The meeting was chaired by Iain Sutherland of 3 sixty group, who opened by welcoming the attendees. He went on to highlight the importance of the issue on all sectors of the IT industry.
The group were advised that they would be made aware of the full impact of the proposed changes by going through the conversations 3 sixty group have had with the Inland Revenue and other relevant parties. All were invited to comment as to their viewpoint
"We have a range of different people here including John Redwood (Cons MP) and Dr Vincent Cable (Lib Dem MP).
Obviously, this is something that will affect UK Plc and any move that takes away from our competitiveness can’t be good.
We have representatives from the CSSA, the FEI, the IAP (Institute for Analysts and Programmers), Mike Cullen from ICC(and BCS), Andy White from Engineering.Com along with leading agencies, end user and accountants."
Andy White has demonstrated through the use of his web site that something on the net can get through very quickly with very little publicity. The word of mouth can be a good source of information for a lot of people in the IT industry."
He went on to say that the group would look at the effects on all sectors and put forward a proposal for how best to affect amendments to the proposals.
Brian Keegan (MD 3 sixty group) advised the group of the basis for the changes and the discussions that had been taking place with the Revenue. He confirmed that the measures as proposed would affect approximately 80% of IT Contractors working through a Limited Company Structure.
"The Inland Revenue are going to implement the changes from April 2000, however, they will take the proposals before Ministers within 3 weeks."
He went on to explain that it will not just be the IT Contractors who will be affected. Those agencies and end users who rely on contractors will also have to change their practises.
Niall Keegan (3 sixty group) gave a presentation in which he examined the tests being applied to determine the correct type of structure through which to work and explained how, through attempts to simplify the legislation, the end result could become very confusing to all. "The removal of one line of text (under section 134) will completely change the options available".
He went on to point out that each case will have to be tested to see if it has been correctly assessed. "The result of getting it wrong is clearly evident, who will want to take that risk?"
It was pointed out by a contractor that, "working in the IT industry we should all be aware of the effects of changing one line of code, however, in this case the result might undermine our very industry."
John Redwood , Shadow Trade and Industry secretary expressed his support "This meeting has highlighted some points that may be damaging to UK plc. I am very happy to take this case to Parliament when I know what the industry wants. The Government will give in under pressure when it knows there are real business issues at stake."
And White of Engineerjob.com explained how he had set up his web site in response to the IR35 proposals because he couldn’t find anyone fighting his corner. Having worked as a Contractor, an Agency and an employer of Contractors, he had experience from all sides of the market. He went on to say that the response to his site had been overwhelming with over 4,000 hits on his site per day. "Contractors are concerned over what this means to them and they are in search of credible advice."
In response to a direct question a representative of one of the companies said "all I can say is that you can’t change the industry – it may only change superficially but companies have to buy in skills as and when they are needed. If they want to remain flexible that is."
Iain Sutherland asked if there was anyone in the room who felt that the proposed regulations would be a positive move. He advised the group that 3 sixty were told by the Inland Revenue that "the response from the industry so far is that the industry supports this measure". Those present did not support this opinion.
One contractor commented, "I mean, a comment like that. I mean there is indication that it could be used to drive down the finances of contracting. Is that how we see the things going? Is that the way that the movement is going?
Iain Sutherland confirmed that this was the views as expressed to 3 sixty by the Revenue.
The contractor want on to ask "Is there anybody here representing the company that hires the contractors? Do you expect it to drive down the cost? I was put on a margin with my rates and that still applies."
Iain Sutherland highlighted the knock on effects of the proposed legislation and commented that "the revenue don’t seem to think that there are any genuine IT contractors who are entrepreneurs." He went on to ask Terry Harvey of Harvey Consultants to explain his Companies history and thanked him for travelling from the North of England to be at the meeting.
Terry Harvey went on to explain how he had worked for four years as a contractor, in a Limited Company, to save enough money to set up his Agency. At this time he was then able to support 17 contractors, two part time staff and himself full time. The business grew over the following 8 years to a turnover of £15,000,000 - at which time he sold the Company to an American Company. The company has continued to grow and now has a turnover of £27,000,000. The money he gained from the sale of the Company has been re-invested in UK based companies.
Mr Harvey went on to say "had it not been for the Limited Company structure through which I was able to work, I would not have been able to expand the business and I would not have been able to have the impact on other businesses around me. Nor would I have been able to employ the numbers of staff that have benefited along the way"
I think that this legislation will have a knock on effect.
Dr Vincent Cable (Lib Dem MP) offered his support to the group.
"And I and my colleagues will be available to hear your views and air your grievances for you. We would like to hear from your companies’ representatives and we would be very happy to go to the Houses of Parliament when we know what the industry wants. I suspect it will be some time before we know what the right answer is. The balanced view is that it is worth coming up with an answer, it is worth lobbying, it is worth having a go. This Government will give in under serious business pressure and it is a real issue and there are other real issues here and we can provide you with some parliamentary support and guidance on how you might wish to play your hand."
Mike Cullen (ICC, BCS) opened by saying that the BCS has an excellent relationship with the Inland Revenue.
As a Contractor who had worked in both the UK and abroad, he felt that the Inland Revenue had been very good to Contractors. Mike commented that he had worked with the Revenue in the past to sort out the anomalies in the rules, which prevented Contractors from claiming travel expenses to and from work. The ruling the Revenue were using was 106 years old, where no-one worked outside their village and the revenue agreed that this was unfair and changed the rulings to do with one man limited companies.
He commented that it is the responsibility of the Revenue to remit the maximum revenue to the treasury. The Revenue has made that very clear. He went on to comment that "he wished they made every instruction as clear as that."
The pot of gold at the end of the rainbow is in the remit of the Revenue. He went on to highlight that one of the functions of the DTI is to examine the impact of collecting that revenue and the overall effect on industry.
The ICC is a professional body and it works to support its members.
Mike commented that there is a benefit to professionals gathering together as one representative body.
An agency representative from Gatton commented, "there seems to be a lot of confusion as to where the DTI fit in and the National Insurance Issue". He made the point that "we should all pay our social contribution, however, legitimate business expenses should be allowed." He went on to say that we "should not try to take the government head-on because they will attack you back".
"The average contractor is going to get hit between the eyes and we have to look for a compromise. Perhaps we should look for a delay so that all the facts can be collected". He agreed with the Liberal Democrat MP (Dr Vincent Cable) that we should look for a compromise. He said that we should all work together.
He said that he didn’t know anything about lobbying parliament and hoped that FRES would do this. He stressed that we should not get into a war because we would lose. He jokingly suggested that the only way we might win a war would be by using the Contractors who are currently working in the Inland Revenue.
He asked those present if any of the group knew about lobbying.
Christopher Kettle of Oldham and Thomkins commented on the differences between situations where you have a knowledge based Contractor rather that a trade based Contractor, be it on a long term contract, but still moving from contract to contract. He noted that there is an increase in the number of lower rate Contractors being put through as Limited Companies. They are often doing fairly repetitive jobs and continue doing the same thing for 5 or 10 years under a Limited Company. This difference possibly distinguishes the lower skilled person working through a Limited Company who is possible just hiding behind the Corporate Structure versus the professional.
Mike Cullen commented that there are currently 1,000,000 VAT registered businesses of 3 or less employees in the UK who will be impacted by these changes. Mike commented that they the meeting on Saturday (11/04/99) of the ICC had recognised that they had to recognise the legitimate arguments and tackle the abuses highlighted by the Government. He went on to say "this would ensure that the professional knowledge based sector is not wiped out."
Steve, an agency representative, commented, "I have been running an agency which has been dealing with aircraft engineers, nothing to do with IT. But what we have seen over the years is a move towards self-employed contractors. There was a situation that arose when the Government cancelled all subsistence and the engineers were no longer able to claim genuine expenses that were incurred in the course of their job.
Iain Sutherland commented that "we can move Government and this has been demonstrated on similar issues in the past. However, this can only be done by working with the Government to achieve a compromise, rather than taking a heavy handed approach."
A representative of the Cabinet Office, Regulatory Impact Unit, went on to speak about the process of government and the methods by which an effective argument can be put forward to sway opinion.
Iain Sutherland went on to say that 3 sixty would be looking to speak to as broad a spectrum of the Industry as possible and would be speaking to as many people as possible. He went on to indicate the likely effects of the proposals as 3 sixty see it as present:
"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. Time is short and we need to act if we want to negotiate a change."
The meeting agreed that the following approach, as suggested by 3 sixty, would be effective:
 | Lobby for a full consultation stage in accordance with Inland Revenue Code of Practice |
| Collate full report for the Revenue and Members of Parliament |
| Present the evidence to the relevant parties in a constructive manner |
| Elicit support of Members of Parliament and Key Government Departments |
| Lobby to achieve optimum result |
The meeting ended with all parties agreeing to continue to work together and expressing thanks for the constructive nature of the meeting, speed of response and clear definition of the problems and solutions.
For more information, contact 3 sixty groups press officer - Iain Sutherland