IR35 reforms have had ‘little impact on projects or vacancy-filling’, says HMRC

Written by Jim Dunton and Sam Trendall on 19 May 2018 in News
News

Changes to the legislation made last year – which had been expected to have a big impact on IT contractors – have also brought in £410m in extra revenue, the tax agency claims

Credit: Flickr/Dave Crosby

Changes to the legislation made last year – which had been expected to have a big impact on IT contractors – have also brought in £410m in extra revenue, the tax agency claims

HM Revenue & Customs has revealed that a public-sector crackdown on tax avoidance among supposedly self-employed workers brought in £410m last year but had “relatively little impact on projects or vacancy-filling”. The tax agency also outlined steps towards introducing similar measures in the private sector.

So-called “off-payroll” working involves contractors, often consultants, charging for their work via their own companies and benefiting from tax arrangements designed for the self-employed when, in reality, they are employed by a third party such as a government department or NHS body.

Reforms made to the legislation last year were expected to have a big impact in the digital and technology space, with as many as 18,000 people estimated to work as IT contractors in the public sector.

As part of its consultation on the potential private-sector rollout of a new stricter regime that places a greater onus on employers to police their contractors' "real" status, HMRC published figures for changes introduced for contractors working in the public sector, which revealed that an extra £410m was paid in the 2017-18 tax year.


Related content

Public sector IT contractors: Focus on value not cost as IR35 hits

HMRC IR35 tool improvements 'make results worse'

HMRC said off-payroll workers not paying the right tax were projected to be responsible for underpayment of up to £1.2bn by 2023 as it sought views on subjecting private-sector to similar toughened rules.

IR35 was introduced in 2000 with the aim of properly defining self-employed status, but HMRC said it estimated that the rules were not applied correctly in 90% of cases in the private sector.

Last year’s public-sector reforms made employers responsible for determining whether the workers they oversee are genuinely self-employed contractors, and empowered them to deduct proper tax and National Insurance payments if the conclusion is that they are not.

Before the public-sector changes came into effect, under the Finance Act 2017, tax experts warned that government departments and other employers risked prompting an exodus of contractors – not least in the IT space – making HR departments more risk-averse and reducing organisations’ flexibility to buy in the talent they needed.

HMRC said independent research had shown that the reform “has had relatively little impact on projects or vacancy filling in the public sector”.

That study, conducted by IFF Research and Frontier Economics, compared staffing arrangements at “central bodies” between March and August 2017 and found that while overall headcount levels had fallen, off-payroll workers made up a smaller proportion of workers after the new rules came into effect.

Financial secretary to the Treasury Mel Stride insisted that the government was not seeking to penalise contractors by tightening tax rules for the self-employed.

“It’s very important that we recognise the hard work of contractors across all sectors, who contribute to our growing economy,” he said. “But it’s also right that we have a fair tax system that balances efficiency and simplicity for taxpayers, while also supporting our vital public services. That’s why we’re consulting carefully and welcome a wide range of opinions and evidence on how to tackle non-compliance.”

The consultation on widening the Finance Act reforms to the private sector is open until 10 August.

About the author

Sam Trendall is editor of PublicTechnology

Share this page

Tags

Categories

CONTRIBUTIONS FROM READERS

Please login to post a comment or register for a free account.

Related Articles

The biggest stories of 2018 – part one
28 December 2018

We take a look back at the major developments that shaped the first half of the year

 

The three public sector technology trends that will define 2019
27 December 2018

PublicTechnology editor Sam Trendall picks out the topics and trends that will dominate the year ahead, and revisits the predictions of a year ago to see any of them came to pass

Related Sponsored Articles

One click, no clunk: meetings made simple
14 January 2019

BT shows how to move from separate audio and web conferencing services to a fully integrated video, mobile, any device from anywhere meeting experience

Implementing an SD-WAN which delivers on its promise
7 January 2019

BT's Keith Langridge leads a debate on implementing an SD-WAN which delivers on its promise, now and into the future

How the Internet of Things is revolutionising business
26 November 2018

BT thinks The Internet of Things is about to undergo a revolution. Over the past two decades, we've seen IoT tech evolve from a possibility, to a novelty, to an established tool that plays a vital...