Employers cautioned over cost hikes and skills shortages if new Off-Payroll tax hits the private sector

A new survey by contracting authority ContractorCalculator reveals that firms could face Increasing costs, shrinking talent pools, reduced flexibility and legal challenges to status assessments if the Off-Payroll tax reaches the private sector.

Researchers spoke to more than 2,000 public and private sector contractors, and the findings reveal that:

  • 94% of contractors would avoid contracts placing them ‘inside IR35’ and 25% would never take a contract ‘inside IR35’
  • 73% would only accept ‘inside IR35’ contracts with a significant rate rise
  • 63% said they would demand a rate increase if travel was required
  • 54% would work less each year rather than take on ‘inside IR35’ work
  • 23% will quit contracting altogether
  • 94% believe those deemed ‘employed for tax purposes’ should automatically receive employment rights. 89% would consider legal action to secure rights
  • 79% do not consider HMRC’s CEST tool to be accurate.
  • 48% will not vote for an MP who supports these tax reforms

Commenting on the findings, Dave Chaplin, CEO and founder of ContractorCalculator said:

“We’re 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.

“As our survey shows, an expansion of the new tax into the private sector alone threatens to deprive the UK labour market of much of its flexibility and it will cost them, both in monetary terms as well as in talent and skills terms with 94% of contractors avoiding ‘inside IR35’ work.  Our findings paint a bleak picture of things to come if Government chooses to roll out the new off-payroll tax to the private sector. It will be devastating for UK plc and the UK economy overall.”


94% deemed inside IR35 want employment 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.  A mere 6% claimed they wouldn’t want any form of rights.

Added Chaplin: “The Off-Payroll tax rules may not require firms to grant rights to contingent workers. However, contractors are willing to take measures to secure employment rights if deemed to be ‘employed for tax purposes’, resulting in potentially costly legal implications for hirers and again more damaging impact for UK plc as 48% claimed they would lodge an employment tribunal appeal to secure employment rights.”


Hirers beware as CEST IR35 tool condemned as inaccurate

Survey respondents provided a damning review of CEST, the tool built by HMRC which they claim provides a useful guide on employment status:

  • 77% do not agree that CEST accurately reflects the law around employment status
  • 79% do not believe that CEST can be trusted to give accurate results
  • 74% claimed they would always seek an alternative assessment from an expert

Said Chaplin:

“Firms shouldn’t assume that using CEST means they are protected and for private sector firms, the message is clear: assessing contractors using CEST may seem like a risk-free, straightforward option, but it will be far more troublesome in the long run.”


Off-Payroll tax is a political bomb for MPs

MPs would also be advised not to let HMRC’s portrayal of the Off-Payroll tax rules cloud their judgment, as doing so could have significant repercussions for their positions. When asked whether they would vote for their local MP at the next election, if their MP were to support the new Off-Payroll tax, 49% of contractors said no.

Concluded Chaplin:

“As the implementation of the recent public-sector changes have shown, Government alone can’t be trusted to do what’s best for the UK and the UK economy. We are living and working in uncertain times and the labour market as a whole must make Government see sense before any more damage is done.  Business should speak up and speak out now.”