The treasury needs a reality check

One of the unresolved issues for the IT industry is the Governmentís ambivalence towards the self-employed. There is no doubt that the flexibility of contracting has been a key element in the growth of UK plc. An increasingly sophisticated and professional contractor market has helped to move us near to the top of the GNP league in Europe.

However the Treasury would still like to have its cake and eat it by taxing and controlling it to the hilt. The problem is that it finds it hard to recognise that the contractor market has effectively split into two. One part, the run-of-the mill temp market will remain, but it is likely that future legislation will turn all lower level temporary workers into employees in some form or another.

It is the other part of the market - now made up of increasingly sophisticated self-employed contractors who are career-oriented and act as specialist consultants - that the Treasury is having problems with. These contractors are genuine business consultants and have no good reason to be drawn into the PAYE net. However, while the Government simply cannot afford to ignore the importance of high-end contractors to the growth of the UK economy, the Inland Revenue keeps looking for reasons to envelop them in IR35. Old habits die-hard.

In reality, the Revenue has not really caught up with the seismic changes that have occurred in the contractor market since JSA was founded as the first specialist accountancy firm for IT contractors in 1989. The IT recruitment market then consisted mainly of fairly low grade, low-paid computer operators loading back up tapes and agencies were mainly staffed by aggressive salesmen, thriving on quick-turnover high margin placements.

When we set up shop during the first IT boom, times were turbulent. The Berlin Wall and the whole of communist-controlled Eastern Europe was about to collapse.1989 also saw an earthquake in San Francisco that killed 63 people, the Hillsborough and Marchioness disasters and some notable deaths including Irving Berlin, Salvador Dali, Ayotollah Khomeini and Emperor Hirohito of Japan.

The IT industry then entered its own turbulent period. It has now weathered two major recessions: the first in 1990 caused by public spending cut backs after serious tax revenue miscalculations and the second by the bursting of the dot.com bubble. The market has survived both of them through adopting a far greater level of professionalism on the part of both agencies and contractors alike. Agencies, in particular, have become much more involved with the whole recruitment process as end-users have increasingly outsourced the whole recruitment process to them.

Another change is that JSA and other specialist accountants are also now increasingly accepted as an important link between agencies, contractors and end users, particularly since the raft of recent regulations has made life much more difficult both for contractors and agencies.

The recruitment industry, contractors and specialist accountants have played their part. Now it is up to the Treasury to accept it cannot have its cake and eat it. If it wants a sophisticated, professional, world-class yet flexible labour market, consisting of career-oriented and highly motivated contractors, then it must ensure a consistent and user-friendly tax regime that recognises the real contribution our market place is making to the UKís growing prosperity.

Barry Roback, Chief Executive of the JSA Group of Companies, the UKís number one specialist accountants for IT contractors.