Is IR35 hitting public sector hiring?

Changes to IR35 tax law are causing contract and freelance staff to quit, whilst putting off new hires, delaying “the vast majority” of UK Government IT projects – The Register reports.

This is the conclusion that Contractor Calculator drew from their recent survey of IT freelancers.

Their results found that almost four in five (79%) contractors said that IT projects they were working on were delayed as a result of contractors leaving. Currently, only 15% of advertised vacancies have been filled with more than half of exiting contractors yet to be replaced.

Dave Chaplin, Founder and CEO of Contractor Calculator, explained that this was a clear indication that IR35 was hitting hiring and retention rates of ‘high demand’ candidates.

He 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.”

Despite Chaplin’s comments, the overall numbers of freelancers leaving once IR35 changes came into effect has been much lower than previously touted.

In previous surveys of contractor’s due to be affected by IR35, 80% of respondents threatened to walk away once the changes had taken effect.

In reality, only 48% have moved away from the public sector. This is because half of the contractors who decided to stay managed to find a way of working outside IR35 changes, with a further 13% managing working within IR35 but negotiating a rate increase.

Others, can be assumed to have agreed to rate changes. HMRC claim that £400million in lost tax was attributed to the IR35 law as it stood before April’s changes.

Though unconfirmed, it is widely touted that IR35 changes will be rolled out to the private sector next year.

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Economy