IT contractors crash out of public sector following tax reforms



New research has revealed that the public sector is seeing an exodus of IT contractors following the introduction of the IR35 tax reforms.

The changes mean IT contractors in the public sector are now taxed like employees. It came into effect in April this year and has meant contractors are losing up to a quarter of their previous take home pay.

A significant 71 per cent of the IT contractors surveyed said their income had reduced because of IR35. Nearly a third of those have seen an 11-20 per cent reduction in income, while more than a quarter have seen a 21-30 per cent reduction.

The changes have prompted many IT contractors to make the switch from public to private sector.  Nearly half of the 1,000 IT candidates surveyed say IR35 has caused IT contractors to leave the public sector and over three quarters said the private sector is now the most attractive to work in.

By stark contrast, only 6 per cent said contractor positions in the public sector were most desirable. The sentiment is echoed by recruiters, 77 per cent of whom say IT contractor positions in the private sector are now the most attractive.

The changes have also had an impact on candidate and recruiter confidence in the public sector’s ability to deliver future IT projects. Nearly half of candidates and 59 per cent of recruiters say that the public sector does not have the digital skills needed for the future, with more than a quarter believing the skills will only be met by using more IT contractors.

The exodus of IT contractors from the public sector has raised concerns about project delivery. Nearly two-thirds of candidates and over half of recruiters say project delivery in the public sector will be negatively affected by the impact of IR35. And nearly one in five candidates say say the public sector will have to hire more permanent IT staff as a result.

The public-sector brain drain also means it is likely that those who do remain in the sector will hike up their fees to make up for lost income. One in five candidates say IT public sector contractors will charge more money. Nearly a third of recruiters say their clients are increasing salary offers to attract more IT contractors because of IR35. Nearly one in five are offering permanent roles instead.

There are also fears that IR35 may be applied to the private sector in the future. Whilst one in five candidates say IR35 will lead to the end of IT contractor positions in the public sector.

Dominic Harvey, Director, CW Jobs, 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.”