Around 90 per cent of UK government IT contractors will rebel against proposals by HMRC to clamp down on self-employed workers not paying the correct employment taxes.
The taxman is currently consulting on whether to shift responsibility for compliance with the intermediaries legislation, known as IR35, from the individual contractor to a public body or recruitment agency.
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By doing so it hopes to raise £400m by targeting 20,000 public sector contractors currently not paying the right tax under IR35 rules. HMRC believes just 10 per cent who should apply the rules do so.
But according to a survey of 250 public sector IT contractors by freelancers website ContractorCalculator, only one-in-ten intend to pay the extra tax. The rest will either jump ship to the private sector or hike up their fees to offset the costs.
ContractorCalculator estimates the government will lose out on £115m in tax revenues and could face a £610m rise in costs per year for hiring contractors if these workers are put on the payroll.
Dave Chaplin, chief exec of ContractorCalculator, said: "Four out of five respondents said they would turn down an inside-IR35 role and seek opportunities elsewhere because a typical contractor would have to increase his or her fees by 30 per cent to earn the same income if deemed to be inside IR35."
He added: "The reforms are quite simply unworkable and will lead to an exodus of talent that will have a significant impact on an already stretched public sector."
According to Chaplin, one-in-six IT contractors will just not bother being a contractor anymore, and go back to permanent work.
He said: "This is not surprising, because for the last 17 years government and HMRC has constantly battled to tax them like employees without them receiving any of the benefits. They want to work freelance and expect to be supported by the tax system, not attacked by it. Perhaps these people have finally had enough."
However, it is not the first time the government has tried to claw back taxes via IR35.
One IT contractor working in government said: "This is at least the third, maybe the fourth go round." He added: "IR35 is a classic HMRC bodge – fixing tax was too difficult so they added something to the edge to try and squeeze out a loophole."
The IR35 consultation closes on 18 August. ®