2 million freelancers and contractors in the UK, a number that continues to steadily rise. Demand for contractors has reached its highest point this year according to the Recruitment and Employment Confederation and is currently at its strongest recorded rate of growth since March 2015. The continued rise of professional contracting delivers a wide array of benefits to the UK economy by providing a highly productive and skilled labour force available on demand. The flexibility offered by Britain’s independent professional workforce is estimated at being worth around £21 billion to the UK economy.
‘Businesses that want to scale and grow need expertise, but they often don’t need it forever. Specialist contractors are a boon for getting new projects up and running with an accelerated time to market. Contractors have long played a significant role in the UK economy, and that won’t be going away anytime soon.’
– James Poyser – CEO of inniAccounts
Before the rollout of the public sector changes, there was significant uproar anticipating a ‘mass contractor exodus’ from the field. As we’ve previously explored, while the contractor market in the public sector has seen dips and bumps, these were less due to the actual legislative changes and more to risk-averse reactions from public sector procurement teams. As time has passed and these measures have been withdrawn, contracting in the public sector certainly hasn’t ground to a halt. There’s still a wide array of attractive contracts available for the competitive contractor.
As HMRC look set to judge the public sector changes as a success, concerns are rising once again that any further changes could herald ‘a massive backlash’ and ‘disastrous consequences’ for contractors far and wide.
Why are we likely to see private sector rollout?
Since the public sector reforms were introduced, many expert parties have concluded that expansion into the private sector is inevitable and more a matter of when rather than if. We’re inclined to agree and suspect we’ll see rollout by 2019 for several key reasons.
Despite the government being in a comparatively weaker position without a majority and likely keen to keep businesses sweet / avoid a backlash (especially with Brexit on the horizon), HMRC have not met their tax target. HMRC have claimed that IR35 non-compliance costs the Treasury £400m each year, but the public sector changes are only expected to yield £45m over the next two years. That’s a big missing chunk still to be found. It’s highly likely that the government will see private sector rollout as a quick and easy solution that can be put in place before Brexit. HMRC’s recent claims that they’ve seen no evidence of any changes to the contractor market within the public sector, paints a clear picture of how they’re likely to be advising the government on the matter.
IR35’s role in eradicating false self-employment would also make the rollout a fairly populist move for Phillip Hammond; following the likes of the Taylor review and big news stories concerning vulnerable gig workers for the likes of Uber and Deliveroo.
A looming disaster for contractors?
48% of contractors say they are concerned about the public sector off-payroll working rules being rolled out to the private sector. Realistically, we will see some initial blips and problems when the changes emerge; as we have with the public sector. However, there will be fundamental differences and as we’ve seen in the public sector and with any changes over the last 17 years concerning IR35, the market will soon adapt.
‘Private businesses will likely be far quicker to adjust to these changes. Where the public sector is risk-averse, the private is always on the lookout to get the most of what’s available. Contractors will need to be wary of their clients taking a too optimistic view and trying to push HMRC’s regulations for a bit of flexibility. But, just like with the public sector, pushing for accurate management of IR35 will both help to educate clients and ensure contractors are getting the best deal for themselves.’
– James Poyser – CEO of inniAccounts
The Government have made it abundantly clear time and again that IR35 is here to stay. Instead of pushing against it in its entirety, there’s a lot to be gained from contractors focusing on helping to facilitate well-informed and fair IR35 application. Those contractors who have engaged with the public sector and held discussions and negotiations over their contracts and IR35 status will soon have a significant competitive edge in the private sector.
Adapting to change
With the public sector IR35 application changes likely to be deemed a success by HMRC, we suspect private sector rollout will be instigated as a quick fix to a tax target. As the public sector changes came into effect we saw significant uproar anticipating a ‘mass contractor exodus’, we’re now hearing the same fears for the private sector. While we’ll probably see some bumps along the road, this certainly won’t be an end to the contracting industry. Contractors have long played a significant role in the UK economy and with Brexit on the horizon, this won’t be changing anytime soon.
As we’ve examined with the public sector, contractors can help to facilitate this change by having informed, open discussions with their clients while pushing for educated and fair IR35 assessments. Be sure to keep an eye out for our final article in the ‘Getting on with IR35‘ series examining how we at inniAccounts can help contractors manage IR35.