Contractors vote with their feet after IR35 changes

  • Sept. 7, 2017
  • IR35

The introduction of IR35 tax reforms in April of this year has had a significant impact on the number of independent contractors prepared to work for public sector bodies.

The IR35 changes mean that some contractors that work for the public sector on a self-employed basis are now facing the prospect of being taxed as employees.

A survey of 1,500 contractors has found that in the past four months, 76% of departments have lost highly skilled contractors and 71% of projects have been delayed or cancelled. Other key findings include:

  • 27% of public sector contractors have left the public sector;
  • 47% of projects have lost at least a quarter of their contractors;
  • 61% of contractors left because they refused to work under IR35 rules;
  • 52% of contractors who left the public sector are yet to be replaced.

The survey results show that 50% of contractors have said they will now never work in the public sector if caught by IR35 and 46% will only do so if the Government effectively pays the extra tax. In addition, 39% of contractors are considering changing career altogether.

Dave Chaplin, CEO and founder of Contractor Calculator, said: "These findings should be a wake-up call to Government and serve as a prompt to repeal the entire legislation. HMRC was warned that this would happen and now we have the evidence that shows just how damaging the changes have been - diminished access to the flexible workforce has caused irreparable damage to multiple vital public services, projects have been cancelled and others are running over budget by millions of pounds.

"What's more, we expect that HMRC is planning to roll out the reforms in the private sector which just goes to show how far removed from reality the taxman is. Action is needed to prevent further decimation of our public sector services and stop a private sector roll-out which will cause further chaos for contractors, businesses and the UK economy overall."

Two key areas affected are IT contracts and NHS work. The research shows that 63% of NHS contractors are considering changing career and 37% of IT contractors have abandoned the public sector in the wake of the reforms.

Chaplin said: "With Brexit and other challenges right around the corner, HMRC has chosen to shoot the public sector's IT capability in both feet by sparking a contractor exodus. IT contractors are in very high demand, could not be forced into false employment, so voted with their feet."