Government IT projects and public services are being put a risk as the result of a loss of freelance contractors with essential skills following the reforms to IR35 in the public sector, according to a survey by ContractorCalculator
The online contractor specialist says research with more than 1,500 contractors has found that 76% of public sector departments lost contractors following the changes, which shifted responsibility for compliance with the IR35 legislation from the individual contractor to the public body or recruitment agency. A quarter (27%) of public sector contractors left after the reforms went live in April this year.
The survey results suggest 24% of projects have lost at least half of their contractor workforce, while 71% of projects were delayed or cancelled and 38% of contractors could not be replaced.
ContractorCalculator CEO Dave Chaplin said: ‘Despite repeated warnings, HMRC completely underestimated the damage that the IR35 reforms would cause.
‘Our evidence shows that diminished access to the flexible workforce has caused damage to public services, including healthcare, police and public transport. Elsewhere, projects have been cancelled altogether, whilst others are running over budget.’
Chaplin claimed many public-sector organisations have started to require all their contractors to work via umbrella companies. However 19% of contractors who left did so after being told to use an umbrella company, while the survey found 9% of contractors who stayed worked through an umbrella, but on a higher rate.
In addition, half of those polled (52%) said they will never work a contract in the public sector caught by IR35, while 46% would only do so if their rate was increased.
Chaplin said: ‘HMRC has left itself between a rock and a hard place. The only logical option would be to repeal the reforms, but we know HMRC isn’t in the habit of acknowledging its failures.
‘The fear is that HMRC will choose to “level the playing field” with a private sector rollout of the reforms.’
An HMRC spokesman said: ‘The survey is based on an unrepresentative sample. There is no evidence of a drift from the public sector and no delays to IT projects due to the new rules. There is no change to contractor pay other than to make sure the correct tax is paid.’
The survey IR35 reforms in the public sector – how damaging were the reforms? is here.
