IR35 penalises IT consultants


22-03-2001

The legality of IR35 is being contested at the high court and a decision whether to uphold it will be made very soon.

The IR35 tax is aimed at contractors who are not employees of the company they work for and is said to unfairly target IT consultants.



Techies who work for a company for a set amount of time on individual projects will be treated as 'employees in disguise' and therefore taxed at 35 per cent instead of twenty one per cent.



The government says it is taking away a loophole but opponents point out the tax does not take into account the nature of the work.



Many people employed in the IT industry only work for a company for a few months and there is no need to become employees. Although there have been fears that the tax could send consultants abroad it is more likely that fees will be increased to cover the extra tax and lawyers will benefit from increased litigation.



When a similar tax was introduced in the US in 1986, many consultants became employees and hourly rates fell by thirty per cent as a result. Sustained lobbying in the US had the law struck down as unfair but this took three years.



See

http://www.inlandrevenue.gov.uk/ir35/index.htm