Opposition is building against government proposals to tighten tax rules for public sector contractors.
Contractor and recruitment trade bodies have spoken out against the changes in IR35 rules for off-payroll workers in the public sector.
The government is proposing that contractors working for their own personal service companies on public sector projects will lose the power to decide whether the IR35 rules apply to them from April 2017.
Instead, the responsibility is shifted to the organisation paying the contractor, which can be a government department or agency, recruitment company or other intermediary.
David Gauke, Financial Secretary to the Treasury, said: “There is evidence of widespread non-compliance with the legislation. This is both unfair to those who pay the correct taxes on their income, and costs the government a significant amount of revenue each year.
“The government believes public sector bodies have a duty to ensure the people working for them are paying the right tax.”
HM Revenue and Customs (HMRC) estimates IR35 avoidance costs The Treasury around £440 million a year.
Association of Independent Professionals and the Self Employed (IPSE) CEO Chris Bryce argues public services will suffer under the measure.
“All businesses should pay the tax they owe,” he said.
“The plans will impose disproportionate and punitive taxes onto the smallest businesses, and these talented and cost-efficient experts will simply shun the public sector entirely for private sector work.”
Recruitment industry trade body The Association of Professional Staffing Companies (APSCo) claims the government proposals are unreasonable.
“Recruitment firms do not have sight of the day to day operations of either the end client, the worker or a public service company,” said operations director Samantha Hurley.
“They are not typically at a client’s site and consequently have no visibility of the role undertaken or how the services are performed. The recruitment firm would have to rely on other parties to provide them with this information during the assignment so they could ascertain tax status in real time.
“This is unjust as they could end up bearing penalties attributable to other people’s lack of disclosure and conduct over which they have no control.”