IR35 changes have 'seriously damaged' the NHS

Changes to self-employment tax rules have "seriously damaged" the NHS and the public sector, according to research by the Association of Independent Professionals and the Self-Employed (IPSE) and the CIPD.

The research, based on responses from 867 contractors and 115 hiring managers - 84% of whom were from NHS Trusts - found that 51% of public sector hiring managers had lost skilled contractors as a direct result of the changes to IR35 regulations. A further 71% also said they were now struggling to hold on to their contractors.

The study found that 40% of independent contractors working in the public sector said they had witnessed project delays and 35% said they had seen costs rise since the changes were introduced. Half of hiring managers (52%) said they had witnessed cost rises, delays and even project cancellations.

Charles Cotton, senior performance and reward adviser at the CIPD, said: "Our research suggests that the way the IR35 tax changes have been implemented has had damaging unintended consequences for the public sector."

He added: "It's important that the government is in genuine listening mode during the consultation on its plans to extend the IR35 changes to the private sector to ensure that the potential implications are fully taken into account. If necessary there should be a complete rethink of the private sector roll out."

The changes to IR35 have also created a significant administrative burden. Four in five hiring managers said they had seen a substantial increase in the workload involved in engaging and paying contractors.

In response to the damage across the sector, IPSE is calling for the government to halt the extension of the changes to the private sector.

IPSE chief executive Chris Bryce said: "These figures are a resounding retort to HMRC's deeply flawed research on the impact of the changes to IR35 in the public sector. They confirm what we have been hearing anecdotally for a long time: these changes just have not worked. In fact, they've caused serious damage right across the public sector, stalling major TfL projects and even contributing to the NHS staffing crisis.

"But the public sector is only a fraction of the size of the private sector. If the government, against all reason, goes ahead with its plan to extend the changes to IR35 there, the consequences will be far worse. It would be nothing short of a disaster. For the good of the self-employed, for the good of businesses across the UK, and for the good of the economy, the government must take heed and reverse these dangerous, reckless plans."