Evidence is emerging that the changes that were made to IR35 rules for those working in the public sector are having an adverse effect on projects due to contractor shortages.

Many commentators predicted that contractors would leave the public sector due to the changes in the IR35 rules, which could result in contractors facing contradictory and draconian measures. Prior to the changes being introduced, surveys revealed that 85 per cent of contractors would leave the public sector if they were found to be within IR35.

HMRC has tried to claim that this is not happening, but there is evidence that vital work on the London Underground has been delayed due to a major departure of public sector contractors.

Transport for London recently said that “a significant number” of contractors had left projects due to the IR35 changes and that this was leading to skills deficits and setbacks to vital repair work.

HMRC continues to deny that this is happening. HMRC Tax Assurance Commissioner Jim Harra said: “This has not happened. HMRC has been monitoring this. Contractors come and go, and the market is naturally fluid, but it would be wrong to suggest that the public sector has significant recruitment gaps because of this reform.”

Luke Shannon-Little, Managing Director of Ship Shape Pay said “our ICAEW accountants are helping contractors accurately assess their IR35 status and provide tools to help challenge blanket inside IR35 determinations.  But at the end of the day if the main contractor is not able to handle individual assessments projects will suffer.”