Crystal Umbrella

Hays chief executive, Alistair Cox, has been speaking about the fears facing umbrella contractors currently working in the public sector. He has acknowledged that the majority of these contractors are worried about losing work due to cuts in funding and jobs across the sector.

While the government is looking to the private sector to provide the job opportunities for those on whom the axe will fall, it is unlikely the private sector will actually be able to meet the demand of the 750,000 public sector workers who are expected to lose their jobs.

Mr Cox has actually suggested that the government should consider the abolition of employers’ NICs in a bid to boost economic growth within the public sector. Such economic growth should, in turn, boost employment opportunities. Cox believes that these measures would be the next logical step from the relief that has already been given to small businesses by the coalition government. At present, small business start-ups can take advantage of a 12 month NIC holiday for the first 10 people they employ. However, it is rather unlikely that the government would look to increase this benefit in the name of boosting the private sector’s finances since it would have a detrimental effect on the public purse which cannot afford to be hit any harder.

On a positive note, recruitment opportunities have been increasing although it would seem that the job opportunities are becoming available through individuals moving jobs rather than new jobs being created.

UK contractors working in the IT industry, particularly those working as limited companies or sole traders have been boosted by a new report from an advice website.

The report claims that a wholesale changed in attitude means a larger amount of businesses do not know view IT as an area they can cut back on. This is a drastic sea change from previous economic downturns where IT budgets were among the biggest cutbacks for many organisations.

Of course the importance of IT is growing all the time. There are huge numbers of contractors working in the IT industry, and that number is expected to grow significantly in the years ahead. Whilst many businesses and organisations will have to make IT cutbacks, the fact that they will only do if absolutely necessary is a major boost to contractors in the industry.

“This time round IT was seen as both a cost-cutting enabler and as too crucial to the business,” said Gerry McLaughlin, spokesman for Itcontractor.com.

“In the new information age, access to business information is seen as the biggest differentiator and companies didn’t want to come out of recession a couple of years behind their rivals in terms of the software components of their products and services.”

Contractors out of work or looking to retrain would do well to consider the benefits of the IT industry. Whatever the effects of the upcoming spending review, the IT sector should continue to grow in the next decade.

There is a widely held opinion that opportunities for contractors are rapidly dwindling as a result of the extensive public sector spending cuts. However, there could actually be some exciting times ahead for skilled IT contractors.

FTEN are an American technological company who are responsible for innovating a new system, which will be rolled out across the financial services sector. This, in turn, will create an abundance of job opportunities for skilled contractors who will be required to set the new system up. FTEN have just had a patent granted on their new technology, which is ground breaking within the sector. It is believed that this system, which analyses systemic risk-management in real time, will actually revolutionise financial services.

The question appears to be whether the contracting market will actually be able to meet the demand because it is expected that there will be no shortage of opportunities once this project gets underway. All market-based firms will require updates to their existing technology to allow the installation of the new technology. Eventually the public sector will have to update their systems in order not to be left behind. This will create further opportunities.

This is not just a possibility. This new technology is currently being purchased by the banking sector. IT contractors are sure to benefit from these developments and should look to financial services for these new opportunities.

Recently, some unions have been critical of recruitment agencies that supply staff to hospitals. They have claimed that these recruitment agencies have been charging exorbitant fees. Unison’s Head of Health, Karen Jennings, stated her belief that private companies should not be invited to invest in the National Health Service. Her argument was that the reason managed flexible services provider, NHS Professionals, is in existence was in order to counteract the issue of hospitals being ripped off and effectively held to ransom by the outrageous fees charged to hospitals by recruitment agencies.

NHS Professionals actually has approximately 50,000 individuals on its books and therefore ranks amongst the largest temporary worker suppliers in the UK. On an average year NHS Professionals successfully fills more than 2 million shifts.

However, on the other side of the argument, medical recruitment specialists Healthcare Locums commented through a spokesperson who said that the NHS Professional data supplied by Unison was misleading. They said that, actually, NHS Professionals has been far from successful, having lost £100m of public funds. They said this figure considerably outweighs profits made by even the largest and most successful medical recruitment agencies.

This opinion is seemingly backed up by independent research, which shows that a doctor recruited through a private agency costs on average £4500 less than an equivalent doctor recruited through NHS Professionals.

The REC have responded by reinforcing the need for flexible staff within the healthcare sector. They also believe that the government asking for private sector involvement shows a commitment to this model. The REC also support sale of NHS Professionals as announced by the Department of Health. Any prospective investors from the private sector have a deadline of August 27^th to register their interest.

We all know HMRC are dedicated to collecting unpaid taxes and legally challenging anyone who misinterprets the law. This has been proven once again in a s660A case. This may seem of little relevance to many contractors since it relates to ‘husband and wife’ businesses but, if nothing else, it shows there is nowhere to hide from HMRC when they believe you owe money.

Speaking about the case of Patmore v The Commissioners for HM Revenue & Customs, co-founder of Bauer & Cottrell, Kate Cottrell, stated that HMRC are “still considering and trying to apply the Settlements legislation (s660A) despite their defeat in the Arctic Systems case.”

She continued: We must not forget that it is still open to HMRC to simply change the law where the law does not adequately deal with perceived tax advantages.”

HMRC valued Mr Patmore’s tax advantages at £20,000, which they believe, occurred as dividends were taxed at Mrs Patmore’s lower rate instead of his higher rate.

Speaking to Contractor UK Paul Spindler from Kingston Smith LLP commented: “The tribunal concluded there had actually been a gift of income,” the chartered accountant said. [Even then] the actual amount of the gift of income was much lower than HMRC had contended because Mrs Patmore was jointly liable for a loan, which had been secured on the family home and used to buy ordinary shares. Mrs Patmore had not received 50% of these shares, as most were acquired by Mr Patmore, so the tribunal considered this a constructive trust in favour of Mrs Patmore.”

He continued: “The tribunal did criticise HMRC, though it is clear that individuals who would like to split their income and take advantage of the exemptions [to s660A] must ensure that they have taken professional advice before creating new shares or altering the rights of existing shares.”

Ms Cottrell concluded: “With the recent creation of the new Office of Tax Simplification, Section 660 could now be back in the spotlight as part of the Small Business Tax Simplification Review. Contractors who have entered into such arrangements should remain vigilant.”

Despite the absence of a formal announcement so far, accountants have been informed by government officials that all businesses will be required to file their VAT returns online as of 1^st April 2012.

Larger businesses with annual turnovers of £100,000 or over have already been introduced to the electronic VAT-filing. These firms must submit their returns online by July 31^st or they incur a penalty. The only exception to this is individuals who have a “conscientious objection to using a computer”.

The electronic filing will now be rolled out to businesses who are below the VAT-registration threshold. The CIOT have already stated their belief that the same exception should apply but another should be added – “people who have disabilities that make it difficult, if not impossible, to use a computer.”

The CIOT are already anticipating these forthcoming changes by consulting and informing small businesses about the new process. They have been particularly dedicated to offering their advice to those small businesses who do not employ the services of an accountant. However, they are also looking for information from these individuals. They want to know about any difficulties which these taxpayers experience when using the electronic system.

CIOT have set up a dedicated email account and they are asking taxpayers to answer questions such as: “Have any businesses had to appoint agents where they had not done so before because the owner/proprietor/partners could not cope with online filing?”

They would hope to share this information with HMRC to improve the service for everyone.

The conclusion of new research conducted by internet-based business marketplace PeoplePerHour.com has predicted that small businesses will be spending more on IT contractors. The research was conducted amongst small businesses in the UK with the aim of determining the habits of this community since 60% of employment and turnover in the country originates from this sector.

Over 60% of the respondents expressed their intention to increase their IT spend. This is good news for IT contractors since only 18% plan to channel this increased investment into existing staff while 38% will be investing more in temporary staff.

With regards to the skills which are most in-demand, the projects posted on the website suggest that contractors with PHP experience are the most sought after. This is followed by, in order, SEO/Link Building, Wordpress, Joomla, iPhone Apps, MySQL, HTML, Flash Game development, NET developer and ASP.NET developer.

CEO of PeoplePerHour.com, Xenios Thrasyvoulou, commented: “The last decade has seen a boom in remote freelance working, facilitated by the internet. This has been led by the IT industry, which lends itself to freelancing. Our survey findings suggest that the importance of IT industry to the freelance economy is set to grow.”

He concluded: “If you want plenty of freelance IT work, you’d do well to specialize in PHP and SEO. However, the IT sector is ever-changing and dynamic so this list will doubtless look quite different in a year’s time.”

David Cameron has expressed his desire to review the effects of the impending Agency Workers Directive on employment opportunities. He is concerned that the extra rights and obligations will result in less contract opportunities.

His comments have been welcomed by the Association of Recruitment Consultancies (ARC). Their chairman Adrian Marlowe commented: “We agree that the issue should be looked at in the round as well as in respect of the Agency Workers Regulations (AWR). There is a clear distinction between agency work and regular employment. The former reflects the concept of short term deployment of labour and allows for the flexibility which has helped to provide UK hirers with a useful strategic tool for years. The distinction must not be blurred and the rules must be appropriate to enable agency work to function properly if jobs are not to be lost.”

Mr Marlowe continued: “Any assumption that a review of the regulations, or any other agency related regulations, would automatically mean that agency workers will be prejudiced would not be correct. What would prejudice agency workers is if the availability of work becomes limited because the rules do not work efficiently and if flexibility becomes unnecessarily restricted.”

The ARC believe that the current qualification period for the AWD legislation to apply to higher paid individuals. Mr Marlowe concluded: “It is perfectly possible for those agency workers who have been or are likely to be mistreated, as set out by the unions, to be set aside from the vast majority who are not. Those most likely to be taken advantage of can be protected more. The idea that only one rule is permitted with extra and over complicated rights for everyone, and that a more flexible approach is therefore to be condemned, must surely go against common sense.”

New research has been conducted by business advisory group IMS Executive Ltd amongst 2,000 interim executives to determine the manner in which they, including many of those who work through umbrella companies, would cut their daily rates of pay.

The data from this research has shown that most individuals have actually already cut their rates as low as they possibly can. However, for those executives who are currently charging from £500-£900 just over half said that they would consider reducing their rates between 10% and 24%. Lower paid contractors said that if it was a choice between cutting rates or being unable to continue working, they would cut their rates by up to 40%. Interestingly, the most highly skilled and highly paid interim executives were actually opposed to any cuts in their pay rates. These specialised individuals pointed to their change management experience; arguing that their track record had resulted in millions of pounds saved for the government and therefore any cuts in rates would be ’short-sighted’.

IMS Sales and Marketing Director, Tony Shearing, believes that the hiring of freelance staff is an economically viable option for businesses as they have access to these skilled workers without being responsible for paying out benefits applicable to permanent employees such as NICs and pension contributions.

He believes that contractors should be considered value for money as long as they have the skills and experience to deliver the results the client is looking for. It should not be about how little that contractor is willing to do the job for.

Public sector IT management company Socitm has found that while managers of public sector IT departments have succeeded with smaller budgets, they will have to streamline, or possibly even decrease, their budgets in order to survive the fresh round of cuts.

The group was speaking following the publication of research data that looked at IT spending in local authorities. It showed a “worrying” decline in IT spending across the board. There has been a drop of 16% in the past two years. However, the research also found that these spending cuts have not had any adverse effects on staff morale within IT departments.

Socitm Insight manager, Martin Greenwood, commented: “Of course, political pressures dictate that ICT must take its share of the current budget cuts but we advise the ICT function to focus its savings on its ‘business as usual’ capability, and to maintain or strengthen its capability to tackle transformational projects.”

Socitm continued: “Blaming ICT when a service fails to get the benefits it promised from a project saps the credibility of the ICT function, militates against investment in new ICT-enabled transformational projects, and limits the organisation’s ability to deliver savings without cutting front line services.”

The Socitm concluded: “Suppliers able to see the value of existing contracts will be better able to provide competitive bids for new business, while the exposure might embarrass some incumbent providers.”