IR35 tax legislation has caused over three quarters of IT projects in the public sector to suffer delays after contractors left, leading to delays and cancellations of critical projects according to a survey carried out by Contractor Calculator.
The survey, based on 1,500 contractors, revealed delays were caused by the lack of replacements in public sector areas being filled with only 15% of vacancies being successfully filled in big consultancies.
In total, the IR35 tax legislation aimed to overcome tax avoidance hit the public sector significantly seeing it lose 27% of its contractors after the reform went live in April, with 61% of those contractors claiming the reason they left was because they did not want to work under IR35.
Departments hiring IT staff, healthcare and project management workers were affected the most with 24% of departments losing at least half of their contractors under different projects.
Replacing the skilled workers proved difficult for some public sector departments as they revealed half of contractors who left the public sector due to the IR35 reforms could not be replaced, according to the survey.
With the loss of contractors and lack of replacements, 79% of IT projects saw delays as departments were unable to find replacements for workers.
Dave Chaplin, ContractorCalculator CEO, said: “Despite repeated warnings, HMRC completely underestimated the damage that the IR35 reforms would cause.
“These findings should be a wakeup call to Government, prompting a repeal of the legislation. Instead a private sector rollout of the changes appears more likely, which will cause even more damage.”
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However, a vast amount of public sector establishments have tried to work round the reform and avoid the new tax obligations that enforce new rules to make contractors work through an ‘umbrella company’.
Just under half of contractors (44%) managed to continue working outside the IR35 reform rules, with 13% working with IR35 but at an increased rate.
A lot of government IT Transformation projects are currently in progress across transport, healthcare and policing which many rely on contractors for including HMRC’s Making Tag Digital regime which has apparently been pushed back by six months due to the reform.
