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U.K. fears cyber brain-drain
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January 21, 2000: 5:46 a.m. ET
Officials say new tax rules may hasten exodus of technology consultants
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LONDON (CNNfn) - Britain's most senior e-commerce officials are urging the U.K. Treasury to soften new tax rules that increased the effective tax rate for freelance technology consultants, fearing the change could prompt an exodus of cyber-savvy workers from the country, according to a newspaper report Friday.
Alex Allan, the U.K. e-commerce chief, and his government colleague, information technology minister Patricia Hewitt, expressed their concerns to Prime Minister Tony Blair that the tax change could hamper the growth of e-commerce in Britain, the Financial Times reported.
The new rules, introduced near the end of 1999, were designed to cut down on the common practice of company employees masquerading as independent consultants to reduce their obligation to make contributions to state welfare and pension funds, the FT said. The Inland Revenue - the British equivalent of the U.S. Internal Revenue Service - accorded freelancers a different tax status from employees, that lessened their burden of contributions.
A recent survey by Computing Magazine suggested that 40,000 people - or 18 percent of the country's independent contractors - are prepared to leave Britain unless the rules are modified.
The FT said the Treasury was yet to be convinced that an exodus of tech consultants is actually imminent.
The newspaper also reported that Dawn Primarolo, a minister in the U.K. Treasury, had written to computer industry captains outlining a government proposal to ease access to entry visas for tech experts from Eastern Europe, Africa and India, a hotbed of technology consultants.
The scheme would be aimed at countering the threatened shortage of IT experts in the domestic workforce.
Allan was reported to be concerned about past abuses under the old tax law, but also aware of the possible problems arising from the new one.
"There clearly have been abuses," Allan told the FT. "Tax policy is about getting the right balance - in this case between taking account of developments in e-commerce and protecting the [Inland] Revenue from people whose sole objective is dressing up their accounts." 
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U.K. Treasury
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