On 6th April (the start of the new tax year in the UK) the Inland Revenue's contentious legislation attacking personal service companies (IR35) came into force. The new rules, which have been the subject of frenzied protests from one-man (or woman) contractors in various sectors including IT and engineering, force the employers of such contractors to treat them in many circumstances as if they were employed, and also impose severe restraints on their personal service companies.
Individuals working in this way, and companies supplying their services, claim that they will be put at a disadvantage compared with larger consultancies and agencies. Despite the protests, the Inland Revenue has refused to soften its legislation, which it claims is necessary to prevent abuse of the tax system by employees who switch to self-employment 'over the weekend' while remaining in exactly the same jobs.
Happening in the same week that the US opened up its work permit and non-immigrant visa rules in order to alleviate shortages of skilled workers in the IT and other sectors, the imposition of the new rules is likely to drive many thousands of desperately-needed UK workers offshore or into countries like the Netherlands which offer far more favourable fiscal conditions.
For example, one programming consultant said last week: "Now they have finally driven me away. It was totally as a result of IR35 and the uncertainty. I object to being taxed at 52pc and being called a tax cheat." This consultant has relocated to the Netherlands, where hourly rates are higher, tax is lower for computer specialists, and capital allowances are available. He says he will be £20,000 a year better off than under the new regime in the UK.
Is this how to make the UK a world leader in e-commerce?
The British Government claims to be a government for business, but it is presiding over massive increases in taxation on business. Both IR35 and the new rules on 'mixer' companies seem to be cases in which Treasury officials have been able to slide through anti-business tax measures which had been on their wish-list for a long time, but which had been resisted by successive Tory chancellors. New Labour, which understands how to spin its rhetoric to attract the business vote, still has an Old Labour soul, and does not understand the real needs of business when push comes to shove.
The Treasury, which is equally ignorant of the real world, probably can't believe its luck; but all it is doing is hammering nails into the coffin of British enterprise, as it will find out when the next recession comes and the tax base shrinks alarmingly. Unfortunately, with £20bn of fool's gold about to arrive from the sale of mobile spectrum licenses which should have been given away, the Treasury is in no condition to listen to such Jeremiads.
With every day that passes, this disastrous Government is giving away more and more of the economic treasures that were bought so painfully by Maggie's storm troopers.
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