Skills shortages will get more acute again in the UK
when the governments punative IR35 tax legislation comes into force.
This legislation was originally touted to end the Friday to Monday scenario,
where unscrupulous employers force permanent employees out on a Friday
only to return on a Monday as directors of their own private limited company.
This had the effect of reducing the Employers National Insurance Contributions.
Stopping this practice is a laudable aim.

However, the sinister purpose of the stealth legislation has now come to the fore.
IR35 seeks to collect Employers, Employees National Insurance Cotributions and Income Tax
from 'personal service companies' by deeming 95% of their turnover as salary.
There are several implications one can draw from this:
The government is deciding how a company may run itself by dictating salary levels
this practice is unique in the western world, and another example of 'control freakery'
The personal service companies (for which there is no definition in law, despite the government using it as as such)
cannot retain profits for expansion thus killing many budding 'dot.com' startups,
which are funded from contracting companies.
This is contradictory to the government aim to turn the UK into the world's e-commerce center of excellence.
The Friday To Monday scenario is actually legitimised,
as the government now has created a method of collecting tax and NI
at levels similar to those should the director of the personal service company were still employed,
except putting the entire Employers NIC burden onto the individual contractor.
The 5% allowance for expenses will not cover those expenses,
and as the company is trading at a loss,
it runs the risk of trading while insolvent, which puts the director(s)
at risk of going to jail just by trying to comply with contradictory tax legislation.
Companies House and HM C&E are already on record as saying "business as usual".
The majority of those directors that do run legitimate contracting companies,
selling their specialist knowledge, will now face a vastly increased NIC bill
(employers + employees NIC = 22% of salary, which is now 95% of turnover).
For these extra NI Contributions paid, the contractor in question still gets nothing back from the state.
No statutory sick pay, employment rights etc.
In contrast, a self-employed plumber only pays 6% NI on turnover,
in recognition of the lack of benefits received from the state.
If a contractor was selling widgets rather than knowledge, they would be exempt from this legislation.
Freelance journalists, practice partners and others selling knowledge under contract will also be affected.


The ramifications for the IT and e-commerce industry are:

Many contractors will leave the country
Holland already offers a more sensible tax regime for IT contractors.
As a machine serving the internet can do so from any country,
e-commerce development and installations will also migrate.

Many of those that leave will not return
contractors are normally the most highly skilled and mobile in the software and hardware markets.

There will be a massive net loss in tax, NI and VAT to the country.

Large companies that hire contract staff will recruit from and relocate to more favourable climes.
The government has already acknowledged this with their 'fast track visa' scheme
for staff coming in from India, Russia and South Africa.

At the governments own estimation, 66000 small business (IT contracting and consulting) will close.

IR Code of Practice 1 - Mistakes By The IR - amongst other things it shows how to make a case for financial compensation when the IR make mistakes.
http://www.inlandrevenue.gov.uk/pdfs/cop1.htm

IR Code of Practice 10 - Information & Advice - commits the IR to providing complete and accurate info among other things.
http://www.inlandrevenue.gov.uk/pdfs/cop10.htm

IR120 You & the IR - sets out how they are supposed to behave - acting fairly and impartially for example.
http://www.inlandrevenue.gov.uk/pdfs/ir120.htm

Tax Bulletin 45 - The Approach To be Used. States how an IR35 assessment is to be carried out.
The assessments should comply with TB45.
http://www.inlandrevenue.gov.uk/bulletins/tb45.htm

AO1 IR How To Complain.
http://www.inlandrevenue.gov.uk/pdfs/ao1.pdf