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By Lisa Burroughes, 17 June 1999 00:30

NEWS IT industry opinion is polarised over the controversial IR35 legislation proposals aimed at one-man service companies. Silicon.com has been flooded with emails from IT contractors believing the Welfare Reforms and Pensions Bill could have a devastating impact on their business. But other senior business executives argue that closing the existing tax loophole would stabilise the IT environment. Many of the contractors who contacted Silicon.com had started up their companies after being made redundant. Many argue it is more cost efficient to hire a contractor than take on fulltime permanent staff or bring in a large outsourcing provider. One Silicon.com reader and IT contractor refutes allegations that they are abusing the loophole to get rich. He said: "This ignores the fact that we operate as legitimate companies and hence have all the costs and administration of a Ltd Co to run." This legislation would make the burden of those expenses too high to continue operation, he added. Contractors also argue they have an important service to offer the IT industry which is being threatened by this legislation. Bob Hughes, UK-IT Manager for a Global Telecoms provider, stated: "Companies are forced down the contract route, not through the lack of ability or desire to hire permanent staff, but through headcount restrictions on permanent employees - thereby forcing the need for contractors to complete specific projects." Another Silicon.com reader echoed the concerns of the lobbyist Professional Contractors Group (PCG) - that IT contractors would be forced to go abroad. "Personally, I will be looking to move into work outside the remit of IR35, or look at the overseas option. I will not be seeking to rush back into permanent work, even if independence comes with a financial price under the new regulations," he said. But others industry representatives believe closing the loophole is the only way that high IT-contractor charges can be reduced - by forcing them to take permanent positions. Co-founder of Partners in IT, Paul Jenkins, argues that closing these loopholes "will encourage companies to think of selective outsourcing or employing their own people and we will get a more stable IT environment on both sides of the industry". Last week, Silicon.com reader, Paul Webber argued that the legislation will bring an end to the exorbitant contractor boom, and encourage more IT staff to stay with a company on a fulltime basis. http://www.silicon.com/a30865 The Bill goes before the House of Lords on the 24th of June where it is likely to be amended so that IT consultants will not be hit by the legislation. Other related stories: House of Lords approves Bill - http://www.silicon.com/a30848
IT contractors lobby Lords on tax law - http://www.silicon.com/a30815
IT consultants angry over UK tax changes - http://www.silicon.com/a30567
UK tax changes could outlaw outsourcing warns BCS chief - http://www.silcon.com/a29327