Issue 38; 31 January 2000

Dawn comes under pressure | William Hague increases pressure | E-Minister increases pressure | E-Envoy adds his voice | ATSCo comments in The Times | Revenue issues final guidelines | Link to IR 35 Information Seminars

DAWN COMES UNDER PRESSURE
Following large postbags on this issue Labour MP,s had asked for a meeting with Dawn Primarolo to discuss their constituents concerns directly. One of the largest concentrated group's Lobbying their MP, has not been IT, but the Offshore oil consultants centred around Aberdeen. Suffering rate cuts imposed by the clients, IR 35 is a further blow to their livelihoods. David Ramsden reported on the forum that

"A largish group went to see Dawn Primarolo. According to my informant, who was there, they were treated with disdain and arrogance. DP made a longish presentation and then gave each MP time to ask one question. They were not allowed to ask more than one."

In a letter to the FT in reply to a PCG members letter, the Paymaster General volunteered this interesting insight:

"Under current legislation, some employees may be persuaded, against their own interests, to give up their rights as employees and set up personal service companies in order to benefit from substantial savings on tax and National Insurance contributions." She goes on to say;

"Our proposals will take away these savings. It is unlikely that employees will be tempted to give up their employee status if they would be no better off. We see no reason to expect this practice to continue once the new legislation is in force."

Full info on members lobby and press forum

WILLIAM HAGUE INCREASES PRESSURE
William Hague drew his line in the sand with a speech to the Institute of Civil Engineers. In this speech he mentioned IR 35 directly.

"The technology consultants and software engineers who should be driving Britain's new economy are being driven out of the country by new stealth taxes known only as IR35, because they were sneaked out in Inland Revenue Press Release Number 35 on Budget Day. IR35 is contributing to a brain drain not seen here since the 1970s. The drain will become a flood if the Government gets its way, with European tax harmonisation exposing us to tax increases of up to 20 per cent.

This isn't 'modernising' the British economy, this is destroying it. In the age of the internet, where businesses can locate anywhere in the world, it will be the low-tax, lightly-regulated countries that thrive and attract business. Whereas high taxes and heavy regulation will simply drive businesses and jobs away because they simply cannot exist in that uncompetitive climate."

Full speech on members Lobby forum.

E-MINISTER INCREASES PRESSURE
Reuters reports from the FT; The Treasury is under pressure to reverse a decision to make freelance information technology (IT) consultants pay National Insurance contributions, the Financial Times reports. The report said IT minister Patricia Hewitt had brought the issue before the Treasury after a study in Computer magazine said about 18 percent of IT freelancers would leave the country because of the changed tax rule.

Link on members press forum

E-ENVOY ADDS HIS VOICE.
CNN reported; U.K. fears cyber brain-drain
LONDON - Britain's most senior e-commerce officials are urging the U.K. Treasury to soften new tax rules that increased the effective tax rate for freelance technology consultants, fearing the change could prompt an exodus of cyber-savvy workers from the country, according to a newspaper report Friday. Alex Allan, the U.K. e-commerce chief, and his government colleague, information technology minister Patricia Hewitt, expressed their concerns to Prime Minister Tony Blair that the tax change could hamper the growth of e-commerce in Britain.

Link on members press forum

ATSCO COMMENTS IN THE TIMES
Following thousands of man hours of effort and millions of pounds in lost opportunity cost, PCG members were entitled to feel that progress was being made. This was being confirmed in private briefings. The campaign then received a hammer blow. Ann Swain of ATSCo (an association of large Agents mainly in IT.) made the following comments in the Times

"Ms Swain says her members, the country's largest IT recruitment firms, have seen little evidence that contractors are fleeing the UK in droves."

"For most contractors, it is a question of whether to leave a highly paid sector to avoid an extra tax burden of about 10 per cent. Alternatively they can take an average 50 per cent cut in net pay and move to permanent IT employment, with the commensurate rise in job security and benefits"

"Ms Swain believes the vast majority will stay in the country."

"Ann Swain, chief executive of the new Association of Technology Staffing Companies (ATSCo), has been actively involved in the issue and says the debate should now turn to helping contractors to prepare for the tax changes."

Link on members press forum

Members are not aware of any contact by ATSCo to formally assess their plans and the relationship between them is such that the only way an ATSCo member will know that a contractor is overseas will be when they get the unobtainable tone the next time theytry and call the Contractor for work! This offhand quote at this critical juncture will have allowed Treasury to throw doubt on the documented and independently verified research; that a large number of Contractors will leave the UK. The RIA, that has not been challenged, shows this will result in a net loss to the Treasury. The significance of these quotes should not be underestimated as a matter of days later the Revenue issued the final guidelines.

REVENUE ISSUES FINAL GUIDELINES
The PCG today received the final version of the guidelines. Kevin Miller is at present studying the detail and will incorporate details into the IR 35 Manual shortly to be issued to members. The information will also be incorporated into the material for the IR 35 seminars about to take place around the country. The guidelines will be published next week, but members can view the copy received by PCG on the members file store. A significant change from the original version is the following statement.

"The terms of contracts used by service company workers who obtain engagements through agencies tend to be of a standard form. Such contracts typically require the worker to work on the client's premises, use the client's equipment, work standard hours, be paid at an hourly rate and be subject to a high level of control. In such cases, the opinion of the IR about the engagement is likely to be that it would be employment.

"Where a worker is engaged on this type of contract for a period of one month or more, and cannot demonstrate a recent history of work including engagements which have the characteristics of self-employment then we will say that the engagement would have been employment and therefore be covered by the new rules. Where the contract is for less than a month, then, although the engagement may still have been one of employment, the status position will be considered on a case by case basis."

Added 2 February, 2000;
Inland Revenue puts Guidelines up on it's web site

Kind regards
Susie Hughes, Press Officer for the PCG

Book on line for IR 35 Information seminars - link closed

File store:
Contractors Filestore
Associates Filestore