Initial discussions between 3 sixty and the Inland Revenue

1. There will not be a consultative document issued on IR35, instead the Inland Revenue have asked interested parties to comment on the IR35 Budget Release. Parties will then be invited by the Inland Revenue to participate in discussion groups to raise any relevant issues
   
2. In autumn the Inland Revenue will publish their approach to IR35
   
3. IR35 will become law from spring 2000 and will be published in the Finance Act 2000
   
4. Workers have been quick to react to any proposed changes as they are most effected
   
5. The Inland Revenue state that the only reaction, so far, from Employers has been positive towards this legislation as they would rather contract staff return to permanent employment
   
6. The Limited Company will not be abolished
   
7. Transactions of the Limited Company rather than the entity of the Limited Company are under scrutiny
   
8. Not all contracts will be caught under the legislation
   
9. Two rules will be used, primarily the Agency Test and to a lesser degree Schedule D/E rules
   
10. The End User / Agency, by using these rules must determine whether the contractor should be PAYE or Limited
    
11. End user/agency must elect to take responsibility for compliance. Failure to be compliant will result in one or other party being responsible for any Tax liabilities
    
12. The Revenue would be looking through the Limited Company to examine if the contract is closely akin to direct employment
    
13. There should be no fiscal advantage to using Limited Companies
    
14. Example A: Contractor working on Millennium Bug Project, End User wants Health Check carried out on their system. End user pays a certain price for a certain service
    Example B: New system - End User requires 12 months support on a day-to-day basis to roll-out a new system. The End User is telling them what to do and therefore the support person is effectively an additional member of staff
    
15. If the contractor is deemed to be akin to direct employment the End User / Agency will make NICs and Tax deductions at source and the net amount paid to the contractor or the Contractor Company. If paid to the Contractor Company the income can be paid directly onto the contractor without further deductions
    
16. The Inland Revenue are not accepting any invitations to seminars and have suggested group approaches
    
17. No one body has the exclusive voice for IT, however, the BCS have a history with Mr Nelthorne at the Inland Revenue
    
18. The Industry needs to respond quickly
    
    "we are going to put the proposals in front of the Ministers within 3 weeks" (IR 13/04/99)
    
19. The Inland Revenue do not want to start with a blank sheet of paper …. The first paper will be pretty radical … but it will be something to work off
    
20. The Inland Revenue are keen to get constructive comment and suggestion as to the ways in which the legislation should be drafted and need as much detail as possible.

 


Discussions between 3 sixty and other relevant parties


21. The Inland Revenue last year implemented 50,000 workstations. This was done using EDS. EDS are a major user of IT contract staff. If they had all been PAYE the cost to the Inland Revenue and the public purse would have been significantly higher
    
22. When the various government departments were asked to comment on the proposed legislation the DTI did not have sufficient ground to disagree with a measure designed to raise an additional £475M. They were not aware that contractors were able to replace the benefits they would normally be given when normally employed by instigating alternatives such as Income Protection and Retirement provision. Furthermore, their perception is that the majority of contractors remained in the same contract in excess of two years and did not move from one short-term contract to another.
    
23. The BCS (British Computer Society) The CBI (Confederation of British Industry), FSB (The Federation of Small Businesses), specialist accountancy firms have all been in contact with Mr Nelthorne
    
24. The ICC has put forward a 6-point compromise plan as a starting point for negotiation.
25. The DTI are not aware of the ways that contractors replace benefits such as Pensions and Sick Pay, to their benefit and the reduction of burden on the State.

It is important to note, it is the definition of employment applied to this legislation that will determine the effect the legislation has on the industry. Be aware, that it is not only the IT industry that will be effected. Other industries rely heavily on a similar use of freelance workers such as accountants, architects, engineers, petro-chemical and finance etc. These other sectors currently do not have representative voices.

 It is therefore down to the service industry to lobby its case to the revenue. It would be naive to think that this legislation could be prevented altogether, but it is representations that are made now that will influence the exact drafting of the legislation.