New IR35 changes driving IT contractors from public sector work - survey

Public-sector IT projects will be adversely affected by IR35 changes, warn contractors

New changes to the IR35 regulations introduced in April have reduced the incomes of almost three-quarters of IT contractors, while more than one-third have decided to avoid the public-sector altogether as a result.

The changes to IR35 were applied in the public sector and meant that contractors are now being taxed directly as if they were full-time employees - without the benefits, such as sick pay, pension contributions and holiday pay that come with full-time employment.

Almost two-thirds of IT contractors surveyed by recruitment website CW Jobs believe that the delivery of IT projects in the public sector will be adversely affected as a result. Indeed, 47 per cent of the respondents in the survey warned that the public sector already lacks the skills needed to deliver digital transformation.

Furthermore, while the implementation of the regulations in the public sector was intended to raise more taxes for the Treasury, the eventual result will likely be that public sector organisations will need to hike contractors rates and/or take on more permanent staff in order to make up for the exodus.

One-third of recruiters, according to CW Jobs, report that remuneration offers to IT contractors have already been forced up due to the changes to IR35. According to the same recruiters, one-third of public-sector clients have already upped their rates, while one-fifth are offering permanent roles instead.

"IR35 has clearly had a huge impact and it is really worrying to see IT contractors leave the public sector in their droves. We are now facing a perfect storm of a brain drain from the public sector, questions over future project delivery, and an increase in fees from those contractors choosing to stay put: all are a real cause for concern," said Dominic Harvey, director of CW Jobs.

Dave Chaplin, the founder of Contractor Calculator, an online portal that provides advice and information to IT contractors added that the survey results were "hardly surprising".

He continued: "Why would anyone choose to work for 25 per cent less when there are other alternatives? HMRC shot the public sector in both feet and is now stumbling trying to deliver IT projects. The failure to plan ahead to mitigate these risks was extremely naive."

According to CW Jobs, half of IT contractors now fear that HMRC will attempt to extend the IR35 changes from the public sector to the private sector.

Computing's DevOps Summit returns on 19 September. Attendance is free to qualifying IT leaders and other senior IT professionals, but places will go fast, so secure yours now.