Public Sector Inside IR35 - Still worth taking contracts?

[nosolog]

In response to the title question, it depends on the overall rate you will be earning. Obviously if it is a lot higher after tax and NI than a similar public sector permanent job then it could be worth continuing for the flexible working conditions that contracting offers (ie the ability to take months of annual leave off rather than your normal statutory annual leave allowance in a permanent job).

The contractors I know who used to have their own limited companie but now have to work through umbrellas are losing £9-20 thousand per year compared to their previous wage through limited companies. After transport and accommodation costs they are making a similar amount to their previous permanent jobs minus public sector pension benefits but they only remain in contracting because they need heavy annual leave allowance.

Certainly in my industry the contract rate of pay has gone down by about £100-150 a day over the last 5 years, there certainly has been no increase in rates to offset the IR35 rules.

[TheFaQQer]

For what purpose? To show that public sector implementation of IR35 isn't working and further changes are required?

Depends whether one thinks that would result in reforms that benefit everyone, or a clampdown on rate increases in the spirit of IR35 as to whether that may or may not be a good idea.

Arguments without data are never well received.

The usual response to any statement of "this is a bad thing" would be "how bad?". Having case studies to explain the impact that a change has (politicians love to be able to say "Mr Smith, one of my constituents, wrote to me and said...") are important in winning hearts and minds.

[psychocandy]

As ever, it's going to vary by client, role and location.

I've spoken to people who had received a 70% increase, people who had negotiated a 45% increase, people who were on projects where everyone was offered a 20% increase, and people who have been told "there's no increase, that would defeat the purpose of you being inside IR35".

I would encourage those who have been through the negotiations (whether you stayed or left) to contact the policy team at IPSE so that there are specific examples that can be referenced when talking to press, politicians and civil servants.

And these are the clients where all the contractors leave.

In the real world, government departments just want the work done. They don't care about the costs. If all the contractors leave and they can get no-one else on the old rate then it just gets pushed up the chain. In a lot of cases, they have no choice but to increase.

In my case, the conversation (with agent) was short and the issue was resolved quickly:-

Agent "Role at xyz"
Me "Brill close to home"
Agent "Rate is normally X but its definitey inside IR35 PS"
Me "hmmm"
Agent "But loads of contractors have left so client knows they've now got to up the rate so will X+35% do it?"
Me "OK then"

[psychocandy]

The rate hike seems relatively common now many PS clients are seeing contractors leave rather than risk retrospective taxation if staying in same role post April 2017, and attracting new contractors at the old rate is proving difficult.

However I almost daren't think about this as the normal tax situation of approx 45% (so take home around 55% via normal route when inside IR35), but if the rate hike is sufficient to offset most of the IR35 pain then it also means we'll be in the higher tax bracket sooner, and I don't want to think that means take home will be much lower than 50%.

So not only will contractors be leaving to avoid IR35 they may also leave when they reach higher tax bracket and the hit becomes even more painful.

But in my case, they did hike the rate sufficiently to cover it. Like I said, some left because of the retrospective thing and some left because they could no longer claim for hotels etc.

Either PS client had no choice but to stump up extra cash. Which I then give back to government in tax. Pointless.

[gables]

The one public sector IR35 contract someone has asked me about died a death as soon as my current rate requirements were revealed to them..

And I would still have been 50% cheaper than the consultancy they are using instead...

And this is (one of) the most annoying facts about this whole situation

[Hobosapien]

I would encourage those who have been through the negotiations (whether you stayed or left) to contact the policy team at IPSE so that there are specific examples that can be referenced when talking to press, politicians and civil servants.

For what purpose? To show that public sector implementation of IR35 isn't working and further changes are required?

Depends whether one thinks that would result in reforms that benefit everyone, or a clampdown on rate increases in the spirit of IR35 as to whether that may or may not be a good idea.

[TheFaQQer]

The rate hike seems relatively common now many PS clients are seeing contractors leave rather than risk retrospective taxation if staying in same role post April 2017, and attracting new contractors at the old rate is proving difficult.

As ever, it's going to vary by client, role and location.

I've spoken to people who had received a 70% increase, people who had negotiated a 45% increase, people who were on projects where everyone was offered a 20% increase, and people who have been told "there's no increase, that would defeat the purpose of you being inside IR35".

I would encourage those who have been through the negotiations (whether you stayed or left) to contact the policy team at IPSE so that there are specific examples that can be referenced when talking to press, politicians and civil servants.

[Hobosapien]

The rate hike seems relatively common now many PS clients are seeing contractors leave rather than risk retrospective taxation if staying in same role post April 2017, and attracting new contractors at the old rate is proving difficult.

However I almost daren't think about this as the normal tax situation of approx 45% (so take home around 55% via normal route when inside IR35), but if the rate hike is sufficient to offset most of the IR35 pain then it also means we'll be in the higher tax bracket sooner, and I don't want to think that means take home will be much lower than 50%.

So not only will contractors be leaving to avoid IR35 they may also leave when they reach higher tax bracket and the hit becomes even more painful.

[psychocandy]

Don't dismiss out of hand. Look at the rate, costs etc. Bear in mind that you're probably going to have to go umbrella which is a PITA.

I'd never suggest staying in a role that is now (or could be) inside IR35 when previously you worked outside. Too much risk they might go retrospective.

My situation. I had an outside IR35 role which was 60 miles away. Rate was OK but the travelling wasn't great. For 21 months, I could claim expenses. After this (for the few more months I was there) I couldn't (because of 24 month) so I took a bit of a hit. I left because they were fannying around the IR35 issue and I didnt want to risk retrospective.

So role comes up close to home. I groan when I hear its PS Inside IR35 BUT they hike the market rate by about 35%. Loads of contractors had left because of IR35

So for me, takehome is probably about same as before... Like I said, umbrella is a PITA but hey ho.

[eek]

The one public sector IR35 contract someone has asked me about died a death as soon as my current rate requirements were revealed to them..

And I would still have been 50% cheaper than the consultancy they are using instead...

[Hobosapien]

If low rates then after the (if I'm in the right ball park on the figure) ~45% tax taken off due to employer/employee NI and basic rate tax, and apprenticeship levy, and ... you may find it's more a volunteering role.

So unless short term while awaiting better contract, or they have some sort of in role upskilling that appeals, then doesn't seem attractive at all to me unless no warchest to wait for something better.

Personally I'm only entertaining PS opportunities if the rate has been increased to offset a fair portion of the IR35 tax, which may not be in the spirit of IR35 but as a freelancer I'm free to choose what I go for.

[BrilloPad]

Doesn't that depend on your alternatives? Of course they are not as lucrative as they once were. However, if there is nothing else on the go then why not?

[northernladuk]

Depends on your circumstances.

[cojak]

If you can get local contracts with no expenses, I guess it would be worth looking at.

[garethevans1986]

Ive seen a few emails flying around about public sector contracts with low rates attached...how many people are still working these contracts and are they worth the hassle they look to be?

Thanks
Gareth