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How long will recovery in demand for public sector IT contractors last?

Despite the massive cost-cutting measures implemented by Government bodies over the past year, the demand for public sector IT contractors appears to have levelled out according to statistics derived from the leading IT jobs boards over the past year.

Demand for public sector contractors up by 2.3%

In its latest quarterly report, based on IT jobs posted by the leading recruiters, jobadswatch.co.uk says that the demand for public sector IT contractors rose in Q2 of 2012 by 2.3% – and by just under 10% for the past 12 months.

Interestingly, Government bodies appear to be more keen to turn to temporary IT expertise rather than taking on new permanent staff. The demand for traditional IT employees fell by 4.4% between Q1 and Q2, and has sunk by 14.2% over the past 12 months.

The latest report comes at an interesting time for limited company contractors working in the public sector, as well as interim managers.

New public sector ‘off payroll’ rules come into force

New ‘off payroll’ rules published by the Cabinet Office this month contain an ‘Assurance Guide’ which aims to help Government bodies determine whether or not IT contractors are meeting their ‘income tax and National Insurance obligations’.

Limited company contractors earning over £220 per day, on contracts lasting 6 months or more, must now prove that their contracts are not subject to the IR35 rules, and that they are not ‘disguised employees’.

How IT contractors should comply with the new rules

According to the Government guidance in Procurement Policy Note 07/12 (PDF available here), in order to demonstrate their compliance with the ‘off payroll rules’, contractors will first have to take the controversial Business Entity Test.

For those who are deemed to be at a ‘low risk’ of an IR35 investigation, then this should be sufficient in itself. The vast majority of contractors who are at a ‘medium’ or ‘high’ risk from investigation will have to prove that they are IR35-free, either by using HMRC’s official contract review service (not recommended by many IR35 experts), or use a professional IR35 contract review service.

The future for public sector contractors

As contractors’ group, PCG, has pointed out, Government bodies appear to be implementing the new rules in slightly different ways, which is bound to add further confusion.

In addition, new ‘controlling persons’ proposals, aimed at taxing influential limited company interim managers as if they were ’employees’ rather then self-employed individuals, could also impact the supply of skilled contractors. A leading tax body recently suggested that the controlling persons proposals should only apply to the public sector.

We will be able to establish how both sets of regulations impact the market for public sector contractors in three months time, when the next jobadswatch report is due.

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