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80% of IT projects in public sector delayed due to IR35 – report

Half of gov techies quit following tax clampdown, says survey

By Kat Hall, 4 Sep 2017

The vast majority of UK government IT projects are suffering delays due to freelancers quitting over the IR35 tax clampdown, according to a survey of contractors.

Of 405 IT freelancers surveyed by Contractor Calculator, 79 per cent said the projects they have been working on were delayed as a result of contractors leaving.

In April, the government shifted responsibility for compliance with the IR35 legislation from the individual contractor to the public body or recruitment agency. The Treasury says it hopes to raise £185m for 2017/18 by bringing public sector contractors within the scope of the legislation.

However, the overall number of freelancers leaving as a result of the changes is lower than previously thought, with 48 per cent jumping ship. In previous surveys more than 80 per cent had threatened to walk once the changes came into force.

Half of the contractors who decided to stay managed to find a way of working outside the IR35 changes, with a further 13 per cent working within the scope of IR35 but negotiating a rate increase. The rest seemingly took the changes on the chin.

Major consultancies have only managed to fill 15 per cent of vacancies, with more than half of exiting contractors yet to be replaced.

A number of major IT "transformation" projects are under way across the public sector, many heavily reliant on contractors.

But a recent Register analysis of the Infrastructure Projects Authority's annual report found that one-quarter of big government IT programmes are already at risk.

Some of these include HMRC's £220m tax digitisation for business plans; the Home Office's £341m Digital Services at the Border programme; and a raft of Ministry of Justice programmes, including £380m electronic monitoring.

Dave Chaplin, of Contractor Calculator, said contractors had reported problems with HMRC's digital tax programme, which is to be delayed after the Treasury Committee exposed "serious shortcomings".

He said "tonnes of people" working on the Windows upgrade in the NHS are leaving. "The Ministry of Defence has also been a particular problem because of its blanket approach to applying the IR35, something it is considering reviewing."

Earlier this year, the NHS repealed its blanket decision to shove contractors inside the IR35 tax clampdown by default.

Chaplin added: "With Brexit and other challenges right around the corner, HMRC has chosen to shoot the public sector's IT capability in both feet by sparking a contractor exodus. IT contractors are in very high demand, could not be forced into false employment, so voted with their feet."

An HMRC spokesman said: "The survey is based on an unrepresentative sample. There is no evidence of a drift from the public sector and no delays to IT projects due to the new rules. There is no change to contractor pay other than to make sure the correct tax is paid." ®

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