Nick Bremner, a UK-based SAP Contractor says he has finished his last “contractor project” with no intention of going back to the contractor life anytime soon. Bremner shares in his own words his experiences as an SAP contractor over two decades, where the consulting boom went wrong for British workers and how IR35 probably could have been avoided altogether.
On the 28th of January, 2022 I finished my last ‘contractor project’ with no intention of going back.
At 54, I have been forced entirely out of the market on cost. My umbrella payslips are approximately 25% less than a permanent role at the same level. Plus, the UK does not employ permanent SAP professionals at my age, despite the experience we can bring.
Whatever the reason, though, the statistics are available on the marginal unemployability of an ageing workforce. But it was ‘payroll imposition’ that has sealed the deal. HMRC gets no more tax from me through employment in this way.
I won’t bother to get out of bed for that. I’d rather work mornings at B&Q.
For those that are not already aware, SAP and Microsoft were both started by employees of IBM. But before they were labelled by the popular media and Harvard professors as ‘entrepreneurs’ they were in fact ‘contractors’ writing code for a variety of end clients.
Luckily the US is home to a ‘low tax’ regime and MS survived. Lucky, too, that the US is a nation of early adopters and without the US market, it’s unlikely that SAP would have survived. In my estimations, these organisations would never have survived in the UK, because over here we don’t incentivise these kinds of workers.
The offshore model: how it created today’s British Brain Drain
Back in the late 90s, Ed Straw, a formidable voice in business strategy and governmental policy ineptitudes around family values, was a senior partner at consultancy Coopers & Lybrand (C&L). This was at a time that C&L first began working with SAP as a preferred Global Partner.
At the time, I was based in the ECOE at Waldorf (European Centre of Expertise) where it was recognised that the strategic direction for the success of SAP (defined by McKinsey & Co) would require every major accountancy firm/consultancy firm in the World to help roll out SAP, fast, to secure global dominance over other ERP systems.
It was during this time when major consultancy companies gathered momentum and ‘contractor rates’ began to reach £1500 per day. Rates were relatively low compared to barristers and lawyers. This shift started to raise awareness of ‘margin’ for these consultancies. The off-shore model was soon to follow.
One could argue that the Apple Phone prices of today are so high that they actually created the market for Samsung. In a similar vein, because UK consultancies passed on the contractor costs plus mark-up, it literally created the ‘off-shore market’. But here is the subterfuge: C&L, Accenture, Deloitte were already charging £1,500 per day and so they needed a way of getting their requisite 100% mark-up.
From this, two strategies were born, both of which lobbied at the very highest levels in Government, to:
- Make contracting less-lucrative
- Allow offshore workers to provide knowledge value in the UK
I recall Ed Straw giving a presentation at C&L where the firm championed the offshore model, and it was his brother Jack Straw who was a Labour Party core member during that period who instigated the change in view on ‘Dividends’ as pay, and later led to IR35.
Any other source or story you hear about the rationale for IR35 was born right in the family home of Jack and Ed et al. The outcome was Ed being promoted to the C&L leadership team and whose job was to lobby the Government.
C&L recruited and promoted him exactly for that purpose. IR35 was born as a methodology to manage spiralling contractor costs that were depleting the permanent workforce, which was seriously affecting hiring and retention. However, most of the internal rationale at C&L was that in combination with off-shoring they could reduce their corporate tax burden – but it was sold as “allowing us to compete with Indian-based consultancies.”
Ed Straw’s own words have hauntingly sealed the fate of thousands of UK contractors working in public or private sectors: “The interests of the people and public are largely not represented by the policy decisions wanted by business.”
I even recall Ed Straw laughingly stating in one meeting that was broadcast at the beginning of the BBC Medas Project, (the project location of which was 65 Shepherds Bush Green, easily staffed by the rafts of BBC accountants who joined as ‘business attachés), that HRMC would be ‘kept in the dark’ and that the referential net reduction in long term tax revenue would at some stage need to be managed by a future Government. And hence along came ‘Umbrella Companies’.
[A Youtube video of the above-mentioned meeting was posted by the Russian news channel, RT, a Russian state-controlled international television network funded by the tax budget of the Russian government, with offices in London’s Millbank Tower. However, the video is no longer available in the UK as all Russian-related news services are no longer available in the UK following the March 2022 Russian invasion of Ukraine].
The last year that I saw ‘homegrown’ employees from major consultancy companies working on SAP projects was 2001. Homegrown in the sense that they were British citizens, educated in Britain and employed by British-based firms. Consultancies started a gold-rush of employability in India. Major non-UK companies like Satyam and Wipro began to compete with the likes of Deloitte, Accenture and PwC with their ‘offshore model’. Low-cost was King.
UK IT Directors at the time were forced to justify a higher-cost ‘on-shore model’ by the simple comparison with ‘offshore’ or ‘blended’. No IT Director would have survived long when faced with 40% costing differentials. And so, it began.
From late 2004, T-Mobile’s entire SAP Support Organisation in Hatfield was offshored. T-Mobile Germany paid a yearly invoice for ‘supplier services’ from Bonn directly, but SAP UK support was actually delivered via Bangalore. Only one employee remained at Hatfield at the time as a Project Manager responsible for ‘system changes.’
In 2005, I returned to GSK to find a small ‘core service’ group of contractors. The entire UK consultancy implementation and support model was replaced by Satyam. Within 6 months of the shift, the decline in service led GSK to have a core group of contractors in Brentford to handle the ‘big issues’, but actually handled 99% of queries and GSK was stuck with a 10-year agreement with Satyam. The agreement was set up and paid in India where GSK have local offices.
Do all contractors feel like they’re being penalised?
The workforce attrition due to IR35 has been immense.
I have been contacting on SAP projects since 1999. There is not one single British person I know from that date through to 2009 who is still working in SAP like myself. In my estimations, there is much evidence to suggest that SAP contracting was the single biggest trigger for the introduction of IR35.
Life as an SAP contractor has not been an easy life. SAP projects are ‘never in your hometown’. I have never slept in my own bed for the entire period apart from Friday-Sunday. Only in the past 10 years has the 5-4-3 policy been widely accepted (5 day chargeable, 4 day on-site, 3 nights away) which boils down to Work from Home one day per week.
When Sky originally planned to base their SAP project in Livingstone, Scotland they could not get staff coverage. They moved it to Brentford and were fully staffed in a month because people could go home at night.
The life of an SAP contractor meant paying for your own travel and lodging, while permanent employees got full expenses. Contractors were typically used for ‘unpopular projects’ which means far from London.
For many years as a ‘freelancer’, I have found it less and less financially rewarding. Firstly, IR35 and now with the trend of forced payroll and paying tax via an emergency tax code, I earn less than a permanent staff member, yet get no insurance, no medical, no holiday pay, no sick pay.
Meanwhile, three-quarters of SAP projects have been given to offshore workers, predominately from India. Those are individuals who do not pay UK taxes. So why are big consultancy firms able to get away with this? They focus on the best margin and effectively use often unskilled workers and load up projects offshore.
HMRC get nothing…what is going on with the UK? Do HMRC know this and ignore their loss of revenue?
Many contractors today feel there has been a slow and punitive attitude building towards them over the past 22 years.
The furore around umbrella companies is a red herring. Of course, these companies will charge ‘what they like’ and despite the supposed hardening of rules on ‘Phoenixing’ they have and will continue to vanish into the night.
But if HMRC had been more diligent in policing and managing and auditing ‘very small accountancy firms’ who allowed their (SAP contractor) clients to effectively ‘abuse the usage of dividends’ and allow ‘almost any costs to be subtracted from Gross’ and worse of all was the blatant ‘withholding of VAT’ then we would not be in a situation where GOV.UK decided on the imposition of umbrella companies.
Accountancy firms are almost never investigated, and neither will umbrella companies if they continue to run unregulated. However, don’t let the umbrella situation be the smokescreen to the underlying labour issues we have in today’s independent workforce.
The opinions expressed in this article are those of the author. They do not purport to reflect the opinions or views of The Freelance Informer or its partner companies. The designations employed in this article and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of The Freelance Informer concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers.