Contractors' National Insurance contributions should be capped if the UK is to achieve equity among its workforce and develop a healthy information technology sector, says accountancy firm, Brookson.
The Warrington-based company made the call recently on behalf of its 3,000 contractor clients, in a letter to the Office of Fair Trading as part of an OFT review of restrictions on competition in the professions. In its submission, Brookson focused primarily on the "unfair", additional National Insurance (NI) burden IR35 tax rules place on freelancers with personal service companies.
According to director Rick Nevinson, the fact that contractors may be required under IR35 to pay both the employer and the employee's NI contributions - to which no maximum level has been set - means that they will be taxed at a higher rate than any other worker in the UK.
Furthermore, by including a five per cent pre-tax limit on administrative expenses, and creating a fast-track visa system for overseas IT workers, Brookson believes the Government is placing contractors at a "competitive disadvantage" to their larger, multi-national opponents and other self-employed workers who do not operate via limited companies.
"IR35 ignores the uncertain nature of contracting and the fact that contractors enjoy no employee benefits, such as pensions, paid holidays, social benefits and training," says Nevinson.
Put together, he believes these measures undermine a "significant area" of the British economy and threaten the development of e-commerce in the country. "The Government commits itself to a flexible labour market but appears to have no qualms about the damage its policies cause," he writes in the letter. "While deploring the use of UK contractors and penalising them with respect to the tax treatment of overheads and liability for NICs, in a way that no other business or individual is subject to, it approves of the use of their competitors and encourages them to engage overseas contractors to undertake their work, irrespective of the loss in tax receipts this can cause. Penalities on the one hand, dispensations on the other."
This was first published in July 2000