There is confusion among the UK IT contractor community in the wake of Chancellor Gordon Brown’s annual budget. The Chancellor planned to increase tax returns by cutting down on a loophole that enables contractors to avoid tax through the establishment of one man companies. IT contractors are in danger of losing 25%- 30% of their salaries, and some are threatened by 50% losses.
Steve Winspear, who formed an independent self-help group for IT contractors called Contractors Plus, says that the legislation, to be introduced from April 2000, is extremely short-sighted. They’re throwing away a golden opportunity. Britain could easily become the number one exporter of IT skills on the planet. He is especially tempted by Holland, where instead of restricting the blossoming IT community, any company, one man band or multinational, whose business is computers, gets a 35% tax break if they’re based there.
A spokesperson for the Inland Revenue Service said that the legislation was aimed at making a level playing field for everybody, shaping a tax system where everybody pays a fair share. The tax restructuring is part of the finance bill 1999, and is yet to go through formal ratification in the House of Commons.
Barry Roback, managing director for Watford, UK-based JSA Accountancy Services, prefers a more patient strategy, cautioning don’t panic, don’t second-guess. He is involved in setting up nationwide forum for discussion within the industry and then negotiating with the IRS. However, there is some urgency; they’ve really given us very little time to react. And JSA is vulnerable; our business is at threat to the tune of 100%.
He does not expect revolutions in the IT community. Either rates will go up to compensate, or they’ll get used to it. The sector most likely to leave is the leading edge stuff, for example SAP specialist contractors, who can afford to follow the gold and go abroad where they are guaranteed the highest rates.
