The government is predicting that contractors will hike their rates to make up for the higher taxes they will pay under IR35, writes Steven Mathieson. Such a move would cost IT departments millions of pounds. The Inland Revenue has updated its assessment of the impact of its changes to freelancer taxes. It found annual costs to contractors operating as one-person companies would be at most £9 million across the UK. This would be in addition to one-off costs of between £15 million and £20 million to rework their tax arrangements, averaging at just a few hundred pounds per freelancer. Mike Cullen, chairman of the British Computer Society's contractor division, argues that contractors will have to increase their prices sharply to make up the extra tax. 'If the market is buoyant, British industry will be hit by a rate increase of a quarter,' he said. Lobbyist the Professional Contractors' Group says the assessment leaves many questions unanswered. 'Contractors are now operating in a vacuum of confusion,' said director David Ramsden, adding that many of them plan to move abroad. The assessment no longer claims that between 33,000 and 66,000 one-person companies will close. It now says that 'between 25% and 75%' of those affected will continue to operate as one-person companies. - The assessment is at www.inlandrevenue.com/ir35/ria.htm For updates, see www.vnunet.com/news. But Anthony Miller, analyst with IT industry researcher Richard Holway Limited, said most contractors would be unable to pass all the tax increase onto clients, as fees have been increasing at just two or three per cent recently. The revised clauses to the Welfare Reform and Pensions bill, which contain supporting legislation for IR35, were debated in the House of Lords this week, as Computing went to press. Meanwhile there was political support for the contractors from Conservative leader William Hague, who told a representative of lobbyist the Professional Contractors' Group that IR35 was 'ill thought-out legislation', and promised to look again at the issue.
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