“Employment and tax cases have set out some basic guidelines to help employers avoid falling foul of IR35,” said Sikin Andela of employment solicitors, Glovers, “but in every case individual circumstances have to be taken into account.
“The factors that need to be taken into account include the degree of control you have over the person doing the work, whether they provide their own equipment and the nature of that equipment, whether they hire staff to help them in the work, the degree of financial risk they take and the degree of responsibility they have for investment and management.
“You also need to look at whether they have set up a business-like organisation of their own, how many engagements they perform and whether they are performed for one person or a number of different people.”
The second assault came in the shape of new legislation on Managed Service Companies in 2007. In the wake of IR35 new composite corporate entities came into being to provide contractors with a shelter against the attentions of the Inland Revenue. These ‘umbrella companies’ treated their clients as employees and conformed to the PAYE system, whilst ‘managed service companies’ often took a more adventurous approach to tax legislation and paid out dividends.
The 2007 legislation was designed specifically to target the latter. As a result many contractors again found themselves having to reassess the way they worked.
Given these signs of a sustained campaign against contractors, it’s perhaps not surprising that many of them have decided the potential benefits of self employment are simply not worth the effort.
Erhan Tumsa, for example, gave up self employed status to take on a permanent role with an Oracle HRMS implementation specialist. “As a contractor you just have so many things to deal with – taxation, administration, business development – not to mention actually doing the job you have actually been commissioned to do.
"When you take all this into account and the fact that you have to pay for all your ongoing training yourself, you’re very likely no better off contracting than you are when you are on someone else’s payroll. And, as a permanent employee, you do have the stability of a guaranteed monthly pay cheque.”
If the campaign against contractors continues and more and more follow Mr Tumsa’s example, there may be some very interesting times ahead for the ERP sector.
Satnam Brar is managing director of ERP recruitment specialists Maximus IT