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What are the key issues to focus on?
Is it the fact that cheap labour will take your jobs? But you will not object to a Chinese nurse providing badly needed support if you have to go into hospital. So you are happy for them to take another job, but not your own.
Is it racist? No objections to Kiwis, but Indians are a problem?
Is it because they are being paid low wages? So do most contractors when working for their own company. (What wage did your accountant tell you to pay last year?) Presumably any IT specialist from India working in the UK is not having a gun held to their head. They see it as an opportunity to gain experience and training by discounting their rate. Welcome to the global economy, the evidence that it exists is sitting next to you!
No, the real issue to focus on is the unfairness of IR 35.
From this article entitled Fast track rate cuts are coming a contractor tells us how a multi national company is providing IT specialists from overseas at a lower rate than his small UK company
Look at the business angle, after all that is what you are. Remember as you read this through that this is not hypothetical, but an actual, real life example.
The UK client is apparently paying a large multi-national £75,000 for each individual person (who happens to have an Indian passport) that they supply to carry out work on the clients site.
The company in turn is (allegedly) paying £12,000 in wages to that person. The difference is used to pay costs; travel, admin, marketing, accountancy etc., and build reserves to allow the company to invest in training., This in turn will hopefully deliver sales growth (after all they are only selling knowledge, not widgets and knowledge depreciates just like machines that make widgets) and provide a contingency fund for periods between contracts as well as delivering a profit to the shareholder, who in this case is a different person from the worker.
That person sits alongside other persons some of whom are paid directly by the client, and others are employees of subcontractors, both large and small. They all sit together in offices that are paid for by the client. They are all under the supervision, direction and control of the client, work for an hourly/daily/weekly/monthly/annual rate and therefore could be classified as a disguised employee under the "self employed" test. Two of them would be surprised at that definition because they are employees of their own Company and the other would ‘spit the dummy’ and say "I am not in disguise, I am normally this ugly".:-)
One person (who happens to have a UK passport) is a major shareholder in the company providing his services. The client is paying £88,000 for that resource and the company is in turn paying, £12,000 in wages to that person. The difference is used to pay costs, travel, admin, marketing, accountancy etc., and build reserves to allow the company to invest in training. This in turn will hopefully deliver sales growth (after all they are only selling knowledge, not widgets and knowledge depreciates just like machines that make widgets) and provide a contingency fund for periods between contracts, as well as hopefully delivering a profit to the shareholder, who in this case, is also the person doing the work.
Under IR 35 this company is now classified as a "tax cheat" and is required to tax 95% of the turnover as if it was a salary. They are therefore not able to retain any money within the company. They cannot build reserves to invest in training. If they train in the wrong skills they take the risk, not the client. If as a result their skills are not in demand it will be their company that pays their wages, not the client. If they want to take a holiday, it is their company that pays. If they become sick it is their company that pays. If they want to have a company car it is their company that pays. If they want to take advice on their contracts to meet some new and complex tax rule, it is their company that pays. All from taxed income.
The other company is treated as a genuine business, is taxed accordingly and consequently suffers no such disadvantage.
As such they can compete more effectively against the smaller company.
This is proven by the UK client saying the large multi-national guys cost a lot less. And then threatening to terminate the contracts of those people who are owner managers and who are whinging about IR 35.
This is where we came in. The original press release. No IR 35 starts by saying :
This move underlines the Government's commitment to achieving a tax system under which everyone pays their fair share.
They go on:-
Businesses employing their workers directly say that they are unable to compete with those encouraging the avoidance at which the new legislation is aimed. As a result, ordinary workers can find they are unable to compete for jobs with those willing to participate in such arrangements.
In the notes to editors it concludes:
These changes buttress the new measures to support small and medium-sized companies. Without the changes it would be very difficult to target support at genuine entrepreneurial activity - making such measures less effective and more costly.
Judged against this latest evidence how fair is IR 35? How has it helped small businesses who have shareholder workers to compete with those bigger companies who are able to influence the Government and access more cost effective resources and are operating under a more liberal tax regime? How do they support small and medium sized companies? How does this encourage an enterprise culture?
This is not about paying exploitation wages, leave that to the politicians to defend the rights of an immigrant worker, nor is it about immigration policies. Once again we should leave that to the politicians.
This evidence demonstrates conclusively the unfairness of IR35 and that is the issue to focus on.
It is given added edge, because it is being rammed down your throats by Dawn Primarolo.
It is called a wind up and designed to make us look a bunch of xenophobes.
It nearly worked, but hopefully you will recognise that if we focus on the right issue it turns into a double-edged sword.
Do not turn down the opportunity to ask your MP to explain to you how IR 35, as presently proposed, meets the objectives set out in the budget of last year, based on this latest evidence.
For those businesses employing their workers directly who find that they are unable to compete, make sure you point out that those multinationals who have access to cheap resources are the very same that lobbied for this taxation measure and chaired the task force that enables them to have access to the cheap resources.
Tell them that you no longer can compete with them and you will be forced to close down (Why have the expense of running a company if it can never make a profit?). Explain that you cannot persuade the client to amend the agreement to meet the complex new rules as he can obtain the services at a cheaper rate due to the tax advantage enjoyed by your competitor and on the terms required by the client.
This is not over. The Finance Act has not been given Royal Assent. The bill has yet to return to the House of Commons. This measure got stopped in 1981 at the same stage. It is not too late for the Government to realise the damage this measure will cause and pull back from the brink of making a monumental mistake. Help them make the right decision and get a letter to your MP.
Cheers
Andy White
Copyright;2000, Shout99
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