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1) IR35
This was the first sign that things were never going to be same again
for contractors, as the Government decided that many contractors were
just disguised employees, and that their limited companies were just a
ruse to avoid paying tax.
To counteract this, the Government decided to bring in IR35 legislation to ensnare these supposed ‘tax cheats’.
The legislation was very unfair, because, whilst it taxed an IT
contractor as if he or she was an employee of the client company, they
gave them no legal rights that an employee had, and allowed them no
benefits.
The Professional Contractors Group was set up specifically to contest
this legislation but lost two major High Court cases on the matter.
They also recently lost another Employment Tribunal Appeal at the High
Court.
However, they have had a number of successes at lower levels, including
the Lime-IT victory at the Special Commissioners. They have also
managed to get a commitment from Paymaster General, Dawn Primarolo, to
look jointly at IR35 again. She feels that it is hitting people that it
was not meant to hit, but has no plans to abolish it.
They are also working with Agents’ representatives, ATSCo, to create a standard ‘IR35 free’ contract for the industry.
Contractors are becoming more confident now as a result of the efforts of the PCG and their own accountants.
Two years ago, two-thirds of contractors declared themselves caught by
IR35, whereas today only one-third have declared themselves caught by
IR35. The numbers are going down all the time.
2) Fast Track Visas
The Government was told by the representatives of IT employers, and by
IT consultancies, that there was a massive skills shortage in IT. The
data used is now discredited, but the Government took the bait hook
line and sinker. So much so that Patricia Hewitt went to India and told
them that there was a shortage of 300,000 IT workers in the UK.
The Government decided to create a Fast Track Visa system where non-EU
workers who had skills on the Skills Shortage list were allowed to get
Work Permits to work in the UK. Employers didn’t have to advertise
these jobs. If a non-EU IT worker had skills which matched those on the
Skills Shortage list, then they could bring them over pronto.
What skills were on this list?
Why, skills like C++, Java, and “Business Analysts across all technical areas”.
After much protest, this was abolished and all IT skills were wiped
from the Skills Shortage list, and e-commerce minister Stephen Timms
told the Bangalore Trade Fair that “there was no longer a shortage of
IT skills in the UK”.
In the two years that this was in place, Work Permits were issued under
the tier-1 fast Track Visa scheme at the rate of more than 11,000 a
year, adding more than 20,000 to the UK IT workforce in the middle of
THE biggest downturn in our industry’s history.
3) Intra Company Transfers
This was set up to allow non-EU companies, who have company specific
skills, to transfer their staff who have those company specific skills
to third party UK companies.
An example of a company specific skill might be where an Indian company
has a software package that they have sold to customers in the UK.
Their employees, who have a good knowledge of the package, can then be
transferred to a third party UK company who has bought the package.
So how many IT workers are coming into the UK via this route?
Answer: - More than 11,000 a year.
It’s difficult to believe that there are that many vacancies for skills
that no UK IT workers have – especially as the bulk of the imports come
from India – who sell very few IT packages into the UK. Indian
companies are looking mainly to shift bodies.
As their home market is usually less complicated, e.g. in telecoms,
banking etc. their software is not normally up to the complexity needed
by British companies.
What they are doing is abusing the Intra Company Transfer system by
exporting bog standard Cobol, Java and C++ developers, under the guise
of those developers having company specific knowledge.
The Government and the Work Permits department just aren’t up to the
task of separating the abusers from the genuine Intra Company
Transfers, and Indian companies in particular are having a feeding
frenzy at the expense of UK IT contractors.
4) Tier-2 Work Permits
The tier-2 Work Permit scheme was started up because of the supposed
massive IT skills shortage. To get a tier-2 work permit for a non-EU
worker, companies must have advertised a position extensively, at
normal UK rates, and were not able to get any suitable responses to
their adverts.
With the massive oversupply of IT labour in the UK, you would have
thought that there wouldn’t be many jobs advertised which didn’t get
any response. IT workers sitting at home will know only too well that
each job advert nowadays gets an average of around 250 applicants.
So there can’t be many of these can there?
Well, there didn’t used to be.
Before Fast Track Visas were abolished around 2,500 of these Work
Permits were being issued a year. That’s still quite a lot, considering
the market. It’s also surprising that the bulk of these were issued to
Indians and not Americans, as it America where the new skills that UK
workers might not have yet, emanate from. Indians usually get these
skills after the UK.
Since Fast Track Visas were abolished, the number of these Work Permits
being issued has now climbed to an annual rate of around 7,700 a year.
That’s a hell of a lot of jobs where companies have advertised and not been able to find anybody.
Some of you might even be thinking that because Fast Track Visas have
been abolished that UK companies who want cheap IT labour, and Indian
companies who want to sell it to them, have simply found another dodge
for getting them in.
The Work Permits department don’t seem to have noticed anything untoward though, as they have issued these permits willy-nilly.
5) Contractors Can Be Replaced
Possibly the biggest kick in the teeth to contractors came in a
Parliamentary reply by a Government Minister (I think it was Beverley
Hughes), who said that companies didn’t have to take into account that
contractors were currently doing a job. If a company couldn’t find a
permanent person in the UK to occupy a role, then they could simply
hire a non-EU It worker to take the role, and the contractor could,
quite simply, be dumped out the door.
There’s no point in contractors complaining that they have skills that
were on the Skills Shortage list, or have skills that have been
advertised for and got no response, prompting a company to take on a
non-EU worker.
The Government doesn’t give a monkey’s. Contractors are outside the
scheme. Whereas before, a company would take on a permanent worker
first, and then take a contractor if they couldn’t find one, now
companies can take on a non-EU worker first before they take on a
contractor.
Contractors are now at the bottom of the food chain here.
6) Section 660
As if they haven’t done enough, the Inland Revenue, no doubt in
conjunction with the Government, are trying to re-interpret existing
legislation – and backdating it to the time of the legislation.
Many contractors give their spouses shares in their limited companies
and pay them dividends. The Inland Revenue are now claiming that this
is illegal, and that the contractor should have all the shares in his
or her company. The Inland Revenue is now trying to claim retrospective
taxes from contractors who have done this in the past.
Conclusion
The Government has said that there are 70,000 to 125,000 small IT
businesses in the UK, and the DTI has set up a new group called Trade
Partners to help them export. The DTI’s only partner is Intellect, who
represent around 1,000 of the bigger IT businesses.
Most of these small businesses will be contractors and their limited
companies. The Government should be encouraging these small businesses,
first of all in their home market, so that they can flourish and
prosper, instead of harrying them at every step of the way.
Many of these small businesses could grow up to be major businesses if
they were just given some Government help and encouragement.
At a seminar recently it was stated that there was very little software
IPR in the UK, and that there were very few software companies in the
UK with a market value of more than a 100 million pounds – which as the
speaker said, was only the value of one of the larger BMW dealerships
in the UK.
There won’t be many joining them in the near future, if the Government
doesn’t give the industry and its budding entrepreneurs some more
encouragement.
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