Government services will be hit hard if the proposed IR35 reforms get the green light, recent research suggests. According to a survey carried out by ContractorCalculator, four out of five contractors say they will leave the public sector rather than having to accept work that would put them on the payroll as a permanent employee.

The report also suggests the Government will miss out on tax income totalling £115m, as well as having to take on £610m in costs if workers are forced to go on the payroll.

Planned IR35 reforms

The research follows the news that the Government is proceeding with the plans announced in the 2016 Budget to change IR35 rules in relation to those working for the public sector.

This essentially means liability will shift from the contractor (in the form of a personal service company) to the engager (the government department, agency, or consultancy working for the public sector).

Reduced income

According to the research, the majority of contractors believed they would face a cut in take-home pay if they were forced to become a permanent employee. In the survey, 59% of contractors said they earned more than permanent staff, with only 5% saying permanent employees earned more.

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

“We’ve always said that the proposed measures are fundamentally flawed and now we have the figures to prove it. HMRC’s naive conviction that contractors are going to roll over and accept these new conditions is going to have disastrous unintended consequences.

“Four out of five respondents said they would turn down an inside-IR35 role and seek opportunities elsewhere because a typical contractor would have to increase his or her fees by 30% to earn the same income if deemed to be inside IR35.”

Join our campaign

The news adds weight to the campaign by Chorus, which is looking to ensure HMRC’s proposed IR35 changes don’t harm micro-businesses.

As part of the campaign, we’re working hard to make MPs aware of the impact the proposed IR35 changes will have on micro-businesses. Read more about our campaign and sign-up to Chorus, our free micro-business community, today.

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