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Could IR35 ‘shambles’ mean higher pay rates for IT contractors?

There has been much talk recently about the changes in IR35 for public sector contractors, and the latest industry gossip surrounding the subject particularly caught our eye – as there is some speculation that IT contractors should be increasing their rates, and may even be asked to do so by their clients. Just to set […]

By Laura Nixon on 06 Feb 2017
Read time: 2 minutes

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There has been much talk recently about the changes in IR35 for public sector contractors, and the latest industry gossip surrounding the subject particularly caught our eye – as there is some speculation that IT contractors should be increasing their rates, and may even be asked to do so by their clients.

Just to set the scene first though – from April onwards, in the public sector only, new rules mean that the end client or the ‘engager’ (which could also mean an agency) will now be responsible for determining the IR35 status of a contractor, not the contractor themselves. With this change, HMRC is hoping to target 20,000 public sector contractors who it feels should be within IR35, and hopes to raise an additional £400m as a result.

According to a recent survey of 250 IT contractors in the public sector, only a tenth of them said they intended to pay the extra tax – with the rest stating that they would either move into the private sector or increase their rates to cover the extra tax they would be paying. In fact, one official has been quoted as saying, “There’s been some talk that departments will up the rates by 20% so they don’t lose key contractors – but I think most are still waiting on HMRC to see exactly what’s happening. It’s an utter shambles.”

In one report, an IT contractor (who asked to remain anonymous) said that many contractors believe it will be easier to move into the private sector rather than increase rates with current clients, as their skills are highly sought after. Which could cause huge issues for the government and other public sector departments such as the BBC – which is already under scrutiny as 100 presenters are working as freelancers rather than employees, and may not have paid the correct amount of tax.

According to a leaked document around 18,000 digital contractors are currently engaged by central government, but the overall number of technical contractors throughout the public sector is thought to be far greater. So it’s clear that the loss of thousands of these contractors would have a major impact on the government’s IT programmes. Definitely one to keep an eye on over the coming weeks, whether you are currently working in the public sector or not!

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