Contractors have their say on IR35

The IR35 saga has still not run its course. Many contractors are still angry at the government's changes to their tax status. Some are going abroad, others are actively considering ways of thwarting the government's plans for them.

All the necessary legislation has now been passed, and IR35 is likely to be implemented at the start of the new tax year on 5 April. But the Inland Revenue has still not clarified all the details of its new arrangements.

Expect another flurry of controversy when the finalised guidelines appear - you should be able to read them at the Revenue website at www.inlandrevenue.gov.uk.ir35 from next month.

But this isn't just about contractors, or indeed the government's handling of the whole issue. Contractors make up a significant proportion of the IT labourforce - almost 70,000 people, according to the government's own figures. They tend to be concentrated in the most skilled categories, so if they all decide to retire or go abroad, or attempt to join the permanent labour force in arush, there could be serious disruption to many other people's plans.

To find out what's likely to happen next, Computing, its sister title Computer Contractor and our recruitment website www.jobworld.co.uk, have been finding out what people really think.

We've polled selected readers and site visitors, and present the results here. We had more than 360 responses to our questionnaire, with the last results collated in mid-January. We guaranteed anonymity to respondents so we don't give names here, but we'd like to thank all those who took the trouble to takepart.

How well handled was IR35?

"The government has handled the whole issue of IR35 very badly. They seem hell bent on trying to close a small and questionable tax hole, that may in the long term actually cost them far more than they could ever hope to get back as a result of the tightening of the rules."

"The taxation (I include National Insurance contributions) of service companies has moved from one extreme to the other. To claim that the new system is fairer is absurd. It was possible for the government to fill the NIC coffers by introducing much simpler, fairer rules than these. Also, it has stirred up a great deal of antagonism from contractors which would have been easy to avoid. The civil servants and politicians involved are not smart!"

"Although the government hasn't handled this well, and I don't think the new regulations are particularly fair, it's only reasonable that we should get this in perspective. IT contractors have done well out of the current arrangements,and I have certainly been able to get more money as a contractor than I couldever have done as a permie. I can't get uptight about it if I'm in the top 20 per cent of UK earners."

Political impact

"Never again will I vote for the Labour Party. They have totally ignored promises not to increase taxation."

"I find that the government I voted for, which promised to encourage and nurture small businesses, is instead forcing my company under with an enormous tax increase. I certainly won't be voting for New Labour again."

"This tax change is the Old Labour politics of envy. They see someone doing well, and resent it. Despite making hypocritical speeches in favour of business, the reality is that they want to stifle small businesses and control everybody."

"I do not think that any Labour party member trying to get our votes at the next election will get a remotely polite answer."

Effects on IT and the economy

"No-one seems concerned about the effect on salaries of potentially thousands of contractors coming back into the marketplace once IR35 is in effect. Simple supply and demand will ensure that IR35 also has a knock-on effect on permanent staff within the IT industry as well."

"In its effort to stamp out tax avoidance, the government is about to stamp out the unique flexibility between supply and demand that has naturally evolved within the IT industry. Has the government already forgotten that if it were not for this flexibility, the vast majority of industry here in the UK, including various government departments, would not be millennium compliant?"

"The UK cannot afford to lose the best contractors to overseas. I expect those who can leave (i.e. the best) will, and the rest will remain."

"I work as a contractor so that I can use the extra income to buy equipment and expand my business. How can I do that under IR35?"

"Once the dust has settled, I believe that rates will increase slightly to compensate. After a while, there will be little impact on the contracting sector."

"I predict a rough ride for the next year, as it has been contractors who have put a large part of the work in. The Passport Office fiasco is just the beginning."

"The overall effect of the changes will be to reduce the income to the Treasury in the long term, reduce the amount of training, and stifle the cross-fertilisation of ideas and skills that is a byproduct of contracting."

"Knowledge-based industry is about to be destroyed by an ignorance-based government."

Outsourcer conspiracy?

"By increasing the cost of independent operation, IR35 will result in a swing from the use of independent contractors to consultants from the large consultancies such as Arthur Andersen."

"It stinks of government corruption because the only people who will benefit will be the large outsourcing companies that want to get rid of us, the competition. It is they who have lobbied the government for this change."

"This is a disaster, with only companies like EDS (the Revenue's own outsourcer) benefiting."

"The main driver for IR35 comes from the large consultancy firms who see a threat to their huge profits from their smaller, nippier and more cost-effective competitors. They have used their influence."

Going abroad

"This is the first time I have seriously considered working abroad, and it has surprised me how easy it is to do so. It is often easier to travel to Europe from my home in west Gloucestershire than, say, Essex or the City."

"The US beckons (again). I've been back a year and never felt so down and disappointed in this country."

"You have to do your homework very well to be sure that you don't end up paying just as much or more tax in other countries. Also, you can only consider that option if you don't have ties or commitments here."

"I currently work in the Netherlands, but for a UK company and paying UK tax and National Insurance. I will switch to an offshore basis, thus losing taxation revenue for the UK."

"We are now resident in Sweden and intend to stay. I was intending to return to the UK at some point in the next two years, but there seems little to recommend that course of action now."

"Once my children have finished university, I will almost certainly go and work abroad in the hope of building up a decent retirement income."

Other solutions

"I intend to try and telework outside IR35, so that my wife can keep her job, which she enjoys. If that doesn't work, then it's the Netherlands, Germany or Eire."

"If I were mobile I would definitely leave the country - with tears. But I can't, and I'm too old (42!) to get a permie job which uses my engineering abilities. I'll have to become a manager of some sort."

"I have talked with several colleagues about forming an umbrella company, which on the face of things seems to be a bit of a dodgy loophole. However, it may be the answer in the short term if the new legislation allows it."

"The long term answer may well be to register the company in a different country. If this method is as straightforward as getting in touch with the relevant people via the Internet, and having to make one or two journeys to that country to save £10,000 in tax and National Insurance, then I will have no qualms in using it."

"I think it's a shambles, and I'm very uncertain what to do next year. I'm hoping I might be headhunted by a consultancy to have permanent work on a good salary here where I live. At least then I wouldn't have to worry about getting contracts and doing all that awful travelling. But at 51, I'm worried about permie jobs, as I reckon I'll come up against ageism."

"I think it's time I got out of this IT business entirely. The trouble is, I'm good at it."

"I expect a lot of contractors will get around the new rules by seeking direct relationships with their current clients, and do fixed-price work for a number of clients. This means the agencies will likely suffer."

Why the government is wrong

"I'm disgusted that while the government is banging on about ecommerce and a push in IT, they are punishing the very people that can make it happen. I'm being victimised by them because a few people get 'permanent' contracts. I have not had the luxury of that, but this is not taken into account."

"I feel IR35 does not compensate for the fact that contractors as a whole are not guaranteed their next period of work, they do not get paid for holidays or sickness, and generally they have to fund their own training. Generally I feel this will force a lot of contractors to consider permanent positions."

"This has to be the worst piece of legislation yet to be introduced in this country. Why only target engineering and IT? What about all the other types of one-man services companies - musicians, pop stars, footballers, TV and film actors etc. The lack of proper consultation leaves this legislation a minefield. Why doesn't the government tackle wholesale tax avoidance by companies?"

"I wouldn't mind so much if they paid us sick pay now that we are paying the full whack of National Insurance."

"Why couldn't they have left things alone? Merely introduced a minimum NI contribution for contractors to catch those who don't pay."

"It seems that my tax bill and NI bill will rise dramatically, while risks, benefits and so on will remain the same."

Computing welcomes your feedback. We will be returning to this issue once the Inland Revenue has published its guidelines.