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Contractor tax could push rates up

The cost of employing IT contractors could be set to rise following tax changes expected to be included in this year's Budget, a...

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The cost of employing IT contractors could be set to rise following tax changes expected to be included in this year's Budget, a tax specialist has warned.

Anne Redstone, taxation partner with Ernst and Young, said tax rises hinted at in December's pre-budget report are expected to hit many small businesses and could push IT contractors' rates up.

The absence of details about what has been dubbed IR591 is causing frustration among IT contractors and their advisers, adding to fears that the plan might impose national insurance contributions on company dividends that are currently exempt from the tax.

Two parliamentary early day motions, tabled by Conservatives and supported by a growing number of cross-party MPs, called on the chancellor Gordon Brown to reveal details and then consult on the changes, which could affect thousands of IT contractors.

"Everything it might mean will cause fundamental problems for many of our members," said Ian Durrant of the Professional Contractors Group, an organisation that campaigned against the IR35 "contractors' tax" implemented in 1999.

Brown said in December that he planned to "ensure that the right amount of tax is paid by owner managers of small incorporated businesses". The changes could come into force as early as 5 April - less than three weeks after the chancellor's 17 March speech.

Some IT contractors could be seeking to pass on the extra costs to employers as soon as contracts come up for renewal, said Redstone.

"It appears that consultation is not on the agenda, which, given the experiences of IR35, is difficult to believe," said accountancy consultant Kevin Miller.

One explanation for the absence of detailed information on the proposal could be government indecision about what form the new rules should take. "If they knew what they were going to do we might have known more by now," said Redstone.
This was first published in February 2004

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