IR35: Letter to Michael Wills MP, 6th July 1999

Dear Mr Wills,

Following my conversation with you at the Parliamentary Internet Forum at the House of Commons on 28 Jun 1999, I am writing to you to explain the effect on me of IR35, as you requested. It was a pleasure to talk to you, and I hope to meet you again soon.

I write to protest against Clause 70 of the Welfare Reform and Pensions Bill. In setting out to end an abuse of limited-company status by one group of individuals, it actually affects severely potentially all UK self-employed contractors. This stems, I believe from the drafters' ignorance of the nature of certain important sectors of industry, and from lazy imprecision in the drafting.

We were led to believe by the Budget speech last year that the measures embodied now in Clause 70 of this Bill were aimed at ending the supposedly widespread conversion of permanent employees into self-employed contractors operating as single- person limited companies, but continuing to do the same jobs for the same employers, thereby saving themselves and the employers large amounts of National Insurance Contributions.

I have no idea how widespread this practice is, and I do not know if the proposed reforms will end it; I do know that it threatens to encompass me and many like me, who work as contractors to the IT industry. If so, my company will be threatened and I will probably have to liquidate it and move to, or work from, some foreign country. I believe that this would be the response of many people in my position.

The loss to our industry in particular and the UK economy in general would not be insignificant, I believe: IT is a fast-changing industry with a skills shortage - the presence of a large, highly-skilled and experienced mobile work-force of contractors, in my opinion, permits faster growth, change and restructuring in the industry and greatly mitigates the skills shortage. Contractors moving from company to company transmit skills and best practice from IT department to IT department directly and quickly; they tend to clump in virtual communities via the Internet, providing help, market information and technical support voluntarily not just to their own number but to all enquirers.

The industries most severely and immediately damaged by a significant reduction in the numbers of skilled IT contractors in circulation would almost certainly be the financial services industry and the internet sector: both strategic industries for reasons of wealth generation and technological enterprise, respectively.

I work as a contractor in the banking sector in the City, earning large amounts of money by ordinary salaried employment standards, but not unusual by City standards; I command high hourly rates because I possess unusual IT skills that are much in demand, but practised at the requisite levels of expertise by very few people, salaried or self-employed. I have two long-standing contracts with clients, both of whom must be making money from my inputs, neither of whom could do so without me or someone like me, neither of whom could afford to employ me full-time or even have a full-time role for me.

Is it necessary to point out that I earn the high rates that I get? Does anyone believe that the City accumulated its wealth by giving it away to jobbing artisans like me? If the clients pay me a lot, it is because I am worth a lot more to them - and especially so because of my contracted, non-permanent status.

My earnings go to my limited company, which pays me a salary of less than a quarter of my earnings; the company has never paid a dividend, but has paid corporation tax; it employs two of us at the moment and has employed more people, on whom it pays and has paid income tax and NIC. The company is not a shell nor a fraud - apart from acting as a vehicle for my contract activities, it provides internet services and consultancy to other companies, mainly SMEs. These activities have always traded at a significant loss, but I have been happy to accept this in the name of research and development. If I am to be docked NIC at source, I shall be unable to continue with this, and I feel sure that the country will be demonstrably poorer on balance as a result. Surely that cannot be the Chancellor's intention?

I urge you to bring these and similar facts of life in the self-employed world to the attention of the Government with the aim of amending the Bill in the Commons to remove the imprecise definition that threatens my livelihood and that of an important group of working people like me.

Yours sincerely
Damon Hart-Davis, Director
ExNet Ltd, 45 Beresford Road, Kingston KT2 6LP, UK
+44 (0)181 296 5577 Tel
+44 (0)181 296 5578 Fax

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