Public PSCs vow to quit over Osborne's attack

Signs of contractors deserting the public sector have emerged, in wake of a plan just six days ago to subject all PSCs to IR35 testing at their taxpayer-funded client’s behest from April 2017.

Matt Searle, an IT contractor, said he wouldn’t work in the public sector any more as he believes all contractors will effectively become PAYE taxpayers, the Times reported.

“Even if the implementation is a year or two away I wouldn’t want to take on a project now,” he told the paper. “Public sector IT projects last years and I just wouldn’t want to risk it.”

Another IT contractor, who declined to be named, told ContractorUK that he was questioning his future in light of George Osborne’s “consistent” attacks on the freelance market.

“First the dividend tax, now the PSC announcement,” he said. “We contractors are in a mire not knowing where to turn. Is contracting as a one-man band now even worth it?”

Figures for the 2016/17 tax year from the Association of Independent Professionals and the Self-Employed (IPSE) suggest PSC contractors are at a financial advantage, at least until April 2017.

In fact, a contractor turning over £87,000 a year would pay £15,120 in corporation tax and £11,281 in taxes on company dividends, which IPSE says adds up to £2,000 less in tax than if they were an employee.

“[But] that £2,000 has to pay for the cost of running the business, and it only goes a very small way to make up for the loss of other benefits of full-time employment which are denied to freelancers.

“And let’s not forget the employee protections that contractors forego in order to work flexibly - no notice or redundancy pay and none of the expensive pastoral care that employers are forced to give employees,” it said.

The Anderson Group, a provider of tax services to contractors, seemed to state the obvious when, following Wednesday’s Budget, it said the news for public PSCs was “not good”.  

But it seems to have made the comment mainly to hint it might not be great for other PSCs either. “The government is determined to put its own house in order before expanding any of the proposed changes to the private sector,” it said.

Any such expansion, which the government says is not part of its current plans, would “take some time,” however and be “very difficult,” the group’s Barry Roback reportedly believes.

Advisory Smith & Williamson is less sure. “Depending on the success of these measures, we may see these rules widened in subsequent years to include the private sector,” it said.

And worryingly, Robert Burton, a former HMRC official, doesn’t think there’s any doubt at all.

Recruiter magazine reported him as addressing staffing agencies at a conference following the Budget. “Don’t think that that’s it, that it’s stopped at public sector,” said Burton, referring to the new duty on taxpayer-funded engagers who will be liable for whether off-payroll workers should be taxed as employees or contractors.

Mr Burton also reportedly said: “They [HMRC] are going to test it and make sure that it can work. But obviously there is going to be a consultation and we will get the main ideas which are up for grabs in the summer.”

Some reassurance is being sounded by IPSE, but not without alarm at just how damaging an extension of the new duty would be.

The association said: “At the moment this announcement applies only to public sector contracts, which is just as well. If these rules were applied in the private sector the effect on the UK economy would be catastrophic.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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