Leaving the UK. A case history
Following UKTECH stories that reported on Patricia Hewitt and Jack Straw refuting that people were leaving the UK because of IR35, UKTECH has received many emails. One of the most powerful is from a contractor who has moved to Holland as a result of IR35 and emailed the e-minister on 10th October 2000 to outline his reasons why.
Email sent to e.minister@dti.gov.uk
On 10th October 2000
Dear Ms. Hewitt,
My skills are at a premium in today's marketplace because I know how to help businesses derive real benefits from the deployment of IT systems. I am a subject matter expert in my particular specialist field. The market for my skills is, in a very real sense, a global village; there are no barriers preventing me from working anywhere in the world.
With very great reluctance, and only because safeguarding the considerable investment of my own money in my own business became necessary, I have moved my successful and growing business to the Netherlands.
The increase in my tax bill under the new regulations covering service companies was not the prime motivation; in fact the personal taxation rates in the Netherlands are higher than in the UK. I moved to the Netherlands to protect everything I have worked and saved for. All of the income that I generated as a contractor in the UK was re-invested in developing a business of my own; the new tax regime introduced by this government destroyed my ability to fund the development of my business from my earnings as a freelance contractor.
The problem is not that a 'rat' has elected to leave a sinking ship; the real problem is that this ship is sinking. Please allow me to explain why I think the impact of new Inland Revenue rules has punched a hole beneath the waterline of s.s.UK plc.
You will no doubt be completely aware that there has been a requirement for successful businesses to re-focus on core revenue generating activities and to sub-contract or outsource service delivery or cost-centre activities to specialist providers in order to maintain a competitive edge. The evidence seems to be that it can make extremely good business sense for an organisation to partner with a specialist IT provider; in this way businesses have the opportunity to export their skills shortage in a tight labour market. The selected partner could be a large consultancy house, a smaller specialist consultancy or an independent consultant providing the services required through an agency.
My own career in the IT industry has closely mirrored this trend; my last salaried job was declared redundant by my employer (BT) at a time when they needed to drive costs down and focus on their business performance. After seeking salaried work without success I became a freelance contractor because employers were very reluctant to offer full-time salaried employment to individuals over the age of forty.
As a contractor, my clients have always sought to escape any 'master and servant' obligations; they have always specifically insisted on only trading with a limited company. In my own particular case the incorporation of a service company was not only my escape route from the scrapheap or my passport to work; it was also the only contractual arrangement available for every client engagement I have ever delivered. It was, de-facto, the standard contracting arrangement in the IT industry. Although some of my engagements were quite long term, I never, at any time, enjoyed any of the benefits afforded to my client's employees. This means that I worked without a holiday and without a single day of sickness absence throughout my contracting career.
Retained profits from these contract engagements have enabled me to develop an embryo business of my own, from scratch, without encumbering it with debt, and without the necessity to dilute my stake in my own enterprise by soliciting outside investors. My business is very successful, it will grow, it will employ people and it will generate wealth. My business is also my pension; it is my chosen method for ensuring that there will be no need to depend on benefits in my old age.
You will no doubt also appreciate that I could not allow the measures which this government has introduced to deprive me and my family of the opportunities resulting from all the sacrifices and investments we have made. This means that every penny of my income, all of my assets, the entire value of my personal and business expenditure and all of the resulting taxation and VAT revenue now accrues to the economy of this tiny little country across the North Sea from the UK where they understand and facilitate business.
I was never a dodger or a cheat. I was not a Friday-to-Monday case. I always paid the correct PAYE and NI on my income. I always operated my business properly and I have never sought to avoid paying tax.
Yes! The Netherlands has regulations similar to those which have been introduced in the UK. Yes! I now pay more tax on my income than previously was the case. BUT, at least I am able to charge all legitimate business expenses against my tax liability and at least I am able to invest retained profits in growing my business.
I hope that the details of my own case may help to illustrate at least part of the problem the implementation of IR35 provisions has created for small businesses. In my opinion a tax regime that frustrates and prevents clever people from investing their company's earnings in wealth creation and innovation can only be a disaster for the UK economy. Skills shortages are here now. Shortages will only increase. There is a serious shortfall; and the IR35 measures can only make it worse. Thousands of companies will close; thousands of resourceful, inventive and highly skilled people will leave the country. I am now one of them.
The registrar of companies has now been requested to remove my company details from the register held at Companies House. I would happily return to build my business and invest my energy for wealth creation in the UK; please make it possible!
Related links
I see no ships. UKTECH 20/12/2000
Straw pressed on IR 35. UKTECH 17/11/2000
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Andy White