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Some 76% of public sector departments have lost highly skilled freelance contractors and 71% of projects have been delayed or cancelled, as a result of IR35 tax reforms, according to a new survey.
The survey of more than 1,500 contractors conducted by contracting site ContractorCalculator shows the reforms have had a huge impact in the four months since they were introduced.
IR35 was introduced in 2000 with the aim of countering tax avoidance and specifically aimed at the limited company contractors that organisations hire. It is designed to combat ‘disguised employees’ – which HMRC believes would be employees of the client if they did not work through a limited company. New legislation introduced for the public sector in April moved the onus of evaluating IR35 tax status from the worker’s own company to the public sector body hiring the worker. These are now liable for collecting taxes and ensuring compliance.
The survey shows how the reforms have impacted the public sector. It says:
Dave Chaplin, CEO and founder of ContractorCalculator said: “These findings should be a wake-up call to Government and serve as a prompt to repeal the entire legislation. HMRC was warned that this would happen and now we have the evidence that shows just how damaging the changes have been – diminished access to the flexible workforce has caused irreparable damage to multiple vital public services, projects have been cancelled and others are running over budget by millions of pounds.
“What’s more, we expect that HMRC is planning to roll out the reforms in the private sector which just goes to show how far removed from reality the taxman is. Action is needed to prevent further decimation of our public sector services and stop a private sector roll out which will cause further chaos for contractors, businesses and the UK economy overall.”
The survey shows that 25% of NHS departments have lost at least half of their flexible workforce, 63% of NHS contractors are considering changing career, 40% say they may quit contracting altogether and just 22% of contractors who remain in the NHS can work outside IR35. Chaplin says this is leading to staff shortages and impacting patients with operations being cancelled and waiting times extended. The Locum Doctors’ Union and Healthcare Professional Union today issued guidelines to help healthcare professionals and providers understand the IR35 rule and the complex terms of their locum contracts and provide advice on what to do if they feel they are being unfairly taxed or underpaid for their work.
The Contractor Calculator survey shows 79% of IT projects have been delayed due to IR35 reforms as departments can’t draft in replacements and that 37% of IT contractors have abandonned the public sector in the wake of the reforms.
Some 39% of contractors are considering changing career altogether with 17% considering quitting contracting as a result of the reforms. In addition, 50% of contractors will never work in the public sector if caught by IR35 and 46% will only do so if the Government effectively pays the extra tax. A fifth of contractors have ruled out the public sector entirely as a place to work.
Chaplin added: “Contractors are turning their backs on the public sector and Government projects are in dire straits. However, IT is not the only resource the public sector is starved of, the NHS is also struggling. It’s a shambles which has cost our public services dearly to the tune of millions of pounds. We cannot underestimate the impact of the changes on public healthcare nor the aggravating effect the changes have had on departments in need of project managers.”