Public vs Private Sector: A Guide for Contractors

What is the difference between the public and private sector for contractors?

Choosing between the private or public sector can make a big difference to a contractor’s career, determining everything from the types of contracts they will work on to whether they will fall under IR35.

To help every contractor make the best decision for them, Umbrella Supermarket has put together this handy guide outlining the key differences between the public and private sector and how each can impact a contractor’s day to day life.

What is the difference between public and private sectors for contractors?

There are several key differences between the public and private sectors which will have an impact on a contractor’s career.

Whereas the public sectors lies under the control of the government, the private sector is run by individuals and businesses who make a profit. This inevitably leads to several differences between the two sectors, including:

Objectives: Public vs Private Sector

As public sector organisations have direct ties to the government, their objectives are usually driven and influenced by compulsory regulations from local, regional, national or international organisations or bodies.

Private sector bodies, however, are not subject to such regulations and therefore have more freedom and flexibility in how they operate. As they are free to set their own goals and targets they are usually financially driven and therefore their motivations typically revolve around revenue generation and profit-making.

Spending: Public vs Private Sector

As we’ve already touched on, as the objectives and motivations of the public and private sector differ, so too does their spending -  another key difference between the two.

Whereas public sector organisations are held accountable to several parties interested in how they are spending their money and performing, private sector companies do not usually face such accountability.

Transparency: Public vs Private Sector 

The final key difference between the public and private sector is how transparent they are expected to be.

As public sector organisations are controlled by government transparency is understandably of high importance. The public sector is expected to disclose key information on what they are doing and achieving.

Private sector organisations however do not need to meet such strict standards. As private organisations and businesses, they often have the ability to hold back information if they wish.

What is the impact on contractors?

Those are the main differences between the public and private sectors, so how does this impact contractors and the way they work?

The main difference when it comes to private vs public sector for contractors is how they will be impacted by IR35 under each route.

Currently, IR35 legislation applies exclusively to the public sector, however, this is set to change as of April 2021 when IR35 will be extended to the private sector.

IR35 In the Public Sector

IR35 legislation is in place to prevent workers such as contractors operating as so-called ‘disguised employees’. This effectively means preventing workers from offering their services in a way that allows them to pay less tax and National Insurance.

From 2017, changes in the public sector meant that it became the responsibility of the client to determine a contractor’s IR35 status, rather than the contractor themselves. This meant that it was the client’s responsibility to deduct the contractor’s tax and National Insurance contributions from the contractor’s fee before it is paid to them.

However, this harmed many contractors as it meant that thousands were deemed to be inside IR35, regardless of their actual circumstances.

This meant that some contractors ended up paying PAYE tax and National Insurance Contributions when they did not need to.

IR35 In the Private Sector

Changes that are set to come into play to IR35 legislation in April 2021 will see it rolled out to the private sector as well as the public sector. This will mean that in the private sector, the client will now also be responsible for determining the contractor’s IR35 status.

This will likely badly impact the 170,000 private sector contractors, many of whom will be wrongly deemed to be under IR35.

How Can Contractors Ensure IR35 Compliance?

Many contractors are understandably worried or anxious about IR35, so how can you ensure IR35 compliance? One option is to operate under an umbrella company.

Whether you choose the public or private sector, when you work under an umbrella company you become their employee, meaning you will be exempt from IR35. That’s why umbrella companies are a hugely popular route for thousands of contractors in both the public and private sectors. Umbrella companies make contracting easy and hassle-free and take the dreaded IR35 legislation out of the equation, so contractors can get on with the contract at hand rather than worry about IR35.

Whether you work in the public or private sector, find the best umbrella company for your needs 

Having outlined the pros and cons of working in both the public and private sectors, contractors can make a well-informed decision on the best route forward for them.

For those contractors that wish to use the services of an umbrella company, Umbrella Supermarket are here to help you find the best umbrella company. In just 60 seconds our umbrella calculator gives you a list of umbrella companies that best suit your needs and circumstances. So, whether you choose to contract in the public or private sector, you can find an umbrella company that ensures IR35 compliance and suits all your needs. Ready to see what our umbrella calculator can do for you today?

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How can I avoid IR35?

As a contractor, you will most likely know about IR35 and upcoming reforms from April 2021.

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Umbrella Company Fees: How Much Should You Pay?

When deciding which umbrella company to work with, the fees they charge will inevitably play an important role in the decision-making process.

Umbrella company fees are taken directly out of the contractor’s income, so it is only natural that contractors want to ensure they are getting a fair deal.

To help contractors understand umbrella company fees, from how they are charged, what they will receive in return, and how much they should be paying, Umbrella Supermarket outlines everything there is to know about umbrella fees in this handy guide.

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Pros and Cons of Limited vs. Umbrella

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To help make the decision that little bit easier, in this guide Umbrella Supermarket outline the key differences between limited vs umbrella, so you can get on the right track.

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Job Retention Scheme for Contractors in 2021

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