Half of all public PSCs to quit over IR35 change

Contractors running their own personal service companies have reiterated their warning that they will abandon the public sector if the proposed changes to IR35 take effect.

In fact, more than half of the 26,000 PSCs currently supplying services to the public sector would quit outright should the proposal come into force from April, estimates IPSE.

Jonathan Bentley, a member of the Association of Independent Professionals and the Self-Employed (IPSE), whose 20-year career has posted him to many state bodies, is one such IT contractor.

“This [proposal] has created a decision point for my company,” says Bentley, a co-director of Redwood Technology Limited.

“There will be no further engagements with government bodies as the rules have the potential to expose the company unnecessarily; this is a risk we have decided to avoid without exception.”

He shares the view of the 54% of PSCs intending to exit either central or local government contracts – and the public sector altogether – if the ‘paying agent’ is granted responsibility for IR35.  

Specifically, 31% say they will leave behind working for taxpayer-funded bodies regardless of whether they would be required to pay the same tax and NI as employees, IPSE found.

And an additional 23% say they too will no longer do government work if they have to pay tax like an employee – the upshot of the HMRC proposal which closed for consultation on August 18th.

Only two per cent of PSCs plan to continue supplying public bodies if the proposal is implemented, which IR35 experts fear could pave the way for its eventual introduction in the private sector.

IPSE, which says such an extension would be “beyond disastrous”, also found that of the 54% PSCs who plan to quit public sector workplaces, 81% will seek work elsewhere and 5% will take early retirement.

Meanwhile, almost four in ten PSCs indicated that they would have no choice but to increase their daily pay rate to compensate for any additional tax liability if the proposal is enacted.

IPSE chief executive Chris Bryce said: This proposal will damage not only the affected 26,000 personal service companies working in the public sector, which contribute £3.5 billion to the economy, but their clients and agencies too.

Public services will ultimately suffer most from this proposal. Public sector bodies, seeking to salvage and maintain large scale projects, would have to find alternative resources - or hire PSCs at an increased rate – leading to significant cost to the taxpayer. Even HMRC’s own published research has shown it to be a bad idea.”

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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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