Public sector counts the cost of IR35 changes

Organisations in the public sector are bearing the brunt of recent changes to ‘off-payroll’ working legislation that have led to increases in their staffing spends, while 70% of recruiters have seen a fall in contract placements, according to new research.

The Association of Professional Staffing Companies (APSCo) quizzed 1,500 professional recruitment members to find out how their clients have been affected by the off payroll IR35 legislation changes. Most of those surveyed place contractors into central and local government and non-medical, non-clinical healthcare roles.

The research revealed that 45% have seen the costs of resourcing contractors rising following the introduction of the new rules. Of these, 46% reported rate rises of more than 15%.

It is not only soaring costs that public sector organisations are facing but also decreasing talent pools, with 70% of respondents stating that contract numbers in the public sector have fallen since April 2017.

More than 50% of APSCo respondents said more than 75% of their public sector contractors were working through their own personal services company (PSC), in April 2016. By August 2017, this had dropped to 20%.

When questioned about their perceptions of how public sector organisations are managing changes, 51% said their clients didn’t have access to the tools and expertise necessary to make the correct determination about their status under IR35, while 43% said that, in their opinion, the HM Revenue & Customs (HMRC) employment status tool does not generally provide reasonable status decisions.

Samantha Hurley, Director of Operations at APSCo, said: “As we feared, it seems that these changes have had an adverse effect on the supply of contractors to the public sector.

“The increase in rates which has been noted can be attributed to two factors: the scarcity of resource created by candidates moving into the private sector and the market adjusting by passing on additional tax and NI costs to the public sector client.

“As APSCo warned, it would appear that HMRC’s calculations of anticipated savings, which didn’t take into account additional expense to the public sector, will be over ambitious.”

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Last updated: 11th October 2017