HM Revenue and Customs (HMRC) has recently released its Annual Report for 2017 to 2018. According to its estimates, the IR35 reform in the public sector has been a success. HMRC estimates that it has resulted in an increase of £410 million in public revenues.

A report by one of the UK accountancy firm also shows a positive effect of IR35 rules. A survey had revealed that nearly 86 percent of contractors had been affected by the reform.

The survey had shown that some contractors have decided to become permanent employees. Others had walked away from the public sector roles due to being deemed inside the IR35. This has created a glut of contractors in the private sector.

HMRC had introduced the IR35 reform last year in April. The tax reform had made end-clients in the public sector responsible for determining the employment status of a worker. End-clients had to decide whether a worker who offers services through the personal service company (PSC) falls within the IR35. In case IR35 rule applies to a worker, the recruitment agency has to deduct NI and tax from the worker’s salary.

The IR35 reform in the public sector has boosted Government revenues and NIC contributions. As a result, the government is currently consulting to extend IR35 rule to private sector companies. The consultation is expected to run until 10th August 2018.

Negative Points of IR35 Reform

A lot of experts feel that IR35 had a negative impact on the public sector. A student by the Harvey Nash Recruitment Solutions had found that 42 percent of contractors who were caught within IR35 had to increase their fees. Nearly 49 percent, according to the survey, had decided to stop providing services to the public sector.

The Independent Healthcare Professionals Association (IHPA) had warned that patient safety will be compromised due to shortages of skilled workers. Around 98 percent of IHPA’s members had considered leaving the NHS due to IR35 reform.

Last month, the accountancy body The Institute of Chartered Accountants in England and Wales (ICAEW) had written to the Treasury that the assessment tool of HMRC is not suitable for use in the private sector. The tool does not cover different situations in the private sector. It has been designed for the public sector and should be modified for private sector companies.