Good news / bad news for contractors?

IT contractor pay increases fueled by demand

Pay rates for contractors, across six areas of IT work, have increased by between 7.6% and 12.5%, compared with last year, according to a report by Computer People. The figures compared July 2013 with July 2012 and the specific increases were: Application Analysis and Business Analysis – both up 8%, IT security and Network Engineering – both up 12.5%, Technical Architecture – up 8.3% and Project Management – up 7.8%.

Incorporating increases in IT Directorships and six other functional areas that saw year-on-year increases of below 7.5%, the average increase for IT contractors as a whole was was estimated at 5.5%, compared to a year ago.

The increases were attributed to a double-digit increase in demand and the competition for talent, a trend that is likely to continue as a result of the previously reported growth in investment in IT security, compliance in financial institutions, the continued rise of the digital, e-commerce and mobile sectors and the general economic recovery, combined with an IT skills gap.

In contrast, pay increases for the main permanent categories of work for IT contractors were reported to be a less impressive 1.7% annually.

Tax planning options to be reduced?

Separately, recent reports of the Chancellor’s comments ahead of his Autumn Statement 2013 (December 4th) suggest that two legitimate tax planning initiatives widely used by contractors could be the subject of restrictions or cut backs. The Chancellor reportedly said there was “no pot of money for tax sweeteners” in his upcoming statement.

Though not confirmed, the Sunday Telegraph was told of a proposed cap on the amount which can be invested and held in tax-free ISAs (Individual Savings Accounts). A cap value of £10,000 was mentioned.

At the same time, the Sunday Times reported that Entrepreneurs Relief could be cut back or removed as part of the next election, as the Government looks to reap an increased Capital Gains Tax take on the back of a recovering economy. ER is often used by contractors to legitimately reduce the amount of tax they pay when they close a limited company.

Neither change has been confirmed. However, small and medium sized businesses have been identified as the biggest contributor to the UK’s ‘tax gap’ – accounting for half the difference between what tax HMRC believes it should collect what it actually receives.

Watch this space…

Posted by John Hoskin