Government departments are advising IT contractors to put their fees up by a fifth to head-off an expected exodus of freelance techies set to be hit by an incoming tax clampdown.

On April 6 2017, in the public sector only, IR35 status will be decided by the employer, not the contractor. The reform, announced by the Chancellor in last year’s Autumn Statement, means that contractors will be taxed at source if it’s deemed that IR35 does apply.

The Register reports that central government has 18,000 digital contractors on its books, although the number of tech contractors across the public sector as a whole is thought to be much higher.

A source told the website: "There's been some talk that departments will up the rates by 20 per cent so they don't lose key contractors – but I think most are still waiting on HMRC to see exactly what's happening. It's an utter shambles."

The source added that a potential loss of thousands of IT contractors from the public sector would have a significant impact on government IT programmes. "I wonder if some big companies just happen to be waiting in the wings to come to the rescue," he said.

Dave Chaplin of freelancers website Contractor Calculator, told the Register he had also heard departments are advising contractors to raise fees by around 20 per cent.

A survey by the website found just one in 10 public sector IT contractors are prepared to pay the extra tax, with the rest planning to hike their fees or move to the private sector.

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