A new study has supported findings from an earlier survey by contractor tax advisory company Qdos Contractor that large numbers of contracting professionals in the public sector are preparing a mass exodus to the private sector following the introduction of new IR35 rules in April.

Twenty-five per cent of the public sector contractors polled by Harvey Nash Recruitment Solutions said that they will exclusively seek private sector assignments after the IR35 reforms kick in.

HMRC expects that the new rules will force 90 per cent of the contractors currently working for public sector bodies (PSBs) to pay the same income tax and National Insurance contributions (NICs) as salaried staff even though they will not be entitled to any of the statutory employment rights of the latter.

The affected contractors are all currently working through their own personal service companies (PSCs). Once the changes are in force, the poll suggests that 38 per cent will pursue contracts outside IR35, while 16 per cent will raise their fees to counteract the effects of higher taxation and 25 per cent will turn exclusively to the private sector for future contracts.

Three per cent think that they will abandon contacting altogether and become permanent, full-time employees. The same number are resigned to paying more tax.

Lisa Wormald, Harvey Nash’s UK Director of HR Practice, said: “IR35 in the public sector will be a real disruptor for HR professionals. With austerity and cuts already biting hard, attracting and retaining contingent talent is only going to get harder.”

During the consultation process, the measures were heavily criticised as unworkable and unfair by a range of industry experts from trade bodies representing contracting professionals and recruiters. Yet, the measures will take effect regardless from 6th April.

The Harvey Nash study demonstrates little hope that a move to the private sector will offer PSC contractors a permanent haven. Nearly 60 percent of contractors and 80 per cent of HR professionals polled believe that the new IR35 rules will be extended to the private sector in the coming years.

In an interview with IT news outlet The Register last week, Qdos Contractor’s CEO Seb Maley said that such an extension would run into considerable difficulty, as the private sector “will be far more commercially resistant” to the measures.

However, Gerry McLaughlin, CEO of online news and advice portal IT Contractor, said that reports are already coming in of large consultancies transferring their contractors to PAYE Umbrella Companies in anticipation of a further crackdown.

The Umbrella model of engagement may be the most viable option for professionals who wish to retain the flexibility of successive short-term projects while enjoying the same employment protections as salaried staff.

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