IR35 exodus creates “perfect storm”

Public sector recruiters could see a drastic shortfall in available candidates as contractor applicants head towards the private sector following reforms to IR35 tax law.

Research, carried out by CW Jobs, found that over 70% of public sector IT contractors said their salary had reduced as a result of IR35. The changes are cited as a central reason for contractors and candidates switching to private sector roles with 47% citing IR35 as the reason they were leaving the public sector.

Dominic Harvey, Director at CW Jobs, explained how tax law changes were exacerbating tensions caused by a skills shortage and increased need for public sector workers.

He said: “The 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.”

Almost six in 10 recruiters currently believe that the public sector doesn’t have the digital skills needed for the future. More than 25% believe that the skills shortfall can only be combated by using more IT contractors.

The public-sector brain drain raises concerns that remaining public sector contractors will hike up their fees to make up for income swallowed up by IR35.

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.

Comments (1)
Thu, 20 Jul 2017 12:51pm BST
If IR35 had been re-enforced fairly and uniformly across the all sectors (private and public) then we would not have this problem. We were doing a lot of work in the public sector but are now slowly moving away from it due to the fact that contractors are simply not interested in earning less money. There are various arguments as to whether or not contractors have twisted IR35 rules to pay less tax but you cannot argue that contractors earn more because they have no holiday pay, no sick pay and a host of other benefits that permanent staff can get. HMRC has got this all wrong and public/digital public services will suffer as a result. The public sector once led the way but that has long gone and is likely to be gone for a very long time. Another ill-conceived and ill-thought out made by policy makers not living in the real world. Ask the staff at HMRC London, Shipley, Newcastle etc if they are getting the high calibre candidates they were getting last year? I suspect we all know the answer...
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