IR35 reform forces public sector exodus

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Richard Hattersley
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IT contractors caught by the new IR35 reforms are leaving the public sector in their droves for more financially attractive positions in the private sector, which prompts questions about the public sector ability to deliver IT projects.

Statistics taken in June from IT job board CW jobs showed that 71% of IT contractors have had their income significantly reduced by as much as 30% due to the reforms. Almost half (47%) of the 1000 candidates surveyed say the reforms have forced them to leave, with 83% moving towards the private sector.

Public sector strain

The exodus has sparked fears about the public sector’s ability to deliver IT projects. This concern has already come to fruition with reports about how the 18 IT contractors behind HMRC’s Employment status service tool (used to determine IR35 status) downed their own tools.

An insider from the RCDT contractor group told ContractorUK that despite being assurances from their line manager it was ultimately decided centrally that they did fall within the rules.

According to the report, an HMRC leader admitted that all their projects “are turning RED as there’s just not the talent to deliver them successfully”.

‘A real cause for concern’

With IT projects now in jeopardy, the public sector’s digital skills have been scrutinised, as 47% of surveyed contractors say the current skillset is insufficient. 

As a result, 62% of candidates and 55% of recruiters believe IT project delivery will suffer. While the public sector may look towards contractors to fill the skills gap, one in five contractors have vowed to charge more to offset the reforms. And likewise, recruiters have seen clients raise salary offers or permanent roles.  

Fears surrounding IR35 has caused 51% of those surveyed to expect the rules to seep into the private sector soon.

Reacting to IR35’s impact on the public sector, Dominic Harvey, director of CW Jobs, said: “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.”

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Well, HMRC only have themselves to blame. It is not like they couldn't have tested the changes internally before exposing the whole of the public sector. If HMRC don't get the corrections needed to their on-line self assessment return and its calculations as promised by October, they are going to have even more problems as people like me demand the repayment of tax that has been due since the start of this financial year.

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30th Jul 2017 16:17

Do you think HMRC really wanted to introduce this? They were probably forced into it by this public sector hating government. Now of course when work is put up for tender the public sector will find it harder to compete.

I truly hope all IT consultants leave government contracts very quickly

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to the_Poacher
03rd Aug 2017 18:55

Of course HMRC wanted this. They are losing NIC by IR35 not being operated when they think it should but they have to enquire spearately into each contractor's PSC to challenge it. Now they check on one payer with hundreds of contractors (like with a PAYE audit) and, if they are doing it wrong, get the NIC and tax for all their contractors in one visit!

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02nd Aug 2017 10:46

..and what of MTD?! Who is going to make sure that runs smoothly?

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By MattH
02nd Aug 2017 11:06

I've just had the situation where a client of mine has been offered a role and two things stand out.
1) The council have already decided that the role is IR35 regardless of the individual circumstances of the contractor. I can understand the approach to ease on the administration but not quite the letter of the law is it!?
2) The council have put up the day rate from £500/day to £800/day to compensate for it being "within IR35". Hence increasing it by more than the amount they'll end up collecting in tax anyway!!

The whole system is broke even before its barely started.

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to MattH
02nd Aug 2017 12:57

MattH wrote:

I've just had the situation where a client of mine has been offered a role...

2) The council have put up the day rate from £500/day to £800/day to compensate for it being "within IR35". Hence increasing it by more than the amount they'll end up collecting in tax anyway!!

The whole system is broke even before its barely started.

Leaving the local taxpayers to obediently foot the bill for the council & contractors effectively bypassing the whole purpose of the changes

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By MattH
to the_fishmonger
02nd Aug 2017 13:04

Exactly, couldn't have put it better myself!

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02nd Aug 2017 12:17

I've got one on the NHS who either has to take a pay reduction using her own Ltd Co or get the same rate as before using an "umbrella" company. The whole IR35 has always and will always stink because it is artificial. You cannt take a legal entity away and expect nothing to happen.
Who is surprised though?
It really is time employment status was sorted out and the only way is for Government and HMRC to keep their noses out.

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By KH
02nd Aug 2017 14:17

Have a client who has just closed down his LtdCo due to lack of freelance IT contracts ... instead he is now employed by a private company who uses him, along with a host of other ex IT-freelancers, to do exactly the same jobs as they had been doing prevoously ... but with one change ... whereas he had been charging this public sector company £800 per day, the company he now works for charges these guys out to the same company for £2,500 per day ... .............. Doh!

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to KH
03rd Aug 2017 19:06

But they are all paying tax and NIC under PAYE and employer's NIC too so HMRC's figures and the "tax gap" improves!

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By KH
to tonyaustin
04th Aug 2017 09:44

True ... but the public sector company is paying c.£1600 per hour more for the job, and the government is having to fund that whilst only getting back a fraction in PAYE, NICs et al ... so it's a lose lose situation for everybody

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