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Budget to hit IT contractors?

In the UK, the chancellor of the exchequer published the latest budget yesterday Of the various comments that have come our way, this one was the most applicable to the Intelligent Sourcing community:

The big losers from the Budget are contractors

Lee Murphy, the founder of cloud accounting software Pandle (www.pandle.co.uk), an accountant and tech entrepreneur, said: “Contractors were the big losers from the Budget as the new taxation regime, known as IR35, is to be imposed on them from April 2020.  The Chancellor implied some would escape it as it will only apply to large and mid-sized businesses, but the reality is the vast majority of contractors work for such organisations, not small businesses.

“Effectively contractors, especially highly skilled IT ones, will be forced to join ‘umbrella companies’ and pay more tax and national insurance.”

For instance, we calculate that a self-employed contractor currently earning £50,000 per year, will typically take home £43,670 after tax, national insurance and other costs.   They will now be compelled to go through an umbrella company, meaning their take-home pay will reduce to £37,696 because of extra because of increased tax and national insurance costs.

For a contractor on £90,000, the hit is even worse, with their take-home reducing from £70,037 to £60,949.

Intelligent Sourcing adds that IR35 has always been designed to catch people who are trying to avoid tax – and if Murphy is right, it’s now being used to bump up the tax take from smaller traders. We predict overall fee hikes as contractors in the IT sector try to maintain their existing income – and further competitive pressures from automation and offshoring as a result.

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