Calculator Consultants surveyed over 1,500 contractors and freelancers regarding the reforms to IR35 in the public sector - and of those interviewed, 98% said that they would actively turn down work that could lead to them being paid through PAYE.
A change to the enforcement of IR35 rules has meant that public sector organisations taking on workers through a personal service company have had to judge whether to deduct tax and national insurance payments.
Contractors deemed to be subject to IR35 changes are taxed in the same way as employees. However, they may not be eligible for typical employment rights, such as holiday and sick pay - which has led to claims of unfairness.
The survey revealed that 76% of public sector departments lost highly skilled contractors; 71% of projects were delayed or cancelled; 27% of public sector contractors left after the reforms went live; 38% of contractors could not be replaced and 24% of projects lost at least half of their contractor workforce.
It had been believed that an extension of the rules into the private sector would happen - and in May the government opened a consultation that is expected to lead to a broader IR35 regime, causing concern among HR professionals. They are fearful that increased administration will be required to apply the rules and that there will be a shortage of available talent.
It is proving challenging replacing the highly-skilled workers in the IT industry and finding expensive major consultancies to fill the gaps has not been possible. It was found that 52% of contractors who have left the public sector have not been replaced and consultancies have only managed to fill 15% of vacancies. Of those who abandoned the public sector, 37% were IT contractors, which caused 79% of IT projects to suffer delays.
ContractorCalculator CEO Dave Chaplin said:
“Despite repeated warnings, HMRC completely underestimated the damage that the IR35 reforms would cause. These findings should be a wakeup call to Government, prompting a repeal of the legislation. Instead a private sector rollout of the changes appears more likely, which will cause even more damage.”
He added:
“With Brexit and other challenges right around the corner, this was the worst possible time for HMRC to cripple the public sector’s IT capability.”
Julia Kermode - Chief Executive of the Freelancer and Contractor Services Association - said HR departments needed to factor in the IR35 changes by educating themselves about the rules and considering external support to help navigate the process. She said:
“The earlier you start to prepare for a likely roll-out the better because every contractor’s individual circumstances should be considered on a case-by-case basis when it comes to IR35.”
Senior associate at BP Collins, Chris Brazier, said the results of the survey were not a surprise. He said:
“The majority of contractors I have acted for have indicated that they would step away from contracts where IR35 applied and this does not seem to be an empty threat. Simply put, there is no benefit to being a contractor if IR35 applies, as they are treated like an employee without any of the protection that goes with it.”
