UK tax changes could outlaw outsourcing warns BCS chief

Changes proposed to the rules surrounding one-man service companies in Gordon Brown's latest budget could effectively outlaw outsourcing and inflate IT contractors' wages. That warning comes from Mike Cullen, chairman of independent computer contractors group at the BCS.

The changes were laid out in the UK government's Finance Bill, published yesterday, and apply to a loophole that can be used by consultants, who essentially declare themselves as self-employed and pay themselves a wage.

Cullen will be representing IT contractors at a forum in April to discuss how, under the proposed changes, it will be possible to distinguish between legal traders and contractors taking advantage of the loophole.

"There are abuses of the system. And the accidental victims could be us. Some people are being told by companies to go through a service agency because they have more employee rights. If that is taken away there will be an uplift in cost because the consultant will want things like redundancy pay and sickness leave," he explained.

"More worrying is that the way the legislation is being stated - it could outlaw outsourcing, because in legal terms there is very little difference, and outsourcing could well fall under the same principles."

The comments came after a Web site was set up stating plans to lobby the government and stop the proposed changes. Andy White, a chartered engineer who set up his own contracting company six years ago, is responsible for http://www.engineerjob.com and has detailed what the implications would be on computer contractors.

If passed, the new regulations will take effect from April 2000.