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| CURRENT SECTION :: Money | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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Almost half of IT contractors will change how they operate to head off incoming laws that discourage the use of Managed Service Companies as a device to minimise tax. From April 6, managed service companies (MSCs) will no longer attract a lower rate of tax, as users will be treated as employees and made to pay national insurance. The prospect of employment taxes has motivated users of composite and MSCs to step outside the laws, by transferring to their own personal service companies. In fact, a poll by Contractor UK shows that out of the 47% of contractors who currently use composites or MSCs, 43% will be limited company owners after April 5. In line with the finding, Companies House this week said the number of new registrations has leapt fourfold, since the anti-avoidance legislation was announced in December. Chartered accountant SJD Accountancy yesterday confirmed the trend, citing the number of its limited company formations as rising 300%, compared with before the pre-Budget report. Elsewhere the poll of Contractor UK’s community members found just over two per cent of composite or MSC contractors will switch to an umbrella service. The left-over one per cent said they would use an offshore scheme before the legislation takes effect. A further 39% hope to be exempt as existing limited company owners. Overall, and out of those polled, the figures show that by early next month 83% of IT contractors will be limited company owners – “the healthiest financial option”, SJD advised. Asked about the findings, a spokesperson for CUK said: “Taking the ‘limited’ route is the one that everyone predicted, but it's a high percentage. “It's also interesting that some contractors said they think this latest legislation is just part of an inevitable ongoing Revenue attack. “Freelance contractors are a valuable section of our flexible workforce, and once again, they feel victimised about this assault on their livelihoods.” Responding to the poll, one IT contractor wrote: “I have no idea why I have to play this game; in most other countries the taxation is far far simpler for temporary professional work.” Some empathy for IT contractors came yesterday from Martin Hesketh, managing director of Brookson, which recently updated its business model in light of the new laws. He said: “What contractors seem interested in doing is setting up personal service companies so as genuinely self-employed individuals they can continue to get access to what’s rightfully theirs from a tax perspective, which is dividends. “The [poll] findings show that there is already a significant proportion operating through their own limited company at the moment. The unsurprising result is that nobody is really looking at offshore and nobody is really looking at umbrella.” For Simon Dolan, founder of SJD Accountancy, the number of people planning to use an umbrella is lower than he expected, and is lower than will actually be the case. “While a fair number will be attracted by the returns available through setting up their own limited company, I expect a lot will find the prospect of the administration too much and go back to an umbrella, even though they’ll be a lot worse off financially,” he said. “There are certainly a whole group of people that will find umbrellas useful: those on low pay, short-term contracts, and those who can’t be bothered with… running their own limited company.” In the poll, one IT contractor who plans to keep using an umbrella scheme, said: “I can't predict if I'll be contracting in six months’ time. Having to be responsible for my own company is [therefore] not appealing.” Previous Page
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