The skills shortage could be sent into a spiral by new legislation from the Inland Revenue (IR) that will outlaw the tax breaks given to contractors, driving them abroad in search of better conditions.
In an exclusive interview with Network News, contractor Andy White - who has set up a website to oppose the legislation - said that the proposed laws will cut the income of some contractors by 25 per cent.
The changes to legislation - due to take effect from April 2000 - were announced as part of the Budget on 9 March and mean that contractors who have set up one person limited companies will have to forego the income tax and national insurance breaks they enjoy by being self employed.
White warned that the changes would affect the whole IT industry by triggering a mass exodus of floating workers to the US or Holland, exacerbating the UK skills shortage.
"Although presented as an attack on tax avoidance, the budget proposals constitute a serious blow to the 'enterprise culture' from a supposedly business friendly Labour Government. Some companies are going to look around next April and see their contracting staff walk out," he warned.
The Inland Revenue's statement made clear that the Government views limited company status as a loophole that needs to be closed: "There has for some time been general concern about the hiring of individuals' service companies so that they can exploit the fiscal advantages offered by a corporate structure."
The statement continued: "It is possible for someone to leave work on a Friday, and return the following Monday to do exactly the same job as an indirectly engaged 'consultant' paying substantially reduced tax and national insurance."
Tim Warr, partner in chartered accountancy, Warr and Co, has spoken to Mark Nellthrop, the IR civil servant responsible for drafting the proposed legislation. Nellthrop emphasised that the law will only affect contractors whose work more closely resembles employment than self employment.
"A contractor who works under the supervision of the client alongside other contractors and employees will almost certainly be caught by the new rules," Warr reported. "The chances of any delay are close to nil, according to Nellthrop."
Andy White's website is at www.engineerjob.com.
The contractors speak:
"It is an illusion that the legislation will benefit contractors in terms of employee rights. Contracting empowers the skilled. Employment can remove power unless you demonstrate your willingness to move on," said C. Richardson.
"Labour never was a friend of enterprise and has always sought to inhibit, demoralise and frustrate those who desire to make their own way," said Mark Fulford.
"It seems that Treasury/Revenue are being shortsighted. The UK has a lead in IT and the proposals can only do this harm," said Alan Collett.
For more stories see 31 March issue of Network News UK
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