The government’s attack on a tax loophole and the resultant changes to the IR35 legislation is expected to affect as many as 100,000 people, including many IT contractors. Much of the £400m that HMRC expects to raise as a result of the tax clampdown will come from the 20,000 public sector contractors who have been singled out for a toughening of the legislation.
With a large number of IT contractors being pulled into the status of ‘within IR35’, ie, they will be assessed as, to all intents and purposes, an employee and should therefore be taxed as such; they will have to undertake all public sector work under PAYE and not through their own limited company. To avert the exodus of self-employed techies that will be hit by a forthcoming tax clampdown and a reduction in their take home pay, UK government has reportedly advised the IT contractors to hike their fees by a fifth.
According to a leaked document of the Government's Digital Strategy, Central government currently has 18,000 digital contractors on its books. However the number of overall tech contractors working in the public sector is understood to be much higher.
An official has said "There's been some talk that departments will up the rates by 20 per cent so they don't lose key contractors – but I think most are still waiting on HMRC to see exactly what's happening. It's an utter shambles".
He added that the loss of thousands of IT contractors would have a major impact on Government IT programmes. "I wonder if some big companies just happen to be waiting in the wings to come to the rescue," he said. "Funny though how so many of those companies don't pay corporation tax in the UK, unlike SMEs."
According to a survey of 250 public sector IT contractors by a freelancers website, only one in ten intend to pay the extra tax. The rest will either jump ship to the private sector or up their charges.
Another contractor, who asked not to be named, said many contractors believe it will be easier to work for the private sector, rather than increase their fees. "It's so much easier to move, given how in-demand our skills are".
IT recruitment agencies with concerns regarding the forthcoming IR35 changes and implications can connect with Kunal Shah on 0758 4651087 or at email@example.com to get an expert opinion and know about the possible solutions.