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