Issue 30; 23 November 1999

Survey | Contractors Move Overseas | Dawn Announces Fast-Track Visa Scheme | Detailed Analysis of IR 35 | Economist Viewpoint

Survey
As mentioned in the last newsletter we have put up a simple survey to help us understand better the situation with regards to the self employment tests. The main point of this is that it is clear from Parliamentary comments, newspaper reports, conflicting and disputed figures and letters the scale of the IR 35 issue. Kevin Miller and myself are attending discussions with the Revenue shortly so I would ask that you complete the survey as soon as possible. Individual responses will be confidential.

Closing date for the survey is Friday 26th November. Link to Survey

Contractors move overseas
The survey carried out back in April indicated that some 30% of Contractors surveyed would move overseas at the first opportunity as a result of IR 35. Many are no longer waiting for IR 35 to take effect. The way the consultation process has been handled, the frustration that the Government says one thing, but actually does the opposite and the uncertainty surrounding planning for the future are causing real anger and undermining the confidence of a highly-skilled and mobile workforce in the future of the UK. The undoubted effect will be to drive many of the most highly educated, talented and hard working members of our society, overseas. This anger is typified in a letter sent by a contractor to their local MP.

Dawn announces fast track Visa scheme
In apparent recognition of the damage that will be caused by IR 35, as spelt out so cogently in the above letter, Dawn Primarolo has made the following statement as part of an open letter:

"However this government recognises that there is a more general skills shortage in engineering and in particular the IT sector. This is inflating wage costs and harming the competitiveness of British industry. The government has put in place training initiatives and is investing in higher education but it will take some time to reap the benefits of this investment. To address current demands the Home Secretary is looking at a fast track visa scheme for qualified applicants from Eastern Europe, Africa and India. We recognise that recruiting in these areas is difficult, the Foreign Office is looking at ways for British embassies and consulates to assist in this process. This will be in partnership and funded by industry and we are talking with leading UK recruitment specialists to help in this process."

In a separate News article shows that Peter Hain (Foreign Office) has just returned from Bangalore in India where, it is reported, he discussed trade cooperation between India & UK and in particular the prospects for cooperation in the IT sector which he reports is advanced and can help Britain.

This is an interesting development. The RIA published by the Revenue took no account of loss in tax revenues caused by movement of skilled personnel overseas. They ignored the PCG's alternative RIA which considered the possible impact if only 20% moved overseas. (The result; a net loss of some 700 million pounds) You would have thought that by now Ministers would be asking some serious questions of the Civil Servants briefing them. "Why do we need to fast track visas if you do not consider IR 35 will cause loss of skilled workers overseas?" would be a starting point. Or "How about Peter Hain visiting many of the petrochemical and offshore Contractors at present in "disguised" unemployment (Directors of Ltd Companies cannot claim unemployment benefit, hence the term "disguised" unemployment), and see how the Government could help these small businesses retrain to take advantage of the knowledge based economy" would be a helpful suggestion and a positive way of utilising existing resources within the economy.

Detailed analysis of IR 35
Gareth Williams, a PCG committee member, has carried out an In-depth analysis of IR 35.

He makes some very salient points. A key conclusion is "that the independent consultancy (failing the self employment tests) will be more heavily taxed than any other way of providing an equivalent service. It would be cheaper for the consultant to work for any company but his own. It is unclear why the Government should seek to tax independent consultants in this punitive way, or what they expect to achieve by it."

This is apparently in contradiction to the viewpoint from the Agency and Contractors Accountants. Many of them seem to have given up the fight and are briefing Contractors that if they fail the self employment test they would still be advised to continue to trade through their Ltd Company. This may ensure that the Agency can reduce "employment" liabilities and the Contractor Accountants continue to charge fees, but from Gareth's analysis the only reason you would want to continue trading through your Ltd Company is if you pass the self employment tests.

Contractors Accountants may work closely with Agents, but it is becoming clear that if we cannot pass the self employment tests then there seems little point in continuing to trade as a Ltd Company. As such, both Agents who cannot provide this service and Contractors Accountants, will find themselves losing significant business.

Economist viewpoint
In a reply to one of our members Professor Patrick Minford, a respected economist, wrote:- "Yes, IR35 is an appalling intrusion into private contract. Yes, it will drive people abroad. The world is changing fast and up to now Britain has done quite well- but this government is a menace. Under the cloak of fine words about free markets and business-friendliness, it has done a series of things that are potentially highly damaging; on savings, on tax, on Tax Credits, and now on the labour market and IR35. Because the mass of our people know nothing about such subtleties these things are 'stealing through'. Experience shows that at some point people wake up and the scales fall from their eyes-then, feeling duped, they react sharply. We just have to hope that this happens before the damage has gone too far."

Kind regards
Andy White
Chairman, PCG
e: [email protected]

Membership is invited from Contractors in the Knowledge based sector. Associate membership is also available to Clients, Agents, Accountants and representative bodies.You can join the PCG (use the online joining form) at https://www.pcgroup.org.uk We now can accept credit card payment on line via our secure server. This will provide immediate access to the members area and the confidential reports commisioned by the PCG.