Planned changes to the IR35 tax system could see contractors working in the UK public sector lose as much as 30 per cent of their take-home pay, it has been reported.
The local government analysis seen by the Guardian also warns of an agency worker exodus from the NHS as many head to the private sector where the changes, to be introduced in April, don’t apply.
Under the reforms public sector employers will be responsible for determining whether or not a contractor is deemed to be IR35. If so, the party who pays the contractor – an agency or a public sector organisation – will also be responsible for deducting tax and National Income Contributions.
The changes will apply to agency workers in the NHS, the military, police forces, higher education, councils and Transport for London. The tax reforms do not apply to people doing the same jobs in the private sector.
The analysis warns that contractors will see take-home pay cut and suggests many workers will desert the public sector as they turn to private employment instead. Councils may also be considering paying more as they attempt to prevent staff leaving important roles.
Alex Cobham of the Tax Justice Network told the Guardian: “This looks like the worst kind of populism by government. It has been badly done and badly targeted. It is not likely to make the tax system fairer and may have adverse consequences. It seems misguided and it is difficult not to think it’s politically motivated.”
An HM Treasury spokesman said: “It’s fair that two people doing the same job should pay the same taxes and these reforms will help ensure that contractors pay the correct tax.”