Real world example...
I have worked under a variety of contractual conditions - direct client contracts and through agencies, both within and outside the public sector.
I worked a few years ago at 'public sector org', outside IR35, the rate was X/day.
They struggle to find the right people with the right skills (both contract & perm), so I was asked if I would return on a number of occasions.
The last time they approached me, was after their bean-counter+legal types had decided that *all* contracts would be inside IR35, regardless of circumstances. I did the calculations and worked out that to achieve parity with the previous (outside IR35) rate, an inside IR35 rate would need to be 1.4X - I put this to them, expecting it to be rejected as too high.
To my surprise, they accepted...
The upshot is that:
* I essentially take home the same net income.
* Public sector org has to pay 0.4X extra
* HMRC collects 0.4X extra in tax, and trumpets this as a 'victory'
- Public sector org somehow either obtains 0.4X from tax-payer money (i.e. what I paid...!) to deal with the higher contractor budget, or
- Public sector org suffers with an effectively reduced budget
In effect, HMRC have taxed the public sector org, not me, and the net gain to 'UK plc' is 0%.
That's the public sector - the money just goes round in circles. When this lands in the private sector, they have real money to lose if contracts start to fall within IR35.
My gut feeling is that next April, the private sector will divide into two camps:
1. The 'bums on seats' contractor users (like the banks already mentioned): These will initially place all contracts inside IR35 in a knee-jerk reaction, and not change their rates (as we see happening already). They may retain some low-end contractors who cannot easily sell their skills elsewhere, but will lose anyone who is any good. Eventually, they will need to either deal with the contracts properly, increase the rates by approx 40% to attract the skilled contractors back, or just stop using contractors.
2. Organisations who analyse why they need highly-skilled contractors, and bring them in on a time-limited basis (i.e. how it should be done): I believe, after a (hopefully short) period of turmoil next year, that they will tailor contractual arrangements correctly, and these contracts will rightfully be outside IR35. Because it is in their interest to ensure an outside-IR35 arrangement (a 40% saving, effectively), we as contractors will no longer have to battle to ensure that our contracts are outside IR35, end-to-end.