The first signs of the major ramifications from new government proposals regarding which party determines the IR35 status of an engagement in the public sector are being seen.

According to a report from Computer Weekly, IT contractors at the UK Hydrographic Office are leaving ‘en masse’ due to the new rules, which have been met with widespread condemnation.

The UK Hydrographic Office works with the Ministry of Defence as an agency. The recent walk outs, which is reported to be as many as 30 of the 32 IT contractors at the Office, have seen many major IT projects put on hold at the Ministry of Defence.

Under the proposed new rules, public sector organisations or employment agencies would determine the IR35 status of an engagement with a Personal Service Companies (PSCs), rather than the PSC itself.

Employment taxes would then applied to businesses who are caught by the new rules, and this would be the responsibility of the organisation or agency.

Computer Weekly is reporting that a source at the UK Hydrographic Office revealed that contractors were told they could side-step the assurances issue by agreeing to be taxed in the same way as a regular employee, or cease working for the organisation.

Much of the vitriolic reaction to the new legislations hinted at this being the approach by many public sector organisations would take in light of the new rules, and that they would encourage the adoption of a full time role on the payroll.

However, if as reported the vast majority of contractors have left the organisation, it is increasingly clear of the stance contractors are taking.

This could be the first of many such examples of major walk outs of this nature due to HMRC’s IR35 clampdown. The effect on the UK treasury, let alone the public sector itself, is looking increasingly likely to be colossal.

Should you want some peace of mind, we offer a full contract review amongst other services to help you prepare for IR35. We’ll give a pass or fail based on the current contract you hold, along with comprehensive comments on how to improve any problem areas.

We also offer IR35 investigation insurance with representation from our Head of Tax and resident IR35 expert Andy Vessey ATT should it go to tribunal.

For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news and contractor guides.