The government introduced the IR35 legislation to remove what it
saw as a loophole for IT contractors and others to trade as limited
companies to avoid tax and National Insurance Contributions, in
circumstances where the individual worker would otherwise be an
employee of the client for whom they work.
The Professional Contractors Group (PCG), a representative body
of independent contractors operating in many sectors, including IT
and engineering, has long argued that the proposals will actually
catch any limited company worker (or similar intermediary) who is
working for a client, “but who does not meet the outdated
definition of self-employment.”
The UK Government is introducing 'fast track visas' for Indian,
East European and other overseas IT specialists to meet the skills
shortage in this country. However, some large foreign owned
companies are employing these workers on low salaries then
'renting' them to clients for highly inflated fees.
While these big companies are allowed to treat the difference as
a pre-tax profit which may then be invested back into the business,
the PCG says small UK consultants who are selling their own
knowledge in the same way, are being forced to treat their profit
as if it was salary and are specifically prevented from reinvesting
in or developing their businesses on equal terms with their large
competitors. They must also pay for their training and most
expenses out of taxed income.
Gareth Williams, Chairman of the PCG, said: "The Government has
a last opportunity to reconsider this divisive and unfair
legislation. The Treasury is promoting legislation which encourages
large foreign owned companies to pay low wages to workers from
overseas; then gives them a corporate tax break which, in the
Government's own estimate, will put tens of thousands UK
enterpreneurs out of business."
IR35 is a Treasury initiative which was originally targeted at
'disguised employees' - people who leave a job as an employee on a
Friday only to return to the same position as a 'contractor' on the
Monday. However, in an attempt to tax these people as if they were
employees, the PCG argues “the Government has thrown the net so
wide, that they are damaging up to 250,000 small businesses who
have never operated in this manner.”
Several organisations, including the two leading accountancy
bodies, trade associations and industry representatives have
recently called on the Government to re-think this measure.
However, the Paymaster General, Dawn Primarolo, is currently
driving it through Parliament in the Finance Bill.
Gareth Williams concluded: "The Prime Minister has made claims
to support enterprise, information technology and small business
yet his Ministers are destroying them. If he means what he says -
and to prove its not just more empty words - he should reconsider
this proposal." The PCG intends to fight against the legislation by
means of Judicial Review.
