IR35: Fallout from public-private sector reforms still being felt by IT contractors

IR35 status remains an enduring concern for IT contractors when considering their next role, but less so for off-payroll workers in other industries, research from accounting consultancy Sapphire Contracting suggests.

The company polled 2,300 contractors for its Contractor census 2024 research to gauge their thoughts on the state of the contracting market, and to get a read on what factors influence whether an off-payroll worker is attracted to a particular role or not.

As detailed in the accompanying report, the top three factors that generally influence whether a contractor will take a job or not include pay rate (87%), location (78%) and the longevity of the assignment (47%).

However, bottom of the list – with 16% of the general vote – is IR35 status, but this figure increased to 31% when the same question was asked to IT contractors participating in the research.

Alex Moore, business development director at Sapphire, said the figures suggest that, unlike most other industries, the fallout from the introduction of the IR35 reforms to the public and private sector in recent years continues to be keenly felt by the IT contractor community.

“While many industries have adapted to IR35, it remains a prominent factor for IT contractors, whose project-based work often leaves them exposed. The financial impact of being classified inside IR35 is significant, so it’s important for contractors to stay informed,” said Moore.

In Sapphire’s accompanying report, the construction and engineering, public sector and health and social care sectors were described as being in a positive state, with contractors working in these areas optimistic about their prospects.

It is, however, a different story for IT contractors, the report continued: “IT contractors haven’t been met with the same success. With no growth since August 2023, the appetite for IT skills on a temporary basis fell in May for the ninth month in a row.”

The report also cited the general election for having a derailing impact on the IT sector’s return to growth, pointing to May 2024 figures from the job site Indeed.com as proof.

“[The site] noted its IT operations and helpdesk roles were one of the weakest performers across its platform [and] in an update on the 27 June, the job board said the volume of new IT operations and helpdesk roles had fallen by 19% since the 31 December 2023,” the report continued.

Even so, there are bright spots on the horizon, as businesses across the UK look to cut their IT costs by increasing their reliance on outsourcing.  

“Many businesses in the UK are increasingly looking to outsource their IT services to third-party providers, allowing them to focus on their core competencies and reduce costs,” the report added. “With the rise of cloud computing and other digital technologies, there is a growing demand for IT services that can help companies manage and optimise their technology infrastructure.”

However, if end-hirers want to attract highly skilled IT contractors, they will need to make sure the roles they are offering are meeting the specific needs of this community, said Moore.

“With the ongoing economic pressures and the rise of disruptive technologies like AI, end hirers need to be highly attuned to the specific needs of IT contractors,” said Moore. “Addressing concerns around IR35, while also offering competitive pay rates and stable contract terms, will be crucial to securing top talent in a market that’s becoming more selective.”