HR directors expect IR35 rules to extend to private sector

Majority of human resource directors are expecting IR35 rules to extend from the public sector to the private sector, which could impact on UK firms competiveness, a report by Green Park suggests.

HR directors concerned over potential extension of IR35 rules over the private sector

Relocate Editorial

31 July 2017

New research conducted by Green Park the diversity and leadership consultancy, has revealed that 58 per cent of UK based human resource directors believe the government will extend the revised public sector IR35 rules to the private sector, in the next 24 months.

Potential changes of tax status for contractors

The change could see contractors’ tax status determined by the companies that employ them.Those that are judged to fall inside the IR35 tax system would be treated as employees for tax purposes, with tax and national insurance contributions taken at source, rather than being administered by contractors’ Personal Service Companies (PSCs).Almost three quarters (72 per cent) of HR directors believe extending this legislation in the private sector would drive wage inflation, pushing up pay rates by an average of 23 per cent. More than one in six (16 per cent) of HR professionals believe the impact of wage inflation would be even more profound, with average wage increases over 30 per cent.Green Park believes that given many of those who would be impacted are highly skilled contractors and interims employed for their specialist expertise, firms could face difficult decisions as to how to pay for this knowledge. Firms could also face a significant skills shortage if the legislation was brought in the report suggests, 67 per cent of Human Resources professionals say they would have trouble recruiting contractors and interims.

Risk to UK competiveness

The report also suggests that it could offer significant advantages to overseas competitors to UK based firms, as highly skilled employees are driven to work abroad.More than a third (35 per cent) of respondents said that skilled workers would emigrate for contracting roles, and 28 per cent felt it would be more difficult to recruit overseas talent for these positions.Raj Tulsiani, CEO of Green Park, commented, “If IR35 rules are extended across the private sector it will have a negative impact for UK plc. It could have a direct impact on the international competiveness of UK firms and their ability to be agile and innovate.“Contractors and interims bring unique skills and expertise that are often not required on a permanent basis, so any moves that would potentially restrict access to these individuals and make them available to competitors overseas may be detrimental to the UK economy.“At a time of economic uncertainty why would we reduce the competitiveness of our labour market globally? We need an agile, mobile and highly skilled workforce where multiple firms can benefit from the unique skills of contractors working on large scale change management initiatives.”

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There is concern that the introduction of new IR35 rules could make it difficult for UK based firms to remain agile, with more than half of HR professionals concerned about the ability of their organisation to respond rapidly to changes in the market. Respondents predict that potential rule changes could have a negative impact on their ability to deliver change management (31 per cent) and technological developments (31 per cent).Commentators have highlighted that IR35 rule changes in the public sector have resulted in a reduction in the available talent pool and wage inflation, both negative impacts for public sector organisations.Green Park reports a clear upward movement on rate requirements from candidates when pricing new public sector assignments, as well as for those with ongoing assignments that fall inside IR35, of up to 25-30 per cent. Green Park also suggests that if the same impact was replicated in the private sector, the costs of managing sophisticated IT, engineering and change management projects will increase exponentially decreasing the competitiveness of UK companies, impacting not just their profitability but crucially their viability.For related news and features, visit our Enterprise section.Access hundreds of global services and suppliers in our Online Directory Get access to our free Global Mobility Toolkit

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