Senior IT contractors are heading for sunnier climes in the face of imminent tax changes that are upending the sector, research and anecdotal evidence suggests, as a new study today revealed the stunning depth of industry distrust in HMRC.
The news comes as a survey by offpayroll.org.uk suggests that the UK is facing a £2.2 billion productivity gap in the first half of 2020, as contractors down tools en masse in response to blanket bans on Personal Service Companies (PSCs).
PSCs are widely used by the self-employed to operate. IR35, effective April 6, makes hiring organisations responsible for determining whether contractors should be considered permanent employees. (To avoid the burden of case-by-case assessments and potential liability, many large businesses are imposing blanket bans on PSCs.)
HMRC says the rules are “designed to make sure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions as those who are employed directly.”
IR35 Research: 91% of Contractors Distrust HMRC
Most contractors, meanwhile, are worried that (along with the other frustrations that come with the change, including lost flexibility and income) accepting the alternatives on offer will result in their investigation by HMRC, which will take the move as an implicit admission of “guilt” at not having accepted the rules earlier.
The survey today shows that a whopping 91 of the contractors contacted don’t trust HMRC and “think they will start retrospective tax investigations.”
Those choosing to go PAYE and then appealing on the grounds that they do not fall under IR35 are unable to reclaim taxes lost during the appeal period.
The survey of 1,485 contractors meanwhile found that 47 percent are witnessing offshoring at scale, while 10 percent say their client is moving hundreds of roles away from Britain as companies scramble to keep projects alive. Banking, retail and defence are among the worst hit, the survey (conducted February 7 – 10) suggests.
Ian Cass, Managing Director of the Forum of Private Business said: “Many UK businesses of all sizes rely on a skilled, flexible workforce, yet instead of celebrating and supporting these workers, they are about to do the opposite. Once again the Government’s lack of understanding of the modern flexible economy is about to be exposed, as it yet again meddles with UK business without fully understanding the impact of its actions, which in this case could lead to the decimation of the UK’s contracting and freelancing sector through the IR35 Off-Payroll Tax.”
James Poyser, CEO of inniAccounts, and offpayroll.org.uk founder, said: “It’s clear from the scale of departures that the cost of blanket bans and unfair assessments far outweighs the business case HMRC argues… we believe the macro-economic impact of the behaviour we are witnessing has not been accounted for.
He added: “Taking the stance that contractors will stay on your terms because there is no alternative is short-sighted. The majority of contractors are engaged in project delivery so they are well aware of the impact their decision to leave will have on the business and they are not afraid to vote with their feet and let it happen.
“Nor are they afraid to take their skills to countries where they are wanted.”
IT Market “at a Grinding Halt”
Direct emails to Computer Business Review apropos our earlier reporting on the issue suggests the claim is accurate. As one IT contractor, who asked not to be named, told us: “My most recent client made it compulsory for all contractors to go inside IR35. JLR and Rolls Royce, two previous clients of mine, I believe have done something similar.
“This entire fiasco has singlehandedly brought the entire IT market to a grinding halt – impressive. I don’t think any of Corbyn’s mob could have achieved anything like this. [This will be the] last time I will every vote Tory, having done so my whole life.”
He added: “The good contractors are well heeled enough to retire, sit it out, or go abroad. The run of the mill consultants will rise to the occasion: of leading all the complex projects straight into the abyss – we have all seen what happens when you try cut costs with IT projects. For myself I have decided, after one client has tried to force me inside IR35 just as the contract was being issued (against what they promised), to take work in Europe – more money, more control, no IR35. My wife and I will relocate if this does not settle down over the next 12 months – permanently.”
“Just Abandon It”
Dave Chaplin, CEO and founder of ContractorCalculator and IR35 Shield said: “This research clearly demonstrates that the draft legislation is not fit-for-purpose.
“Firms are unable to cope with the challenges that lie ahead and contractors are not prepared to be unfairly treated. The fact that 85 percent of them can afford to bench themselves, and that over half are going to abandon their existing clients speaks volumes. There is about to be an unofficial strike by a quarter of a million workers, and the impact on productivity for all firms that currently rely on them will be immense and the UK economy will suffer. HMRC was given an additional year to get this right and prepare the market, and has failed to do so.
“This has created a political crisis for the Conservatives, the supposed party of business, who are set to decimate the valuable flexible workforce.
He added: “There is only one option left for Ministers, abandon the proposals.”
Campaigners against the change are planning a protest outside the Houses of Parliament at 11:00am tomorrow, Wednesday February 12.