Increasing costs, shrinking talent pools, reduced flexibility and legal challenges to status assessments are among the difficulties that firms are expected to have to navigate if the Off-Payroll tax reaches the private sector, according to a survey from ContractorCalculator.

The survey, which polled more than 2,000 public and private sector contractors, also showed that 94% of contractors would avoid contracts placing them ‘inside IR35’ and 25% would never take a contract ‘inside IR35’.

Meanwhile, 73% would only accept ‘inside IR35’ contracts with a significant rate rise, while 63% said they would demand a rate increase if travel was required. More than half, or 54%, would work less each year rather than take on ‘inside IR35’ work and 23% will quit contracting altogether.

The majority, or 94% believe those deemed ‘employed for tax purposes’ should automatically receive employment rights and 89% would consider legal action to secure rights.

When asked what rights they believe they should be afforded if deemed ‘employed for tax purposes’, 92% highlighted sick pay, 74% want maternity pay and 81% want grievance/disciplinary protection, while 6% claimed they wouldn’t want any form of rights.

Dave Chaplin, CEO and founder of ContractorCalculator, commented, “We are fifteen months in since the Off-Payroll legislation hit our public services and organisations across the public sector have failed to compromise on their approach to the tax legislation and are suffering intensified skills shortages as a result. If private sector firms follow suit, they could suffer an identical fate.”

The IR35 rules were reformed in April 2017. Following the changes, a public-sector authority that engages a Personal Service Company (PSC) contractor “off-payroll” to personally perform services is responsible for making the assessment of the contractor’s employment status for tax purposes. The 2017 rules also make the public authority or agency that pays the PSC (the “fee payer”), responsible for deducting, accounting for and paying income tax and NICs under PAYE to HMRC.

Fiona Coombe, SIA Director of Legal and Regulatory Research said “The government makes a strong case for extending the off-payroll working rules to the private sector in their consultation paper, so it seems almost inevitable they will apply to the private sector in the next financial year. This means private sector employers need to start planning now, considering their business needs and assessing their contractor workforce as to who is critical to that business and deciding what options are available to them”.  

For more on IR35 and the off-payroll working rules, please refer to Staffing Industry Analysts’ report, IR35 and Off-Payroll Working Rules: An Overview, available to download for corporate and council members. This features a case study showing how Transport for London (TfL) managed the introduction of the public sector reforms and what that meant for the business and their contractors.