New research from leading IT jobs board CW Jobs reveals an alarming haemorrhage of contracting IT professionals from the public sector in the aftermath of reformed IR35 tax legislation.
The revamped IR35 rules were designed to target contracting professionals working in the public sector via their own personal service companies. As numerous professional bodies warned during the legislation’s consultation phase, the effect of the new rules would be to unfairly re-designate entirely legitimate independent professionals as employees for tax purposes, cutting their incomes substantially and affording them none of the statutory employment benefits that employee income tax and NICs pay for.
Critics of the reforms, which transfer responsibility for determining IR35 status from individual contractors (who know the fine details of their work and contracts) to public sector end clients or recruitment agencies (who are too remote from the work setting to be sure), included Umbrella Company trade associations PRISM and the Freelancer and Contractor Services Association (FCSA) as well as staffing industry bodies APSCo and the REC.
The research shows that since April, many of the contractors caught by the reforms have lost up to a quarter of their previous incomes. A large majority (71 per cent) said that their incomes had been slashed because of IR35. Almost a third (29 per cent) reported income cuts of 11-20 per cent, while over a quarter (27 per cent) reported reductions of 21-30 per cent.
Nearly half (47 per cent) of the IT candidates polled reported that the reformed tax rules had driven contracting IT professionals out of the public sector and into the private sector, while more than three-quarters (83 per cent) said that the private sector is now the most attractive place for IT contractors to work.
Just six per cent of the respondents believed that contractor positions in the public sector are more desirable. Meanwhile, a large majority (77 per cent) of recruiters described IT contractor positions in the private sector as the most attractive.
The mass (and continuing) migration of IT contractors away from the public sector is raising concerns about project delivery. Nearly a fifth (18 per cent) of candidates reported that the public sector will be forced to hire more permanent IT staff as a result of IR35, while 62 per cent (along with 55 per cent of recruiters) believed that project delivery will be undermined.
Describing the IR35-driven mass exodus of IT contractors as “really worrying,” CW Jobs’ Director, Dominic Harvey, said: “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.”