According to Harvey Nash Recruitment Solutions, 25% of contractors in the UK plan to only seek opportunities in the private sector due to changes in IR35 legislation.

The data which comes from a new survey of public sector professionals reveals that the move to the private sector comes as a result of the government’s decision to proceed with changes to IR35, which HMRC expects will bring nearly 90% of public sector contractors inside the regulation, meaning they will pay more tax.

However, the proposed changes have received heavy criticism, not just from contractors but by recruiters and HR professionals operating in the public sector also. 91% of HR professionals and 96% of contractors claim it will have a mild or very negative impact. The areas where HR professionals expect to see most disruption as a result of IR35 are in competitiveness, productivity, innovation and talent acquisition.

These expectations are re-enforced by the countermeasures public sector contractors plan to take. With the introduction of the changes to IR35, 38% will seek contracts outside IR35. Meanwhile, 16% will increase their rates to balance the cost of being caught within IR35, 25% will only seek contract opportunities in the private sector and 3% will stop contracting and become full-time, permanent employees. However, 3% accept that they’ll have to pay more tax.

“IR35 in the public sector will be a real disruptor for HR professionals. With austerity and cuts already biting hard, attracting and retaining contingent talent is only going to get harder,” UK Director of the Harvey Nash HR Practice, Lisa Wormald said.

The Harvey Nash Recruitment Solutions report suggests the decision to move to the private sector provides only a temporary solution to the issue of IR35 however, as almost 60% of contractors and 80% of HR professionals expect IR35 to be applied to the private sector in coming years.

The survey also reveals HMRC is failing to provide the affected parties with clear information, with 9% of contractors citing it as a source of information. Many are turning to industry press (18%), their accountant (25%) and recruiters (18%) for advice.

 “The help provided by HMRC has been far too little and far too late. The whole sector is in chaos with everyone looking for a quick fix. What is going to happen when the first payments, subject to the new rules, are made? With just days left before the implementation there are still many unknowns but there is little hope now for another U-turn by the Chancellor,” Danny Batey, Senior Tax Consultant at Bauer & Cottrell, said.

Furthermore, the tool developed by HMRC for determining whether a contractor is within or outside IR 35 is raising more questions than it answers.

 “The result of the tool is entirely different depending on who completes it. We have seen many cases where an ‘outside IR35’ result has been obtained by the contractor or the agency simply answering the two substitution questions, but the public sector itself has had no input,” Batey said.