One of the biggest shake-ups to ever hit the contracting world – the IR35 reforms in the public sector – have had a hugely detrimental effect on many projects and services within the sector.

New findings from Contractor Calculator indicate that the mass contractor exodus that was prompted by the reforms affected three quarters of public sector departments in the UK.

This meant that 71% of projects were either delayed or cancelled altogether due to the lack of specialist contractors available to complete them.

Dave Chaplin of Contractor Calculator says: “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.”

The recent findings paint a bleak picture within the public sector since the reforms.

27% of all public sector contractors left after the reforms went live, and 38% of those contractors who did leave couldn’t be replaced adequately. Almost a quarter of projects lost at least half of their contractor workforce.

The predominant reason why? 61% of the contractors surveyed who left their former left did so because they didn’t want to work under IR35.

The IT sector within the public sector was particularly pained following the reforms. 37% of those who abandoned the public sector worked in the IT sector. And the results were devastating, as 79% of IT projects suffered delays.

The NHS, a major employer of contractors before the reforms hit, saw 25% of its departments lose at least half of their flexible workers.

Other findings from the research including a continuing confusion within public sector entities about the reforms and what is required of them.

Such negative impact on the public sector was predicted, and this research is a clear indication that many of the problems forecast have come to fruition.

Wih the rumoured possibility of similar reforms in the private sector, the research does provide a clear indicator that the impact is very damaging.

Whether this will deter HMRC from introducing them in the private sector however remains to be seen.

“HMRC has left itself between a rock and a hard place,” Chaplin added. “The only logical option would be to repeal the reforms, but we know HMRC isn’t in the habit of acknowledging its failures. The fear is that HMRC will choose to ‘level the playing field’ with a private sector rollout of the reforms. This would be incredibly damaging. As the evidence shows, the reforms are a massive deterrent from flexible working, and HMRC would be crazy to extend them into the private sector. But as the public-sector reforms themselves demonstrate, you can never underestimate how far removed from reality the taxman can be.”

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, plus 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.