Select Committee on European Union Written Evidence


Annex

  To support our evidence we are happy to supply the following two case studies from some of our members. These are their personal testimonies.

1.  e-Commerce/Internet Company under threat

  I run what I believe is a legitimate business. There are three employees, and we have multiple revenue streams. I work under a standard agency contract subcontracted to a client. Employee No 2 (also my wife) runs the accounts for the business, but also runs the accounts for an Internet site we have which is starting to generate income and requires management of around 5,000 consumer accounts, cheque processing etc. Employee No 3 is unconnected and is the Content Manager for this and another four sites under construction, copywriting, writing or sourcing articles and managing the day-to-day running of the site. We also have a handful of other clients who require development on an ad hoc basis.

  The tax helpline has just confirmed that if a contract is deemed IR35able then the full amount less any allowable expenses must be paid to the individual concerned, and cannot be used to offset other business expenses. My concern was that this had to be accounted for from April 2000, but he said that so long as the salary and the Tax/NICs were paid by April 2001 all would be okay.

  If the business is subsequently judged as passing the SE tests, then all should be fine, and we can continue as before.

  So, we have two options:

    1.  Assume we will pass the SE tests and continue on as before. If we are caught by IR35 then the business would be immediately insolvent, and salaries to myself would need to be back paid from monies which don't exist.

    2.  Assume IR35 on the contract, and therefore must pay me the money, so must sack the staff and close down the other business interests.

    If we take 2 (the least risky route) we must close down all business interests which prove SE status until the business is proved to pass the SE tests (which it can no longer do).

    All in all, a very black day.

Postscript

  As an additional note, we approached the bank to help us fund cashflow for our Internet business. The bank manager was helpful but was obviously aware of IR35 and the possible impacts on a business like ours. Although not mentioned explicitly, he did have "reservations" which we believed were unfounded. They were probably due to us being an IR35 target and hence a much higher risk.

Dominic Messenger

Verdant UK Limited

2.  Leaving the UK

  My career experience has been very broad; I left school with no qualifications and joined the Army as a Junior Leader. I served with HM Forces in a Tank Regiment during the late sixties and early seventies. After a long period of police actions in various theatres I left to make a new life as civilian.

  After a number of different jobs and self-training I became a fabrication engineer. During this period I took, at my own expense, several computing courses and invested in self build computing systems. This led to a City & Guilds in basic programming in 1983, of which I was the only person to pass in my course.

  A number of self-employment assignments and a small computer dealership followed, which led to myself and my wife forming a family-owned business in 1985. This business required considerable guarantees from both of us to our local bank. Since that time we have been self-supporting; there have been many times when the economy has dealt some very sharp blows to our business, equally there have been times when one of us has not been able to work through illness. At all times the state has declared me self-employed and refused any financial aid.

  Over the years I have gained a considerable amount of experience in Networking, IT Infrastructure and Project Management delivering many tens of successful projects both large and small. At no time has the client ever considered me an employee of theirs.

  Now, another sea change in political thinking has occurred and the Revenue has been given licence to attack small business practice and small-incorporated business owners. I have no intention of working long hours over the next six years as I have over the last 15, to have the Revenue destroy our business over a future technicality, or have to fight through the courts to prove my current status as a Small Limited Liability Business. I am employed by my business; my clients do not employ me, and neither should I have to pay the clients' liabilities.

  Many in the Netherlands are welcoming IR35 PSC contractor refugees; I am one of them. I now intend building as a Project Manager the Internet infrastructure required by this country in the Netherlands, as will many of my colleagues in other EU countries.

  Subject to contract, I should have deregistered from the UK tax system and will have joined the Netherlands tax system on 5 April 2000. That is a direct loss of £45,000 per year in Corporation Tax, Personal Tax, Employees NI, Employers NI and VAT to the economy. The latter is significant as the majority of my business over the last three years has been for local government and financial business.

  The Revenue has estimated that only 5,000 people will leave. That is more than enough to remove the entire Internet contract development community from the UK twice over, but more importantly the faster you train the replacements the quicker the experienced will slip through your fingers.

Jim Walker

Cannock Data Systems Ltd


 
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