Post-IR35: should you stay contracting?

The government's changes to contractors' tax regime, the controversial IR35, has passed through the Commons. So, if you're a contractor in a one-person company, it's time to weigh up the options.

There are four ways to approach the issue: move abroad, go permanent, expand your business, or stay where you are.

Move abroad
A survey for the Professional Contractors' Group said one-third of IT contractors are taking this option seriously.

When the Inland Revenue released its revised version of IR35, offering only small concessions to freelancers, the British Computer Society's Mike Cullen dubbed it 'a great day for Holland.'

Many contractors already have experience of travelling long distances to work - and Amsterdam or Dublin are only an hour's flight away.

Britons can work in any of the European Union countries without restriction - which takes in all the main western European economies except Switzerland. Jobworld, vnunet.com's sister site for recruitment, has databases for several of the biggest countries (see links below).

Holland is the obvious choice, as its tax systems has a concession for which IT contractors may be eligible. With English virtually a second language, language is likely to be little barrier to moving, especially to English-language dominated IT departments.

Ireland, with a burgeoning IT market, also has the advantage of speaking English. There's a tax advantage to transferring to the country just before the start of the new tax year in April - which fits in rather nicely with the probable imposition of IR35. Those thinking of making such a move should talk to firms that specialise in Anglo-Irish tax matters.

However, migrating may cause other problems, such as distance from family and friends, or the costs and difficulties of moving family. Property and living costs can be higher than the UK's, especially if you are moving from outside the south-east of England. Several of the largest IT recruitment agencies have specialised international departments: it may be worth going to them for advice. Of course, it's also important to check the relative tax situation in each country!

Perhaps IR35 is the spur for you to leave Europe altogether. Desirable IT skills often boost your chances of immigration to countries that operate points-based systems to decide who to let in. Links to information on some of the most popular English-speaking countries are below.

Jobworld for the Netherlands:
[http://www.it-jobworld.nl/itjw/plsql/pkg_jwbe_homepage.main]

France:
[http://www.vnunet.fr/JobWorld/index.htm]

Belgium (in English):
[http://www.jobworld.be/jwbe/plsql/pkg_jwbe_homepage.main?p_language=ENGLISH]

Spain:
[http://www.itjobworld.com/]

Ireland (from the publisher of Irish Computer magazine):
[http://www.careermover.com/jd/view]

Automatic translation from French, German,
Spanish, Italian and Portuguese:
[http://babelfish.altavista.com/]

Online dictionary from Dutch to English
(many other languages available):
[http://dictionaries.travlang.com/DutchEnglish/]

US immigration guidance:
[http://www.ins.usdoj.gov/graphics/howdoi.htm]

Canadian immigration guidance:
[http://www.canada.org.uk/visa-info]

Australian immigration guidance:
[http://www.immi.gov.au/]

Currency converter:
[http://www.oanda.com/converter/classic]

Go permanent
If the government is imposing tax neutrality between contractors and full-timers, why not go back to being a permie?

Several reasons. Many contractors went freelance to leave the problems of full-time work, such as internal politics, or to allow themselves to change roles regularly and gain a wide variety of experience, without having a CV that suggests the inability to hold down a job.

The one thing in favour of full-time work is stability, which, depending on your view of the job market after the New Year, may be a blessing. The most recent quarterly survey from recruiter Spring showed sharp falls in rates for all top six skills.

On the other hand, especially for those whose skills can be utilised for ecommerce, such as Java, C++ and Oracle programmers, you may see a boom coming, in which case freelancing may remain the better option.

Spring recruitment's survey of contractors' skills and demand:
[http://www.vnunet.com/News/101350]

What am I worth? NCC survey link:
[http://webserv.jobworld.co.uk/jwuk_user/plsql/pkg_jw_search.advert_statistics?v_ad_id=7053&v_sub_id=0&p_called_by=2]

Jobworld permanent posts:
[http://webserv.jobworld.co.uk/jwuk_user/plsql/pkg_jw_system_area.main?p_called_by=3]

Expand your business
The Inland Revenue is yet to publish specific advice on who will be affected by IR35 in the IT industry. Yet its general guidelines suggest those who expand their businesses may well have a better chance of avoiding IR35's impact.

It seems unlikely that simply partnering up will help - the guidelines are more concerned with the style of work, rather than how big the company is. However, factors towards attaining self-employed status - the key to continuing with the existing taxes for one-person service companies - include taking on whole jobs for an agreed payment, risking your own money, providing your own equipment, hiring and paying your own staff, and sorting out glitches at your own expense.

Contractors say they are entrepreneurs - now would be a very good time to make yourself look more like one. By setting up your own small services house, you should be well on the way to avoiding IR35 - although this will not be a sure thing until the sector-specific guidelines come out. These are not expected from the Revenue until the New Year.

The Inland Revenue's definition of self-employment:
[http://www.inlandrevenue.gov.uk/pdfs/ir56.htm]

Department of Trade and Industry's business support page:
[http://www.dti.gov.uk/support/index.htm#one]

Stay where you are
Contractors have certainly put up a fight, and the Professional Contractors' Group has been their heavyweight in the ring. It has run its campaign largely through the Internet, and has got itself noticed to the extent that its views were included in the Inland Revenue's recent Regulatory Impact Assessment on revised IR35.

The group can be joined online below, and has said it will provide advice as the situation develops.

The British Computing Society's contractor division can also provide more general support for freelancers.

As noted in the above section, there are various ways of achieving self-employed status and avoiding IR35. Apart from expanding your one-person service company into something recognisably corporate, there are other options which may help.

One is working from home. Although again it's impossible to speak with certainty until specific guidance comes through, and even perhaps test cases take place, home-working has been highlighted by IT tax specialist Tim Warr as one way that may help avoid IR35. However, other experts have said that even visiting a client's site for one day a fortnight might jeopardise any hope of attaining self-employed status.

Spring recruitment's survey of contractors skills and demand:
[http://www.vnunet.com/News/101350]

Join the Professional Contractors' Group (£100):
[http://www.ir35update.co.uk/join.html]

Join the British Computer Society's contractors group
(£15 for BCS members, £25 others):
[http://www.bcs.org.uk/siggroup/icc/join.htm]

Main points
* Are you prepared to move abroad? If so, take specialist advice, both on the tax situation and on how to find work. This is a drastic way to avoid a change in taxes, however severe. The Netherlands, followed by Ireland, are the most obvious choices.

* Could you return to permanent work? Many contractor rates are falling. If you're concerned your skills may not be in vogue come next spring, now may be the time to go full-time.

* Do you want to expand your company? IR35 is only intended to hit those working as if someone else's full-time staff. Proving your entrepreneurial abilities will let you escape the tax changes, although will also provide you with a whole range of new risks.

* Can you make yourself less like a full-timer in other ways? Working from home may help, although this is as yet far from clear.