On 6th April 2017, HMRC drastically changed the way IR35 works for public sector engagements. The amendment made to the IR35 tax system means that:
Public sector employers will have to deduct tax and national insurance contributions from contractors’ pay at source, rather than allowing them to defer and claim expenses. It means many people who work regularly in the public sector could lose almost a third (30 per cent) of their take-home pay as they will be subject to national insurance for the first time, the report said.
At this point in time, the change only applies to public sector bodies and the rule within the private sector remains unchanged. A public sector body constitutes any organisation that is legally required to respond to Freedom of Information (FOI) requests such as the police force, NHS bodies, Local Authorities etc.
In the wake of this radical change, many public sector bodies took a blanket approach and incorrectly deemed many engagements to be inside IR35. These organisations are now recruiting permanently, using zero hour contracts or plainly stating that the contract role being advertised is inside IR35 as seen on some job sites. Some public sector organisations are struggling to recruit to key roles at the first attempt. According to them, they have not been successful in hiring because of the calibre of candidates applying for these positions and reluctance of independent contractors in taking on permanent roles.
Thousands of Independent professionals have been discouraged from working in the public sector. Some have been left with no choice but to grudgingly accept the work being offered, but subject to the new rule. The question is why would the government want to tax independent professionals as if they were employees, but not give them employment rights? [Read more…] about IR35 Tax System: practical issues in a challenging world of public sector employment
