Close your companies

Chris Mowatt writes "Now that IR35 is a reality, other contractors might be interested in adopting my strategy for dealing with it.

Essentially, I am going to work to rule. I intend to restrict my hours in the new tax year to be sufficient to take me only up to the 40% tax threshold.

Personally, I'm not interested in working five hundred miles away from my wife and children AND paying 57% tax, so I plan to work for the four or five months required to take me up to the 40% tax threshold and quit work for the rest of the year. My income will be much reduced from following this policy, but the tax and NIC paid to the revenue will fall from around £26,000 this year to £15,000 next year. VAT and other indirect taxes levied on my spending will also fall substantially. Indeed, I'm in the fortunate position of working in an industry, insurance, which is exempt from VAT, so by de-registering for VAT I will save my clients the real cost of 17.5% on my rate. A further means of reducing the income received by the Exchequer. It may also be possible to persuade my client to increase my rate to reflect the reduction in VAT that they pay, so I may have to work even fewer weeks to reach my target of the 40% tax threshold. I will benefit by spending an extra twenty eight weeks at home with my wife and family. I shall save £10,000 a year in travel, accommodation and subsistence expenses (and cost the Government the tax they receive on that spending).

The adoption of this withdrawal of labour strategy by thousands of contractors will cost the Government millions of pounds in lost revenue. Such a mass withdrawal of labour from the UK IT labour market will cause a huge shortage that will almost inevitably force up rates. The labour shortage and increased costs for business that result will generate a huge amount of bad publicity for the Government and undermine the Government's relationship with the business community. A relationship which is central to the Government's electoral success.

The Government has forgotten that the reason why successive Governments have taxed unearned income and the self-employed at such low rates (no NIC for one and token NIC for the other) is because the people affected have the flexibility and the capacity to avoid excessive taxation. They do this by either investing their money abroad in the former case or, in the case of the self-employed, reducing or concealing their earnings. We IT contractors have the flexibility to reduce our output or work abroad. The net effect of IR35 will be a reduction in tax revenue. It is the employed person who does not have the flexibility and capacity to do this. Designating IT contractors as employed does not mean we behave like employed persons.