How to become an IT Contractor - Becoming an IT Contractor

For IT contractors, the Pre-Budget Report really wasn't the disaster many thought it would be. Aside from postponed rises in NICs, and a new higher rate of income tax for some, limited company contractors will be relieved to escape the 1p rise in Corporation Tax which was originally planned for April 2010. Here are some reactions from within the contracting industry to yesterday's speech:

PBR fails the fairness test, no change to IR35

John Brazier, MD of the Professional Contractors Group said:

"There was a lot of talk by the Chancellor today about fairness, however this PBR has failed the fairness test for the UK's 1.4m knowledge based freelancers. IR35 was not abolished, NICs are to go up in 2011, by double what he previously said and the only crumb of comfort is that the small business corporation tax rate rise is to be deferred. The borrowing figures are huge and the public expenditure cuts in years to come are bound to be savage, affecting all sectors of the economy and ordinary people."

Little direct support for the flexible workforce

Martin Hesketh, MD of contractor accountants, Brookson, said:

"While the Chancellor did refer to the flexible workforce in his speech, little direct support has been proposed. A number of provisions have been announced to support a number of key industries, including digital, bio and low-carbon technology, to help generate both growth and revenue over the coming years. This can, however, only be seen as a potential opportunity for those operating within these sectors, which are heavily populated by self-employed professionals.

"On a cautionary note, within his speech, the Chancellor did refer to implementation of further tax anti-avoidance measures and changes to 'tax deductible items', further information has yet to be provided to fully explain these."

Question over Government's compliance strategy

Reacting to the PBR announcement, a Service Providers Association spokesperson commented:

"We strongly welcome any move on the Government's part to improve compliance. What is also important is that Government appears to have listened to previous calls to take a targeted approach in this respect. If the problem is with vulnerable workers being exploited then it is those people who should be the focus of any necessary protections - not those better paid, highly skilled people who choose to opt out of a traditional employment relationship because of the benefits they receive in return. To create a blanket strategy for compliance - as the Government has proposed in the past - threatens to undermine one of the UK's most vibrant and dynamic economic assets (the flexible workforce.)"

Only high earners likely to be drastically affected

Jeremy De Lord of umbrella company, Sombrilla said:

"The announcement on increasing NICs is going to affect everyone. Some contractors and freelancers may decide they want to incorporate rather than be part of an umbrella company, as this may make savings for them in the future - but as the second rise is set for after the general election it is not yet set in stone.

"This has been a very middle-of-the-road pre-budget report where contractors are concerned, with only the very highest earning contractors likely to be drastically affected."

Damian Broughton of contractor accountants, Danbro, said:

"This pre-budget report is going to be a relief for contractors who feared that the Chancellor would hit them hard in the pocket.

"It has been good news for limited company contractors, with Alistair Darling announcing that the proposed 1p rise in corporation tax is to be deferred.

"In fact, only the very highest earning contractors are likely to be significantly affected, with the top rate of tax for people earning more than £150,000 rising to 50% as of April next year."