In the 1999 budget, Chancellor Gordon Brown
announced he was taking action to stop staff leaving a company
and returning as a contractor, avoiding National Insurance payments.
However, in a draconian move, the Inland Revenue's (IR) proposals,
IR35 went well in excess of this; they mean:
regarding contractors who provide services
to a client as directly employed, requiring PAYE tax and NI to
be deducted at source. There is a potential get-out for contractors
who work on a project or fixed-price basis, but they must first
gain IR agreement that they are not "subject to client supervision
and direction".ruling out currently-deductible business expenses
such as equipment and training. The loss of these essentials would
effectively push contractors back into the 'permanent' job market
in an age where more freelance employment is the trend and has
led to, say, 20% of the computer industry working on contract.
Freelancing is commonplace in the engineering, medical, legal
and film production professions.
Motives such as being able to move around
to gain experience, choose one's own work patterns and control
one's own career development are more common than 'tax avoidance'.
(There is nothing illegal about 'avoidance' - it's 'evasion' that
is illegal!! Where contractors pay themselves out of profits (dividends),
the sums are often spent on keeping themselves and their families
from being dependent on state assistance - something the Government
is supposed to support.in many cases, cutting the 'gains' the
Chancellor said he'd given small businesses in the Budget, such
as a company tax cut of 1% and the use of some equipment as a
business expense.some 300,000 workers are believed to be affected,
Also people in professions that support them, such as employment
agencies, financial advisers, accountants. Some 66,000 jobs are
reported to be immediately at risk. In return, a British Computer
Society spokesman notes, the unwanted 'benefits' of European social
legislation would be forced on contractors who were able to get
'permanent' jobs, albeit for a few months.
"Client companies" who currently
benefit from contractors' services stand to lose. In areas of
skill shortage, contractors might be tempted to drop out or work
abroad - thus making skills shortages worse. Some who work through
agencies might have to raise their charges to offset the losses.
In any case, much work would be created by the upheaval of having
to put extra staff directly on the payroll.
Not surprisingly the proposals are opposed
by
Confederation of British Industry
Institute of Directors
Federation of Small Businesses
Charted Institute of Taxation
Institute of Chartered Accountants (England & Wales)
The Law Society
British Computer Society (ICC Group)
Professional Contractors Group
Association of Temporary & Interim Executive Services
They fly in the face of PM Tony Blair's glowing claim that the
Government "strongly supports small business, especially
in the high-tech sector" and favours "lower taxes still
for small business" (Fed of Small Businesses' ' First Voice'
magazine, June/July 1999).
There must be something very important behind
the proposals for the Prime Minister to go against his own word.
ECONOMIC BACKGROUND TO THE PROPOSALS
Computer professional Michael Wigley has
noted that the proposals will bring the UK into line with German
employment practice.
In 1997, keen to show his pro-European credentials,
the new Chancellor Gordon Brown supported EU proposals to eliminate
"harmful tax competition'... proposed by... Germany. In March
1998, a specialist journal, Taxation Practitioner, revealed the
German Finance Minister had for some time been complaining at
how low tax rates in Britain were, depriving his government of
billions in lost tax.
On 17 November 1998, a formal agreement
- The New European Way - was reached with the EU's predominantly
left-wing governments on "tax co-ordination". Former
Government adviser Patrick Minford condemned the moves "There
is no way that their taxes are going to come down to meet ours"
(Times, 19.11.98)
European Tax Commissioner Mario Monti had
already made it clear that "reform" of the tax system
was targeted where national tax levels were less than the EU average.
(Read "Britain". See Daily Telegraph, 22.10.97). The
EU/EEC has been looking at "crucial" tax harmonisation
since at least 1975, following the Ruding Report, 1992, the EcoSoc
Committee spoke in 1996 of the logic of having "tax conditions
equivalent to a single state"
By coincidence, New Labour also forced through
the Amsterdam Treaty on European Union (1997, Article 58.1.b)
that insists upon measures to end "tax avoidance" (undefined).
On 18 March 1999, i.e. around the time of
the Budget, three EU committees met - UNICE, the European employers'
federation; ETUC, representing trades unions, and CEEP, representing
the public sector. They agreed a document "Framework Agreement
on Fixed Term Work", which talks of work to Social Chapter
"policy requirements" and "collective agreements"
- even if in the case of the latter, none exist within the company
or industry directly concerned.
In short, the livelihoods of hundreds of
thousands of fixed term contractors and the trades that depend
on them are to be manipulated for political reasons
It notes that the European Commission
intends to propose a "legally-binding Community measure".
As Britain will have no veto, the only way to regain our powers
to have working practices in the stated interests of many highly-skilled
workers will be to break the shackles of the EU.
