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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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!

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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.

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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.

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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.

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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.

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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.

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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.

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g e

Re: Yet again

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

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Re: Yet again

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

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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.

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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.

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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.

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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!

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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.

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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.

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Re: Yet again

cheap but not good value off-shorers

Yep. You get what you pay for.

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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?

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Vic

Re: Yet again

You get what you pay for.

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

Vic.

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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.

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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)

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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.

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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.

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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.

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

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

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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)

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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.

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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'

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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.

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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.

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LDS
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"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...

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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

ISA dividends are not tax free.

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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.

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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.

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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....

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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.

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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.

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Facepalm

Darwinian selection in Government IT

"we desperately need a mobile, highly skilled workforce "

Completely agree. Yet the government for some unknown reason seems to think that the SME's and contractors are fleecing HMRC out of money and are doing their best to put them out of business. HMRC/the government simply refuse to see the bigger picture.

As a contractor, I spend the majority of my limited company earnings on the following: corporation tax, wages, dividends, expenses, savings for a rainy day.

Corporation tax goes to the government; wages covers normal livings expenses (mortgage etc.) and includes VAT, dividends (taxed), expenses such as petrol (taxed) and purchasing other goods and services such as living accommodation when working away from home (hotel or landlord is taxed on their earnings)....etc. etc. Savings will be taxed at the point when I am between contracts and need to live. So the majority of my companies earnings and expenditure is taxed in one form or another.

Instead of this, they are forcing government departments into the hands of multinational companies. Where do they pay corporation tax, probably not in Britain. These corporations won't have in-house resources standing idle to take up the slack, so they will have 3 choices, pay e.g. Indian third party IT companies to do the work, hire UK contractors to do the work, hire new permanent employees to do the work. Guess which one costs the least and gives them most profit and where the money won't be spent in Britain and won't gather any taxes in Britain?

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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?

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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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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.

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Anonymous Coward

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

maybe the industry should be agitating to BE EMPLOYED PROPERLY

That's ignoring the plain simple fact that any company using contractors has chosen that route because THEY DON'T WANT THE OVERHEAD OF EMPLOYEES.

seems to me the whole thing has been a scam to let ... the public sector get away without paying national insurance, handling paye and paying pension contributions.

You've hit the nail on the head. This whole thing is about preparing the ground to shift more and more public sector employees into the private sector.

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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™. :-)

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Re: Darwinian selection in Government IT

Regarding

"In response to this, HMRC are developing an online tool that will help public sector bodies to determine whether or not the rules apply.”

bool doesRuleApply(object doesntFuckingMatterItWontBeConsidered) {

return true;

}

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