Lets get some things stright
Unfortunately Contractors are a victim of a media campaign by HMRC in order to discredit them and so be able to bring forward poor legislation with the support of the general public.
Lets set some of the myths straight,
Most contractors do not earn £250,000 per year it is more like £70,000 - £80,000 (Given that the average salary of a senior programmer in the US is $100,000 per year this does not seem an unreasonable amount of money, The UK undervalues software developers significantly and is one of the reasons people go contracting)
Contractors do not generally set up Ltd companies in order to avoid tax. The only ways to be a contractor are either through a Ltd Company or via an Umbrella Company. Given the bizarre nature of Umbrella Companies it is not rocket science to realise why most have chosen Ltd Companies.
Most contractors pay a significant amount of Tax. In fact if I were to go Perm then the amount I would pay in tax would drop. It would be slightly higher as a percentage of my pay but HMRC would get less money overall. The tax is only very low if you remain under the 40% threshold after dividends have been paid. So unless you are amassing a huge amount in the business account then there is not a huge tax gain.
Contractors are incredibly important to our economy. Take a software project. A company will normally need a large number of very skilled workers to build a system, however when the system is complete they then only need a small number to keep it maintained. That small number are the Perm workers the surge workforce is made up by contractors as they will only need them for a certain time and then they are off the project. Basically most software projects would not be viable if they had to be done only by a permanent workforce and even then many of those perm workers would be hired for 9 months at a time and got rid of in order to to make sure no redundancy had to be paid.
Now a small number of contractors do take part in some questionable tax practices. However there are either already laws to deal with that or those loopholes should be closed. There is also a need for tax rules to prevent companies from making employees leave and come back as contractors in order to save on NI. (Yes it is not contractors but companies that are the ones benefitting most from tax). However IR35 is horrifically flawed and does not do what it say it is.
HMRC have consistently lied about IR35. They claim that 90% of contractors are avoiding tax yet their own data shows this to be pretty much the opposite. They are also lying about the rules to companies via webinars which are designed to scare companies into making their contractors inside IR35 despite HMRCs own guidelines supposedly banning blanket assessments... It seems like around 80% of contractors deemed inside IR35 believe they are incorrectly assessed as inside and a number are ready to take the clients to court over this.
IR35 makes contractors pay tax as an employee (if deemed inside) yet does not stipulate employment rights for those contractors. The result is that if you are inside IR35 you are deemed an employee for tax but as a contractor for employment law. This is clearly unfair and the Governments own advisors have said IR35 changes should not have been brought in without employment law also being changed to reflect this. HMRC ignored this advice and have told contractors that we should go to court if we want employment rights. Now, if you think contractors should pay identical tax as perms then you should also agree that those contractors should also have the same employment rights as perms?
Contractors have to pay for their own training, their own holiday pay, their own sick pay and their own equipment, along with business insurance and accountants. The small amount of tax saved does not make up for these additional costs. If we are supposed to operate like any other Ltd company then we should be taxed like any other Ltd Company...
Contracting is open to all. It is not an exclusive club. There is a good reason many people do not go contracting and remain perm. For those that moan about contractors then I always say "Well become a contractor then!"