back to article Tech contractors begin mass UK.gov exodus in wake of HMRC's IR35 income tax clampdown

Public sector contractors in the UK are starting to down tools across a range of projects ahead of the new tax regime in April, leaving numerous projects hanging in the balance. Multiple sources have been in touch with The Register to report that professionals are leaving in droves rather than face the IR35 tax changes. From …

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  1. djstardust Silver badge

    Yet again

    Gov UK shooting itself in the foot.

    No long term strategy and half thought out legislation put in place for a "quick hit"

    Will serve them right. Same thing about to happen when the Oil Industry picks up again later this year. Operators will want bodies in on 6 to 12 months contracts and no-one will touch them with a shitty stick. Oops!

    1. AndrueC Silver badge
      Joke

      Re: Yet again

      No long term strategy and half thought out legislation put in place for a "quick hit"

      Good to see government processes carrying on as normal then.

      1. Chris Parsons

        Re: Yet again

        That's odd, you normally expect Treeza to have her finger on the pulse and react quickly with a well-researched plan, don't you?

    2. HollyHopDrive

      Re: Yet again

      Next they will claim there is an IT skills shortage, bring in a load of shit but cheap Indian resource. All justified because of their own policy and their inability to see their own stupidness.

      The real irony is the fact they will (have to) use the large consultancies that pay little or no corporation tax in britain who use truly dubious tax schemes and will pay a much higher overall cost for the same resource level but actually collect less overall tax than if they had just left well alone.

      1. Anonymous Coward
        Anonymous Coward

        Re: Yet again

        Next they will claim there is an IT skills shortage, bring in a load of shit but cheap Indian resource. All justified because of their own policy and their inability to see their own stupidness.

        Yeah, but my experience with cheaper resources is that they create substantial quality issues. In other words, there will be plenty of contacting jobs available later on to fix the problems. The political challenge is to find another budget so it will not be that visible that once heralded saving have resulted in doubling the price long term - as long as that can be kept out of sight until they're re-elected no politician will actually care.

        It's dejá vu all over again.

        1. g e

          Re: Yet again

          Except now those opportunities are toxic due to the IR35 stuff that created them in the first place ;o)

      2. Aitor 1 Silver badge

        Re: Yet again

        But that is precisely the idea, to give the deals to the usual big consulting companies for kickbacks. They dont care about taxes.

      3. rgb1

        Re: Yet again

        Follow the money; it's the lobbying powers of the the big consultancies and off-shorers that have set this agenda over many years, along with the ignorance/incompetence/corruption of government. I've been contracting for 30 years and had to work with my fair share of cheap but not good value off-shorers. I've also contributed ~ national average earnings in tax take each year, assuming I've been in work and my job hasn't been filled by an off-shorer in the downturns. This continuous onslaught, the last few years of tax grab and the uncertainty have made me decide, even though I am at the top of my game, having a good number years of earnings and tax payment potential before official retirement, to pack it all in. So they'll be no more ~ national earnings tax take from me each year; hopefully the big off-shorers and consultancies will be able to fill the tax gap that is left by me and I'm sure many others who have had enough of this nonsense.

        1. Homosapien

          Re: Yet again

          Totally agree, the writing has been on the wall for a while now. I made the exact same decision some 4 years ago. We now live on a small island with a business on the sea, we live life on our own terms. Do what you gotta do, and do it quick! Good luck.

        2. gnarlymarley

          Re: Yet again

          cheap but not good value off-shorers

          Yep. You get what you pay for.

          1. Vic

            Re: Yet again

            You get what you pay for.

            Much of the time, you really don't...

            Vic.

    3. Anonymous Coward
      Anonymous Coward

      Re: Yet again

      I don't think it is shooting itself in the foot - it's getting what it wants:

      - no people working for themselves

      - replace all UK technical resource with big boys contracts (and their ON SHORE indian slave labour)

      I don't think this was ever about HMRC or tax.

      1. Anonymous Coward
        Anonymous Coward

        Re: Yet again

        Irrespective of what the Cabinet Office says, Government Departments like big firms and big IT companies and don't really want to encourage growth of innovative and good value SMEs. They'd rather pay someone big "to do all the work" then manage some of the work themselves. And we tax payers pay for this!

    4. Smooth Newt Silver badge
      Megaphone

      Re: Yet again

      Gov UK shooting itself in the foot.

      ...

      Will serve them right.

      Sadly that isn't true. It is a problem of misplaced incentives. The public will be screwed as usual, and the people who screwed them will ride off into the sunset with fat pensions, non-executive directorships and peerages as usual.

    5. g e

      Re: Yet again

      This outcome is all far too obvious which makes me think the gov't have an ulterior motive/agenda for shoving the small individuals out which they surely knew would happen.

      The first thing that comes to mind is lining their pockets via various kickbacks from large co's like Capita, etc. Maybe it's actually something more subtle which will be played out in a year's time when a fictitious 'skills shortage' is being moaned about. Well. Not fictitious to the Public Sector but no-one will be reminding Joe Public why that shortage is there due their DIY toxic status.

      Also the general lack of awareness/action in Public sector and the Agencies is astonishing.

      Binning my Public Sector contract before end March, one week's notice plus making sure the last payment falls before April. Fuck 'em. They brought in on themselves.

      1. F0rdPrefect

        Re: Yet again

        @ g e

        Me to.

        Though I do feel for the people who I will be dropping in the claggy as I've known some of them for over 20 years and its not their fault.

      2. Stayley
        Holmes

        Re: Yet again

        Makes you wonder which of the big five accounting companies has been whispering in the ear of government? - probably all of them.

        The trouble is that they, themselves don't have the expertise and experience of an average freelancer and are too willing to be a 'yes'-guy for the client.

        Fully agree with your comment about toxic DIY. Seen too much of it in the last few years, so unlikely to return to public sector as believe it to be a waste of my resource.

    6. HmmmYes Silver badge

      Re: Yet again

      I think you are kidding yourself about O+G esp. the North Sea and Deep Sea.

    7. JackSmith789

      Re: Yet again

      How much do you want to bet, that once HMRC works with government departments to work out how to classify contractors within IR35 or not, they will go after the private sector? IMHO this is a test run with other government departments before UK wide roll out.

  2. The Mighty Spang

    this is an old paul daniels trick...

    called 'Dissapearing Income' or 'Shooting yourself in the foot'

    bring in ir35 rules to claw back a little money.

    contractors leave

    no choice but to hire in the big vultures, I mean consultants,

    pay 40-50% more per body for mostly low-middling staff who are more engaged in showing what they are doing rather than doing.

    each body takes home 30-40% less than standard IT contractor.

    and - poof! your overall tax take from the employees goes down, amount of money being spent in the economy goes does and the profits then magically go overseas!

    and whats this up my sleeve? the project then goes on 50% longer partly due to middling 'consultants' not being up to the job, and UKGOV being unable to properly manage the project!

    now that's magic!

    (rip)

    1. Voland's right hand Silver badge

      Re: this is an old paul daniels trick...

      No magic here. It is the same as with crackdown during the Blair government.

      Big guns pay bribes the standard British way - over the table and fully legitimate. It is called DONATIONS. Your average freelance IT contractor bod does not.

      This is how corruption works in nowdays UK. If you are not familiar with the methodology, I suggest you familiarize yourself.

      1. Doctor Syntax Silver badge

        Re: this is an old paul daniels trick...

        "Big guns pay bribes the standard British way - over the table and fully legitimate. It is called DONATIONS. Your average freelance IT contractor bod does not."

        Right back when it started I reckoned that we should have got together via the PCG and made a donation to Labour. Maybe half a Bernie would have done it - and if it had been worked in true Bernie style we'd have got our donation back a little later.

      2. We're with Steve

        Re: this is an old paul daniels trick...

        It's easier to milk one cow than a thousand mice.

        1. BebopWeBop Silver badge
          Holmes

          Re: this is an old paul daniels trick...

          BUT in terms of milking - you first have to catch an unsympathetic cow (the Accentures and PWCs of this world)

    2. Anonymous Coward
      Anonymous Coward

      Re: this is an old paul daniels trick...

      I don't think it's 40 - 50% more. Typically contractors earn something in the region of £500 / day. Consultants charge £1,500+ and still pay the actual consultant less than a contractor. You are right about where to money goes though.

      Poof! overseas.

      1. Anonymous Coward
        Anonymous Coward

        Re: this is an old paul daniels trick...

        Senior consultants charge £1,500+ for short-term, proper consulting work.

        For delivery the rates are more at the £1,000 level, but only for very short-term work. Go beyond 4-8 weeks, and the volume discounts begin piling up. For a 6 month opportunity, the actual rates are more in the neighbourhood of £675 to £750.

        1. R69

          Re: this is an old paul daniels trick...

          Yeah but thats £700 a day for wet behind the ears idiots who have either just come out of uni and dont know their arse from their elbow, or have just got off a plane from the far east having recently completed their 'my first java/.NET project' course.

          Decent contractors in my experience are generally more committed to getting organisations to doing what is genuinely the right thing for them, than their own permanent employees and certainly more committed than the 'big boys' are.

          I hope some day the big boys rot in hell along with the corrupt shitbags who keep shovelling work their way so that they can turn up with a nice little NED to go along with the fat pension after they step down for 'personal reasons'

          1. Anonymous Coward
            Anonymous Coward

            Re: this is an old paul daniels trick...

            No, that's £700 a day for an intermediate level person with 4-8 years of experience. The rates for juniors and recent graduates are lower.

  3. Andy 73

    Darwinian selection in Government IT

    ..those that haven't got the drive or skillset to get up and leave keep working on projects that desperately need people with drive and skills.

    IR35 isn't fixed by creating some hideous online tool to manage its complexities. It's fixed by ending this obfuscation and witch-hunt mentality.

    Someone in Government needs to remember that the job of Government is to support the people, not tax the people. In this case, we desperately need a mobile, highly skilled workforce - both in public and private sector. Enabling people to switch jobs and apply their skills where they generate the most value is a key to building a healthy, competitive economy. Things like IR-35 are the complete antithesis of that, though I'll bet that all those large corporate advisors will be whispering the complete opposite in the ear of any MP that'll listen.

    1. LDS Silver badge

      "the job of Government is to support the people, not tax the people"

      Unluckily, for many depends on which side of the tax pipeline they are. Those who gets money from other people taxes truly believe the job of government is exactly that. And many politicians are promising more of that - it's the best way to look for votes, and have a stranglehold on them. Of course someone has to pay for that...

      1. Anonymous Coward
        Anonymous Coward

        Re: "the job of Government is to support the people, not tax the people"

        "Those who gets money from other people taxes truly believe the job of government is exactly that."

        And the public will not be sympathetic to contractors seen to be "trying to avoid tax" when they are against big corporations doing the same.

        Calls to "scrap IR35" are seen as an attempt by an elite to gain special rights to avoid tax. Leaving to join companies who "will not enforce the rules" only confirms that. Insisting it will cost more if the government does not allow tax breaks feels like "blackmail" - a demand to be treated in a privileged manner through an "exploitation" they are denied.

        Contractors are going to have to come up with a better argument than one which appears to the public to only be about avoiding tax.

        1. Anonymous Coward
          Anonymous Coward

          Re: "the job of Government is to support the people, not tax the people"

          "And the public will not be sympathetic to contractors seen to be "trying to avoid tax" when they are against big corporations doing the same."

          Following the rules as they are written is not "trying to avoid tax", it's following the rules as they are written.

          1. Steven Jones

            Re: "the job of Government is to support the people, not tax the people"

            Nope, it is "trying to avoid tax" or, tax avoidance as it's officially called. Tax evasion is the other, elicit version. However, just because something is legal doesn't necessarily make it ethical. There are many grey areas in all this.

            1. evilhippo

              Re: "the job of Government is to support the people, not tax the people"

              As there is nothing 'ethical' about government itself... various aspects of government may or may not be desirable, but supporting government (via tax or whatever) is not a matter of 'ethics'.

        2. David 164 Bronze badge

          Re: "the job of Government is to support the people, not tax the people"

          everything on contractor calculator is about how to avoid having to pay tax.

          It pathetic really. Corporations and individuals should stop trying to use laws and procedures to avoid taxes. Especially NI which seem to be one everyone is trying to avoid paying nowadays.

          1. Doctor Syntax Silver badge

            Re: "the job of Government is to support the people, not tax the people"

            "Corporations and individuals should stop trying to use laws and procedures to avoid taxes."

            Please learn the difference between avoidance and evasion.

            Do you have a pension plan, either on your own account or via your employer? You're avoiding tax on the pension contributions.

            Do you have any ISAs? You're avoiding tax on dividends and capital gains.

            1. James 47

              Re: "the job of Government is to support the people, not tax the people"

              ISA dividends are not tax free.

          2. JamesPond

            Re: "the job of Government is to support the people, not tax the people"

            "everything on contractor calculator is about how to avoid having to pay tax."

            I assume from this statement that you are a permanent employee somewhere and have no real idea how contractors work? I'm sure you are quite happy doing the daily 9-5 in the same job for years and years and commuting to and from the same place every day, and have reasonable job security. I have no problem with this, I did it myself for several years.

            As a contractor, I see myself as filling the void when your business has a short-term requirement to deliver change. This could be for any number of reasons such as a sudden increase in sales requires extra staff to cover short-term extra workload; winning new business means delivering a new piece of software quickly and the existing staff don't have the bandwidth or perhaps the necessary skills to complete the work in time.

            By the very nature of this work, it is transient and there is always a risk I won't be employed for several weeks or months between contracts. Unless you live in London, it is also likely that the contractor will have to work from different locations around the country in order to fine work. I usually don't have the luxury of being able to go home on a weeknight.

            I'm not saying this is better or worse than being a permanent employee, only that it is different. However you and HMRC seem to fail to recognise that whilst I fill a requirement within the economy, especially in providing flexibility of employment and location, I also have extra costs to cover. Your company won't pay into my pension, won't pay for holiday's or time off sick, I don't get paid bank-holidays; and many contracts now are heavily weighted in favour of the hiring company or agency, such that I can be terminated with 0 days notice, but I have to give 6 months notice and potentially cover their costs for hiring a replacement.

            How can I and why should I be classed as a permanent employee and paid and taxed as such, when by any reasonable measure, I'm clearly not a permanent employee?

          3. evilhippo

            Re: "the job of Government is to support the people, not tax the people"

            "Corporations and individuals should stop trying to use laws and procedures to avoid taxes."

            Why? Only an idiot allows more of their money to be appropriated by the state than they have to. The state uses laws to tax people, people use laws to minimise that tax. Nature of the issue.

        3. Doctor Syntax Silver badge

          Re: "the job of Government is to support the people, not tax the people"

          "Contractors are going to have to come up with a better argument than one which appears to the public to only be about avoiding tax."

          OK, here's one. Everyone has the same tax rules but permanency of job is seen as a benefit in kind and is taxed accordingly. The extra tax brought in this way is used to lower income tax rates. Nobody's avoiding tax but HMRC employees get to pay more tax for the benefit of having safe jobs. MPs should like this - their jobs are only safe until the next election - and ministers even more so - their jobs are only safe until the next reshuffle.

          1. kmac499

            Re: "the job of Government is to support the people, not tax the people"

            "MPs should like this - their jobs are only safe until the next election - and ministers even more so - their jobs are only safe until the next reshuffle."

            Aren't MPs in some sort of self created Tweedle Dee-Dum style employment status, That is, when it suits them, they are self employed and, when it suits them, they are also employed. This Schrodingers Cat style superposition allows them all sorts of deductions.

            Let alone some of the stunts the great and the good pull with management comapnies and foundations which can handle their after dinner speaking fees.

            And don't even start me on their platinum plated pensions....

          2. Anonymous Coward
            Anonymous Coward

            Re: "the job of Government is to support the people, not tax the people"

            "OK, here's one. Everyone has the same tax rules but permanency of job is seen as a benefit in kind and is taxed accordingly."

            OK, here's another, in order to put everyone on a more equal basis.

            Rotate HMRC employees around the country at regular intervals and tell them they have to personally bear the costs of accommodation and travel while away from home, without a decent enough pay rise to cover that.

            It's only fair™. :-)

        4. Andy 73

          Re: "the job of Government is to support the people, not tax the people"

          @AC

          Personally, I'm not trying to come up with a "better argument". I'm saying that it's only worth the hassle and risk of contracting if you're paid appropriately. If HMRC want to increase the hassle and risk whilst decreasing the pay, then many more will do what I've done and get out.

          I'm not trying to convince anyone that complex tax arrangements are a good idea. I'm not even trying to convince anyone that "i'm worth it". I am saying that a flexible, mobile workforce is a good thing, and this is running absolutely contrary to this. If you try to level the field between permanent and contract staff, then who in their right mind would want to take on the added burden of being a contractor? On a personal level, it doesn't matter to me - I have and always will follow the rules. However, I'm quite happy to have withdrawn my labour from companies that otherwise would quite like it (judging by the regular recruitment calls).

          As an aside, the same applies to travel subsides and housing costs. If you make it difficult to travel to work, and expensive to move house, then you have a less mobile workforce which causes poor population distribution and strangles companies needing workers. It's easier to bring in overseas workers than help someone relocate in this country - and let's not even talk about the pleasures of commuting.

    2. Anonymous Coward
      Anonymous Coward

      Re: Darwinian selection in Government IT

      "IR35 isn't fixed by creating some hideous online tool to manage its complexities. It's fixed by ending this obfuscation and witch-hunt mentality." If they were serious about this being to "help" and not just being a tax grab, an effective online tool would have been available six months ago and open to everyone, and the same tax & IR35 rules would apply to everyone - including MPs and those who work in their offices. Same expenses rules, same NI and so on - if your MP can claim it, so can you. Never going to happen.

    3. Anonymous Coward
      Anonymous Coward

      Re: Darwinian selection in Government IT - OH PULEASE STOP YOUR MOANING

      Nope, governments' prime responsibility is safety and security of their people, law and order andpublic services - ALL OF WHICH HAVE TO BE PAID FOR, so, you can argue GOV's top responsibility is to collect the tax to pay for the above.

      Maybe am missing something, but most contractors work for the same employer in the public sector for a year or year(s). Hardly any PSCs seem to be for people working for multiple different clients and not working in their clients' offices full time. IE they aren't running a proper business .. they are freenlancers or part or full time workers masquerading as not, as often to suit the employer as to suit them.

      So, either they should be registered as sole traders / self employed freelancers or they should be employed properly full time or on 6 or 12 months contracts or whatever.

      Given how tiny the financial advantage is to contractors of being IR35 or full time employed, maybe the industry should be agitating to BE EMPLOYED PROPERLY ... seems to me the whole thing has been a scam to let well paid IT people avoid tax and to let the public sector get away without paying national insurance, handling paye and paying pension contributions.

      1. Lotaresco Silver badge

        Re: Darwinian selection in Government IT - OH PULEASE STOP YOUR MOANING

        "Maybe am missing something, "

        Yes, you am missing something. Back around the year 1996 I used to work as a contractor to government programmes as a self employed sole trader. It suited me and it suited my clients. Accounting is easy, tax is easy, determining one's tax status is easy. Then the government stepped in and said that no government department should use self employed sole traders (This is why your idea won't work) so, around 2004 I had to stop being self employed and become a Ltd Co. This was later reinforced when the government decided that they only people who could get security clearances must be sponsored by a Ltd Co and when CESG decided that the only people who could get accredited as security consultants must be sponsored by a Ltd Co. So far, so straightforward and legal.

        Now let's deal with your claim that "seems to me the whole thing has been a scam to let well paid IT people avoid tax and to let the public sector get away without paying national insurance, handling paye and paying pension contributions."

        No one gets away without paying NI, PAYE, pensions contributions. Nor do "well paid IT people" avoid tax. We pay all taxes due or we get reamed by HMRC. There are no tax loopholes, no shady deals, no bizarre tax backdoors. That is all in your and the politicians' imagination.

        We have the following choices:

        1) Pay a salary which is subject to PAYE, pension and NI (employees and employers).

        2) Leave money in the company, in which case it is profit and is subject to Corporation Tax at the current rate.

        3) Take some money in dividends, in which case it is subject to dividend tax.

        The rates of tax are about the same in all cases, around 30-38% for all tax payers earning more than a few thousand pounds a year.

        You are quite frankly talking in such a manner that when you sit down your voice will be muffled.

        1. Doctor Syntax Silver badge

          Re: Darwinian selection in Government IT - OH PULEASE STOP YOUR MOANING

          "You are quite frankly talking in such a manner that when you sit down your voice will be muffled."

          Nice one. To be recycled as required.

        2. Jatt

          Re: Darwinian selection in Government IT - OH PULEASE STOP YOUR MOANING

          I think you are missing the point. Before tax is even considered what needs to assessed is the limited company's legal status and whether it is inside or outside of IR35. The reason why this legislation is being brought in is because the vast majority of contractors actually work like their inside IR35 but then arrange their tax affairs exactly like their outside IR35 (cake and eat it springs to mind) but HMRC do not have the resources to investigate all the cases. The vast majority of contractors are evading tax but only when HMRC investigate and win a case.

      2. kmac499

        Re: Darwinian selection in Government IT - OH PULEASE STOP YOUR MOANING

        "Nope, governments' prime responsibility is safety and security of their people, law and order andpublic services"

        Yes that it what most Gov'ts or more precisely the party currently in Gov't claim, usually whilst following policies that antagonise our friends and opponents. Personally I think if Gov't had the primary responsibility of keeping the lights on and the toilets empty we'd all be much better off. If you think this is a trivial statement, try turning your water and leccy off for a week and see what life could be like.

      3. Doctor Syntax Silver badge

        Re: Darwinian selection in Government IT - OH PULEASE STOP YOUR MOANING

        "contractors work for the same employer in the public sector for a year or year(s)."

        So does Crapita.

        "not working in their clients' offices full time"

        Proper businesses work where needed. If you hire a proper business electrician to rewire your house he works in your house. He can't do the wiring in his workshop & then email it in.

        All these sorts of argument fail as soon as you look at relevant comparisons with real businesses.

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