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80% of UK Government IT Projects Suffer Delays Due To Tax Clampdown (theregister.co.uk) 88

An anonymous reader shares a report: The vast majority of UK government IT projects are suffering delays due to freelancers quitting over the IR35 tax clampdown, according to a survey of contractors. Of 405 IT freelancers surveyed by Contractor Calculator, 79 per cent said the projects they have been working on were delayed as a result of contractors leaving. In April, the government shifted responsibility for compliance with the IR35 legislation from the individual contractor to the public body or recruitment agency. The Treasury says it hopes to raise $240m for 2017/18 by bringing public sector contractors within the scope of the legislation. However, the overall number of freelancers leaving as a result of the changes is lower than previously thought, with 48 per cent jumping ship. In previous surveys more than 80 per cent had threatened to walk once the changes came into force. Half of the contractors who decided to stay managed to find a way of working outside the IR35 changes, with a further 13 per cent working within the scope of IR35 but negotiating a rate increase. The rest seemingly took the changes on the chin.
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80% of UK Government IT Projects Suffer Delays Due To Tax Clampdown

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  • misclassified contractors should not be on the hook for taxes no the recruitment agency should be paying and doing the paper work.

    • by Anonymous Coward on Monday September 04, 2017 @06:28PM (#55138713)

      This isn/t really "misclassified" contractors. This is a case of IT contractors using a tax loophole, the government closing that tax loophole many years ago, then IT contractors trying to weasel out of it illegally. The change happened years ago, and the government has been explicitly telling people for at least seven years not to pull the "IR35-proof contract" bullshit that doesn't work, but plenty still try.

      Basically, the issue is this: organisations employ contractors who act like employees, but want to pay tax like corporations. So they set up a one-person business and write contracts that on paper attempt to swerve around the IR35 legislation. But the government has basically said that it doesn't matter what the contract states if neither party actually adhere to it because you're basically just disguising an employee and evading tax.

      • by Anonymous Brave Guy ( 457657 ) on Monday September 04, 2017 @07:59PM (#55138993)

        "IR35-proof contract" bullshit that doesn't work

        The government's problem is that the "IR35-proof contract" mostly did work.

        IR35 initially caused a great deal of aggravation in the industry, not least because it was like a Sword of Damocles over the head of every legitimate contractor or freelancer who really was conducting their affairs as an independent business would and not just claiming to be a contractor as a tax loophole while still acting as an employee for all other practical purposes.

        After an initial period of confusion, a few test cases settled various criteria as clearly distinguishing people who would not be caught by IR35, and almost everyone started structuring their contracts in this way. From that point on, HMRC has won almost no cases, not that it's even bothered to bring that many in recent years, and most accountants working with small businesses are IME not particularly concerned about the risks of IR35 today.

        That poor track record of successful enforcement actions continued even after various attempts to introduce new official guidance on what should or shouldn't be covered. Some of the guidance was hilariously ill-judged; for example, IIRC one set of questions would have put one of my companies under IR35 even though it has nothing to do with contract or freelance work of any kind and no-one who could possibly be in the "employer" role.

        The trouble, of course, is that all of the above also applied to the cheats who really are disguised employees and really should be caught by IR35. And so the irony of the whole government contractor mess coming up now is that the government already basically gave up on IR35 and just directly shafted all the legitimate contractor-based businesses as well by slapping a huge tax rise on dividends a couple of years ago, and then tightening the noose even further last year. At this point, you'd be mad to operate as a limited company and pay out through dividends just to try to save a small percentage on your taxes anyway; the overheads in admin and professional fees to run a limited company would surely cost you more that any small tax saving would be worth.

        And yet since the government don't want to hit main income tax, National Insurance or VAT rates, the small businesses and independent professionals keep getting hit anyway. (Just imagine the reaction if, out of the blue, they increased the basic rate of income tax by 7.5% at the next budget, in addition to pushing up a variety of other tax rates here and there so the overall increase in what you were paying was more like 10%.) Sooner or later, they were bound to find that smart, well-advised professionals of the kind who could actually run successful small businesses in the first place were going to walk away from the kind of bad deal the government apparently thinks everyone should take, and in this case, it appears that the government itself is the one losing out as a result. As someone who's always run businesses according to both the letter and the spirit of the rules and yet been repeatedly screwed over by the government anyway, I don't have an iota of sympathy for them.

        • Re: (Score:1, Interesting)

          by Anonymous Coward

          It doesn't matter the economic results. What matters is that it grows the government and keeps all those bureaucratic assholes employed. Government, by nature, is parasitic via its monopoly over the populous. It's up to the voters to call them out on their bullshit. Sadly, people don't really give a shit so they Gov gets away with these shenanigans.

          • Re: (Score:2, Interesting)

            by Anonymous Coward

            The main problem is the population see a business that makes money, and wants the government to take as much money from them as possible to give to them. So instead of talking to the businesses trying to figure out what is acceptable to them, like how much is too much, and how law does the tax need to be for them to grow, they just raise taxes and figure just by raising taxes it means more tax is gathered.

            Got people in government who don't know anything about macro economics who simply raising taxes as A +

      • Also, 79% of contractors surveyed, not projects.

        Stupid is everywhere.

      • by Anonymous Coward

        And yet even with this change IR35 is still horribly woolly, with HMRC's own assessment tool often returning incorrect results, and in all likelihood it'll continue to be largely unenforced because they know they'll lose most of the cases they bring to court and doing so costs more than they can possibly hope to recover in "lost" taxes.

        Right now if you're a contractor working in the public sector through a PSC you have the worst of both worlds; you don't get holiday or sick pay, pension, or other benefits b

        • >Right now if you're a contractor working in the public sector through a PSC you have the worst of both worlds; you don't get holiday or sick pay, pension, or other benefits but you *do* have to pay income tax and NI at permie rates.

          If you're self employed who do you expect to pay you while you're on holiday or sick etc and why should you pay less tax? Those things aren't paid for out of tax and why should your NI be lower? Are you less likely to need the NHS somehow?

        • "Right now if you're a contractor working in the public sector through a PSC you have the worst of both worlds; you don't get holiday or sick pay, pension, or other benefits but you *do* have to pay income tax and NI at permie rates."

          Well, you see, your Personal Service Company is your employer, it's up to them to provide benefits as part of the remuneration package you agree with them.

          If you arrange a legal fiction to get around paying self employed tax and NI you should at least be competent at
      • by Anonymous Coward

        That’s not a fair characterisation of the situation at all. Remember that some ten years ago the government said that in order to supply them you had to register as a limited company. It was the government that not just advised, but compelled, us to form a limited company if we wanted to continue working. And many of the contractors were originally civil servants who were pushed out because of the deskilling of the civil service and then brought back as contractors almost immediately. Again, they didn

      • by Rande ( 255599 )

        I did this myself for a while so I might be biased.
        I also went legit for one contract by working under an umbrella corporation. During that contractor had the privilege of paying the extra tax/NI while still not getting holiday pay, sick pay, pension contributions and for 6 weeks, never getting paid at all because the contract said they would only pay me once they were paid and the end client decided not to pay. If I'd been working directly, I could have sued them, but since I was under the umbrella, it w

    • misclassified contractors should not be on the hook for taxes no the recruitment agency should be paying and doing the paper work.

      I do freelance/contract/consulting work. However, I never work through an agency. I always form an agreement directly with my client. In my case I am responsible for all my own taxes along with everything else, which is how I prefer it to be. Is this approach not common? Is it more common for IT/tech/software dev consultants/freelancers/contractors to use an agency? If so, what is the benefit?

      From my perspective I have always steered clear of those agencies because I don't care for recruiters in the f

      • by Kjella ( 173770 )

        I do freelance/contract/consulting work. However, I never work through an agency. I always form an agreement directly with my client. In my case I am responsible for all my own taxes along with everything else, which is how I prefer it to be. Is this approach not common? Is it more common for IT/tech/software dev consultants/freelancers/contractors to use an agency? If so, what is the benefit?

        You don't need a network, you don't need to be a salesman, you don't have to know all the paperwork and you got a guaranteed base salary. At least that was roughly my experience starting out as a consultant, "all" I had to do was show up at clients and deliver well. As an consulting company they come across many opportunities big and small with different requirements, they were quite good at keeping billable hours high at good rates. It was employee-ish but with more variable pay, more varying projects, tec

      • I do freelance/contract/consulting work. However, I never work through an agency. I always form an agreement directly with my client.

        Do you do work for the government? To supply services to my government you have to be on a list of pre-approved government suppliers (this process is vetted to try and prevent fat govt contracts going to friends and family of ministers/secretaries etc). To get on the supplier list is an effort, so your average freelancer doesn't have the time or patience to endure this, but recruitment agencies do, so they act as a middleman. Gov uses agencies to recruit contingent labour, freelancers apply via agency.
        If y

        • That is why, at least on US Federal govt contracts, you often try to get on as a sub contractor the the primary contractor.

          The prime contractor is usually one of those companies on the "approved list", but you can sub to them as you like, and don't have to be on an approved list.

          Yes, of course they get a bit of you bill rate, but that's how the game is played.

    • Be careful what you wish for. We have a similar situation in the Netherlands. The situation was that in principle, the client or the agency was responsible for taxes if the contracter was deemed a "virtual employee" by the IRS. However a contractor could submit a form, detailing his situation, income, nr of clients and other info, upon which the IRS would issue a release (called VAR) that effectively shifted the liability for taxes to the contractor. The upshot of course was that no agency or firm would
  • by 93 Escort Wagon ( 326346 ) on Monday September 04, 2017 @06:28PM (#55138717)

    On the face of it, it sounds like you guys had a bunch of freelancers who weren't declaring at least some of their income.

    • by Anonymous Coward on Monday September 04, 2017 @07:18PM (#55138883)

      If you're a software developer doing work for company A, you previously (many years ago) had two options:

      1) Be employed directly by company A. Pay income tax plus national insurance (like EI)

      2) Start a one-man consulting company C, which has a contract with company A. Take most of your income as dividends, avoiding paying any national insurance. Also deduct expenses like car travel, lunches ("business meetings"), cell phone and monthly plan ("business phone") etc etc. The combination of dividend tax and corporation tax used to be a fair bit lower than income tax as well.

      IR35 aims to prevent option 2 and they recently put more effort into enforcing it. As with many tax laws, it is riddled with "grey area" loopholes that many people still manage to exploit.

      • by Anonymous Coward on Monday September 04, 2017 @07:42PM (#55138951)

        > IR35 aims to prevent option 2 and they recently put more effort into enforcing it.
        > As with many tax laws, it is riddled with "grey area" loopholes that many people still manage to exploit.

        I contracted for 15+ yrs in London finance - 1998-2013. The original impetus for IR35 was the large consultancy firms lobbying the government. They were upset that a large "army" of freelancers were able to provide the sort of temporary labor on projects that consultancies typically made money from. Contractors initially found easy ways to stick within the law even after being pursued legally. There was the clumsy (and potentially illegal) attempt to retrospectively re-interpret S660A (the ability of spouses holding an interest in the company to get dividends) - going against the standard interpretation which had existed for literally hundreds of years.

        "Red" Dawn Primarolo also made the argument that IR35 would bring in a lot of tax dollars. It didn't.

        It simply reduced the mobility, size & availability of a previously highly skilled workforce for hire.

        The government eventually got its way through gradual attrition & rhetoric - you could reasonably argue that it had the upper moral hand. However, the effect has been exactly as predicted - much less labor mobility & the gradual diminishment of IT capability in London. Luckily in some senses it coincides with the downturn of investment banking since 2008, so the effects have not been so drastic. That capability won't return.

        I eventually decided that the tide was turning against me, so I quit work in London & moved to the US where I'm not the chief architect of a $20bn+ company. Yeah, I guess the UK government got what it desired, but perhaps it had other effects not so desired...

        • by Anonymous Coward

          so I quit work in London & moved to the US where I'm not the chief architect of a $20bn+ company.

          The United States also has strange laws covering independent IT contractors, specifically anyone doing programming work. For example, have a look at this gem:

          Tax Reform Act of 1986: Treatment of Technical Service Firms Employing Certain Professionals [wikipedia.org]

          Totally unfair, but I suppose it serves us right for not having lobbyists like the American Medical Association (doctors) and the American Association for Justice (attorneys) to push back against this kind of crap.

          • by Anonymous Coward

            Yeah, those US laws are indeed weird. I would never do contract work here - it's way worse here than in Europe generally.

            At my US workplace, it is easier for me to bring on a consultant (usually of dubious skill) for an outrageous daily rate, as long as they are a W2 consultancy. I can keep them as long as I need them. For contractors, I can only do 6mths at most.

            • by PPH ( 736903 )

              For contractors, I can only do 6mths at most.

              That's a company regulation, I suspect. Not in the tax code or law.

              The problem in the US is that the IRS leans on companies and staffing companies to enforce stuff that actually isn't law. Or risk facing damaging IRS audits themselves*.

              *"Show me the man and I'll show you the crime." - Lavrentiy Beria, head of Joseph Stalin's secret police.
              Although in this case, it extends to companies as well as individuals. This is one of the down sides to our overly complex tax code. And why we will never fix it. It's

        • by judoguy ( 534886 )

          I eventually decided that the tide was turning against me, so I quit work in London & moved to the US where I'm not the chief architect of a $20bn+ company.

          I'm not the chief architect of a $20bn+ company either. I feel your pain.

      • Option 2 is incomplete.

        Not only does the "feeelancer" pay no NI, the hiring company also doesn't have to pay its NI top up. Double and, the "freelancer" doesn't get any employee protections which we've decided are, on the whole, a good idea.

        I put freelancer in quotes because a number of companies decided to abuse the system and have near enough everyone on as freelancers so they could save the NI bill and not have to worry about that pesky employee rights crap.

        It's a classic case of "and this is why we can'

      • by jandrese ( 485 )
        Option 2 sounds like a classic tax avoidance loophole. In the US you see these closed from time to time with much associated whining and gnashing of teeth.
    • Re: (Score:3, Interesting)

      Little known fact - this whole thing was started as a way to force locum doctors back into NHS employment (at significantly reduced wages and significantly worse working conditions), and subsequently HMRC applied it everywhere because "why not".

      Its another aspect of the Conservative war on doctors which has had unintended consequences everywhere else.

      • by Anonymous Coward

        Hmm I remember when IR35 was introduced - it was early 2000 or so and Labor was definitely in power. "Red" Dawn Primarolo was the Paymaster General & at the time it was clearly intended for IT & Building contractors. Of course, I wouldn't put it past the Conservatives (who complained bitterly about it at the time of introduction) to re-purpose it...

      • Its another aspect of the Conservative war on doctors which has had unintended consequences everywhere else.

        I'm not a Tory supporter by any stretch of imagination, but I think it sticks deeper than that. - it goes all the way back to the ridiculous idea of part privatisation "to improve efficiency through competition, thereby driving down costs". It is strange that anybody bought in to this - the obvious effect has been that private clinics and hospitals have been able to offer higher pay, so any doctor worth his salt took work in the private sector if at all possible, thereby starving the NHS of their best staff

        • It is strange that anybody bought in to this - the obvious effect has been that private clinics and hospitals have been able to offer higher pay, so any doctor worth his salt took work in the private sector if at all possible, thereby starving the NHS of their best staff.

          So, basically, it's Britain's version of the Fugitive Slave Act.

        • by mikael ( 484 )

          Dentists decided to set up private practises because they weren't being able to provide advanced treatments to patients on the NHS. Plus of course, in Scotland, they decided to close Edinburgh dental school because "it looked a bit tatty" (according to Labour MP's).

  • The way they were operating is quite common in other countries and seems quite reasonable to me so I see no need for this change.

    The thing I find strange about the UK is the pay rates for developers appears to be pretty low. Maybe the crowd emailing me job offers there are the cheap labor suppliers, and real market rates are higher, but based on the offerings I am seeing the typical rates are £35 - £45 P/H or £25k - £65. The highest I have seen offered was £75k. Given tha
    • I've been out of IT (professionally) for some years now, and before that I wasn't contracting anyway. I'm sure you can get better rates than that, but my experience of UK vs US professional salaries is that we generally get paid a lot less and (taxed a lot more, although we also get more services back in return). I'm a doctor now and looking at US salaries they seem to be 2 to 5 times what we get here (salaries seem to vary more in the states, e.g. between specialities), which is a big difference.

      • by ukoda ( 537183 )
        I was comparing them with New Zealand pay rates for the same jobs and the pay here in NZ appears to be better than the UK and the cost living is much cheaper here too, with the exception of accommodation in the Auckland region.
      • I'm a doctor now and looking at US salaries they seem to be 2 to 5 times what we get here (salaries seem to vary more in the states, e.g. between specialities), which is a big difference.

        In the UK you have natural scarcity; NHS won't pay doctors much, so it's not an appealing trade from an economic standpoint. In the US we have artificial scarcity. The AMA (to which less than half of US physicians belong, mind you) has lobbied to make it very difficult to become a doctor. You're basically subjected to hazing in the form of a residency where you will be grossly overworked before you are allowed to be even a GP. This system weeds out people who could be excellent doctors, decreasing their num

    • by mikael ( 484 )

      It depends on the part of the country you are in. The financial city of London pays twice as much as any other industry. Once you start moving outside of London, the rates drop down. £45K - to £50K doesn't get you very far in London. A basic B&B is £25/night. Staying at a Travelodge is £50/night.

      You have to be careful about London jobs. Sometimes they'll just want a "senior" person to train up a team of interns from abroad, who are actually paying £1000/month for the experi

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