IT directors soften as PCG appeals on IR35 ruling

IT directors are concerned that they will have to pay more for skilled contractors if the Professional Contractors Group (PCG),...

IT directors are concerned that they will have to pay more for skilled contractors if the Professional Contractors Group (PCG), loses the appeal it launched this week against the IR35 tax regime.

Many IT directors have been relieved to see a noticeable drop in contractors' pay rates as the economy slows down. However there are still skill shortages, and these could get worse when the economy recovers.

IR35 came into force in April last year and removed many of the tax advantages previously held by contractors who operated through personal service companies.

The PCG failed in a bid to get the High Court to strike down the controversial tax measure in March, but maintains that it is still illegal under European law.

Ned Garnett, senior programme manager at Lloyds TSB, believes his company will be keen to see the result of the IR35 appeal.

He said, "Lloyds uses a lot of IT contractors and it would not be good for us to see the best workers moving overseas to avoid heavy taxation. We will be very interested in what happens at the Court of Appeal," he added.

Dave Berwick, IT operations manager at Mitsubishi Motors UK, thought his company would not be badly affected by IR35, but said the tax regime was unfair.

"We don't use many IT contractors, but I have definitely seen a decrease in the numbers looking around for work in the last 12 months.

"It does not seem fair to single out these professionals. They are not unique, but I think the government was looking for an easy target and a quick win with IR35," he added.

Richard Barron, deputy head of the Institute of Directors policy unit, said IR35 would remain an issue.

"This is a matter of increasing importance for IT directors because contractors will eventually want more and more money to cover heavy taxation or they will leave the UK workforce altogether.

"I think the PCG has only a small chance of the High Court's decision being overturned," he added.

The PCG, which has 14,000 members, is convinced that its appeal can win. PCG spokeswoman Susie Hughes said: "There are a lot of people keen to say we are doomed to failure in going to the Court of Appeal, but most of them are not qualified to offer an opinion.

"We know European law and our members have voted with their chequebooks and urged us to go to the Court of Appeal."

She also said that IT directors who did not use contractors and believed that IR35 would not affect their business were shortsighted. "Businesses will start to understand more and more that IR35 does not just affect contractors. It can impact on clients and their markets as a whole," she said.

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