Empowering the Freelance Economy

SAP contractor, 54, forced out of the market on cost

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OPINION

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.


Disclaimer

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.


4 Comments
  1. Nick says

    Nick
    I worked at C&L same time as you and worked on the BBC SAP programme – one of the largest SAP projects in the country at the time. I also remember Ed Straw, a maverick parter (no desk in his office – just sofas. ) I have also been contracting since leaving C&L and totally agree with your sentiments,

  2. Kendo Nagasaki says

    I’ve been contracting for 25 years and sympathise completely with Ed.
    I have become thoroughly disenchanted by the imposition of IR35.
    Contractors were once valued for their superior knowledge and experience, their their non-standard approach to the working day and their ability to bring in projects on time and in budget.
    They usually paid CORPORATION TAX through their ltd company, were registered for VAT , and paid DIVIDEND tax & SA 302 Tax – so it is not as if they were not contributing to the economy.
    In general, HMRC staff do not care about loss of revenue, IMO they are entirely blinkered by the need to impress their immediate superiors.
    They are the most wasteful government department of all – the COVID LOAN system is a prime example – and are accountable to no one
    but the Chancellor.
    They will not care that IR35 status is randomly determined (even by their own software solution) and has resulted in an overall reduction in UK tax revenue.
    Nor that most of the much heralded “additional revenue” income will now not materialise as it is moved offshore or lost completely by the involuntary closing down of thousands of small businesses.
    As an IR35 contractor, I have to pay umbrella companies a fee – generally to mismanage an invoicing/tax system that I had streamlined over the years as a ltd company.
    I now have to pay EMPLOYEE & EMPLOYER NI contributions , an APPRENTICE LEVY, am involuntarily enrolled into a less than effective pension plan, deduct Holiday Pay from my weekly/monthly salary and pay Basic Rate tax @ 20% with no allowance.
    The only saving grace is that I can still pay into a private SIPP from the umbrella company – which I could do before IR35 as a Ltd company- and that now offsets 30% of my taxable income.
    So were exactly is the benefit to the country of IR35, except for Umbrella companies?
    It makes you wonder about the efficacy of people in Parliament/Government departments as their short term ideological policies often fail to produce the benefits as stated. GRRRR!!!!

  3. Andrea Allsopp says

    Nick, so much of this resonates. It’s been hard to explain to agents that my “go anywhere, for the same rate” service is no more, well not if they want to hire me inside IR35. I found councils in the outposts of the UK to be the biggest losers, forced to only offer roles within IR35 and with no increase on rates.
    All of this has been manna to the agencies who mop up the gaps with, as you say, off shore staff. This has been a second assault on my business model, the first was when the agencies moved from supplying staff for client projects to running the entire programme. One boss told me it was easier because it was “one throat to strangle.” Easier, but not necessarily successful. I get a lot of work fixing what didn’t happen correctly, if at all, often hired directly by the client. Buy cheap, buy twice…..or is that once bitten, twice shy.

  4. Dave Clayton says

    Hi,
    Whilst I do not do SAP, more Oracle ERP, I can agree with almost everything that has been said.

    Because of COVID & then ‘blanket’ IR35, I have not worked for nearly 2 years. (I am not an employee and never will be!). I will never, ever work for an Umbrella outfit. Hence, I am happy to do very little, given that I no longer have a mortgage. The HMRC get next to nothing from me, and the industry loses a lot of needed skills. In addition I have no intention of working for the same money that I worked for pre year 2000. That is becuase they expect us to work at the same rate as off-shore (who pay no UK tax!). Somebody in the revenue needs to engage their brain…

    One interesting point, I nearly interviewed for a SMALL consultancy. End client was HMRC. They (HMRC) simply cannot get the people that they want INSIDE-IR35. They need the small company exemption to enable this…LOL!

    Grrr…

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