IT contractors lobby Lords on tax law

The House of Lords will today decide if the Welfare Reforms and Pensions Bill - which contains the IR35 proposal about one-man service companies - will proceed to the House of Commons to become legislation.

As it currently stands, the Bill could mean that many IT consultants currently operating as one-man companies will be forced to pay the same levels of tax as permanent employees. The government's own Regulatory Impact Assessment study found that the legislation would cause 66,000 small businesses to close down.

But David Ramsden, Director of the Professional Contractors Group (PCG), believes this is a serious underestimate: "The effect of IR35 could be disastrous. We have 300,000 small businesses joined up, many of those would go out of business and equally many could go abroad... frankly the government figures are at such odds with ours I feel they've been plucked out of the air."

This is the all-or-nothing stage where the entire Bill could be rejected. Alternatively, if the House of Lords pass it today, the Bill will go through to the committee stage where amendments to the proposal could be made, but it would still become law for the next tax year.

The so-called Monday-to-Friday legislation is being introduced by the government because it believes many contractors are using the existing legislation to evade paying national insurance and tax. But if organisations like PCG and BCS are right, it could end up costing end-users almost twice that much.

PCG carried out a survey on the probable impact of this legislation and concluded that as well as companies going out of business, corporate firms will be forced to hire IT contractors offshore, ultimately creating a braindrain of IT contractors in the UK. Meanwhile, the BCS believes the complexities of definition could even catch outsourcing contracts.

If it goes to the committee stage, amendments could be made by the House of Lords. PCG and BCS are both meeting with the House to discuss how the definitions of the Bill could be changed so that genuine IT contractors will not be caught under it. It will then pass to the House of Commons.

The PCG has set up a Web site and are taking comments from the industry to present to the government as a part of their lobby campaign - the site is located at http://www.engineerjob.com.