IR35 Tax changes lead to public sector walkout by its contractors

Thousands are apparently going off to the private sector which is unaffected by the move.

Changes to UK tax and national insurance contributions designed to squeeze “off-payroll” working have resulted in a wave of public sector walkouts by IT contractors.

Colin Morley, a director at recruitment consultancy Harvey Nash told the Financial Times that one in three candidates were now turning down public sector jobs and opting to work in the private sector instead, which has been unaffected by the move.

“It’s been a real mess,” he said. “We are not able to meet the demand coming through.”

Dave Chaplin, founder of ContractorCalculator, a website that offers advice to contractors, agreed. He said that thousands of IT personnel were now departing, although some working on critical projects had managed to negotiate higher rates for themselves.

Neil Lupin, managing partner at employment agency Green Park, added that rates for senior workers had recently leapt by as much as a quarter.

Some contractors said that changes to the IR35 regulations were forcing them to go on payroll and pay higher taxes, even though they were genuine freelancers.

Jordan Marshall, policy development manager of IPSE, which represents them, said that most public authorities were taking a “blanket approach” and classifying all of their workers as coming under IR35 rules.

“Lots of our members are leaving the public sector,” he said. “The impact is potentially quite damaging.”

Treasury officials said they were monitoring the impact of the changes on Whitehall, but had yet to see any cause for concern.

Under the new regulations, which were announced in last year’s Budget, tax and national insurance must be subtracted from the pay packets of temporary workers at source. They can no longer be paid via personal service companies, which calculate and deal with the tax at a later date.

The aim is to prevent “disguised” employment by making the public sector responsible for enforcing tax avoidance rules. The Treasury estimates the move will raise £185 million during the current tax year.