The Government looks increasingly likely to extend the off-payroll IR35 rules in this week’s Budget to level the field between the public and private sector workers.
This will lead to a significant increase in labour costs and a major administrative headache for companies which engage contractors working through their own companies (Personal Service Companies), exactly as witnessed in the public sector since April this year.
The NHS, for example, must now assess whether a locum nurse or doctor providing services via their own Personal Service Company are caught by IR35 and, if they are, deduct tax and national insurance contributions from their earnings under PAYE.
While the reforms have led to public sector bodies adding about 90,000 people to their payrolls in the three months to 30 June 2017, they have also resulted in labour and skill shortages, as a number of IT contractors, locum doctors and nurses now choose to work less or work only for the private sector.
“The boom in off-payroll work is costing the Exchequer an amount estimated in some quarters to be as high as £4bn a year, and the Government will certainly continue its mission to fight this. Private sector companies who engage contractors should watch out for updates from the Chancellor, and seek information on how to best manage their position.”