Crystal Umbrella

PAYE umbrella contractors working in the IT skills market will be cheered by a new survey produced for the website CWJobs, which reveals that demand for IT professionals rose consistently over the last six quarters.

Commenting on the data, CWJobs’ director, Richard Nott, said that the IT market is “continuing to stabilise,” which is encouraging news for all who make their living through IT contracting. In Q2 and Q3 last year, growth hit 8 per cent and continued rising in Q4, when it reached 5 per cent. 2011 is likely to see continued growth in the sector throughout the year. Even so, Mr Nott cautioned against excessive optimism – the figures are still considerably lower than those seen before the recession hit and a full recovery in the market for IT jobs is still some way off.

The survey coincides with decidedly more gloomy research from GfK NOP, which shows that consumer confidence fell sharply during April, reaching a score of -31 on the index. This is only the third time in the index’s 37 year history that consumer confidence has fallen below -30. The sharpest decline measured was in people’s confidence about their personal finances, which fell to -23 over the last year. It remains negative in outlook for the forthcoming year at -14.

The Managing Director of GfK NOP Social Research, Nick Moon, said that the drop in confidence was bad news for both the government and the economy. The Chancellor’s attempts to spur economic growth in the March budget do not appear to have convinced the public. Mr Moon expressed his concern that, as all five measures of consumer confidence showed a decline, a double dip recession remains a real possibility.

Umbrella companies and other employers will be required to automatically enrol their staff in a pensions scheme from October 2012 under new Government legislation. Even firms employing temporary workers for over 12 weeks will be obliged to adopt the same rule.

The Recruitment and Employment Confederation (REC) and National Employment Savings Trust (NEST) will attempt to clarify any confusion about the new rules in a workshop on May 17^th, which is free to all REC members. The organisation’s Head of Policy, Gillian Econopouly, billed the workshop as “an excellent opportunity” for members to understand what the new auto-enrolment reforms mean for them.

A major challenge that recruitment agencies may face when the legislation comes into force will be “churn:” around a million temporary workers are engaged on assignments at any one time in the UK, many of whom frequently change not only assignments but, on occasions, recruitment agencies in the normal course of events.

PAYE umbrella contractors whose company uses the same recruitment agency to find successive placements may be less affected by the reform, but large numbers of temporary workers are expected to want to opt out after their recruitment agency has enrolled them – a process which will be exceptionally time-consuming for recruiters who will find themselves constantly enrolling and un-enrolling staff. The REC has submitted its response to the Department of Work and Pensions consultation concerning the reform, warning that the additional bureaucracy will draw recruitment consultants away from their primary task of helping candidates find work opportunities.

PAYE umbrella contractors working in London’s finance sector will be painfully aware that new placement opportunities have been somewhat thin on the ground for rather a long time; but a new report from the financial services experts Morgan McKinley suggests that the situation is at last beginning to improve. New opportunities are finally appearing for contractors working through umbrella companies in the sector after a protracted recruitment drought.

The jobs market in London’s financial services sector virtually flat-lined throughout 2008 to 2009. But Morgan McKinley’s latest London Employment Monitor hints that some form of economic defibrillation has been at work, with the number of job opportunities in financial services climbing by 11 per cent in March this year.

Not only that, but financial service workers also saw their earnings stabilising after a very turbulent few years. Turbulence in this case usually meant eyewatering decreases. But in March, the decreases seen across the city were marginal, with average takings dropping to $54,445 – a relatively modest three per cent fall which contrasts reassuringly with the more wince-making declines of recent years.

Commenting on the findings, Morgan McKinley’s Chief Operating Officer Andrew Evans said that anecdotal evidence from the company’s clients suggests “a return to a more ‘normal’ recruitment cycle” as the first quarter of 2011 draws to a close. In more economically normal conditions, he explained, it’s usual to see a rise in financial services job opportunities because bonuses would generally already have been paid. Business activity, he went on, appears to have rebounded “after a very stagnant period for the London financial services jobs market in 2008-09.”

Writing in Shout99, contractor expert Rob Crossland suggests that well-run umbrella companies have little to fear by the new Agency Workers Rights (AWR) legislation.

With relatively short, one-off contracts with end-clients lasting up to 12 weeks, the existing umbrella model can continue to be used, Mr. Crosland advises, but adds that such arrangements are “extremely unusual” for most PAYE umbrella contractors. More typically, umbrella workers take longer contracts, he continued, and under AWR regulations this may involve agency workers becoming permanently employed by their umbrella company, which would then be responsible for providing pensions, holiday pay and pay between assignments. Umbrella companies would need to work very closely with recruitment agencies to ensure their contractors find new assignments with minimal delays.

This “full employment model” legitimately escapes the AWR rules that grant agency workers equal pay with permanent staff, an arrangement designed to assist lower paid temporary workers. Instead, contractors would be classified as permanently employed by their umbrella company, rendering the protection afforded by AWR superfluous: such contractors would already be considered protected by employment law (by, for instance, receiving pay between assignments). A permanent contract of employment with the umbrella company would, however, need to be in place, Mr Crosland warns.

Many well-run umbrella companies are already adopting this model, Mr Crosland suggests, “using robust over-arching contracts of employment with contractors to mitigate the risks faced by recruiters and their end-clients when using a contingent workforce.” He suggested that the term “umbrella company” may soon become outmoded as a consequence, becoming replaced by “outsourced employment services provider.”

Contractors working through umbrella companies or limited companies are likely to be intrigued by the views of a leading business futurologist who predicts that opportunities for remote and virtual working will rise steeply.

Dr James Bellini was commenting on a survey conducted by Orange National Business Awards which revealed that a large majority of UK businesses – 67 per cent – believe that new technology will drive massive changes in working practices over the next decade. By 2021, 40 per cent of those polled said that they expected the entire UK workforce (including themselves) to be working remotely.

As many PAYE umbrella contractors are already familiar with this style of working, they might consider themselves ahead of the trend. The business leaders surveyed were clear that a strong desire for improved work-life balance amongst British employees (and employers) would drive the trend forward as much as technological innovation.

Dr Bellini was forthright in his praise for freelance contractors and small businesses, whom he described as “extremely innovative.” He said that small enterprises and freelancers were playing a leading role in driving technological development forward. In particular, he singled out the life sciences and creative sectors, both of which he believes will perform especially well in the coming decade.

Dr Bellini’s comments came after a new exhibition was launched by Baroness Wilcox, the Minister for Intellectual Property, at the Life Sciences Centre in Newcastle.  This aims to educate young people living in the region about how creative new technologies can improve ordinary life.

PAYE umbrella contractors on the lookout for new placements have mixed news to take on board with the release of the Federation of Small Businesses’ latest Small Business Index. The survey covered 1700 firms across the UK and found a modest but healthy climb in confidence amongst those polled. Between January and March 2011, small business confidence rose by 6.7 per cent. This is in marked contrast to the whole of 2010, during which confidence declined in every quarter.

However, the survey also suggests that it’s not quite time to break open the champagne – job creation, including posts sought by contractors working through umbrella companies, was proving considerably tougher to achieve. During the first quarter of 2011, small firms found that they were continuing to lay off staff, although fewer anticipate cutting back on personnel in the months ahead. More than a third – 36 per cent – expect business performance to improve during the next quarter.

FSB National Chairman John Walker acknowledged that the cutbacks in personnel during Q1 were a worry, especially in a context where youth and female unemployment are both nearing 1 million. If the Government really wants the private sector to compensate for its public sector austerity measures, he said, “small businesses need a helping hand.”

Although small businesses appear to be bouncing back from the VAT rise, the harsh winter and the negative effects on consumer spending caused by rises in fuel costs, Mr Walker added that “questions still remain about the strength of the recovery.” Let’s hope Mr Cameron is taking heed.

As rumours continue to circulate that IR35 abolition was never seriously on the table for Government consideration, the Office for Tax Simplification has moved to pole-axe further speculation. The freelancer group PCG has come in for particular fire by some commentators in the UK’s contractor community, with accusations emerging that it backed down from calling for outright abolition after a tip-off that it would fall on deaf ears.

In a forthright statement, the OTS has refuted such accusations, as well as speculation that it was less than impartial in its advice to Government following its review of small business taxation. In an interview with the news outlet Shout99, an OTS spokesman insisted that the organisation had considered a wide range of options for IR35, including abolition.  Ultimately, the OTS report came down in favour of two: suspension pending eventual abolition, or retention with significantly improved administration by HMRC. A third option was also put forward – the application of a “genuine business test.”

He was robust in his defence of the OTS’ impartiality: although the Chancellor chose the first option, the report did not give any of the three options more limited consideration than the others. His comments were corroborated by a statement from the Treasury, which confirmed that the retention decision was made by the Chancellor after full consideration of all the options laid out in the OTS review. The Treasury remained concerned about the potential for a significant loss of legitimate revenue if IR35 abolition was pursued.

One OTS Committee member, Crawford Temple from Professional Passport, condemned rumours that the decision was a “done deal” months before the publication of the OTS review as completely unfounded.

Umbrella companies may well have sensed their ranks swelling last month, according to figures recently released by the recruiter firm de Poel, which showed a ten per cent increase in the number of temporary workers used by UK businesses. A proportion of these will have been PAYE umbrella contractors.

In an interview with Recruiter magazine, de Poel’s Chief Executive, Matthew Sanders, said that the data indicates continuing wariness amongst UK businesses about hiring permanent staff. Temporary workers, he went on, provide a “brilliant solution” to business fluctuations. There is undoubtedly a real need for short-term labour.

A rather less upbeat assessment, however, came from Forum of Private Businesses spokesman Chris Gorman, who said that most of the people who left full-time jobs through redundancy and accepted temporary posts “are not going to be creating wealth or jobs and helping us out of the economic doldrums.” He was taking issue with the assumption that a rise in temporary jobs signalled a surge in entrepreneurship, although he conceded that a proportion of them would have the drive and determination to set up small businesses.

The Financial Mail has speculated that some of the new temporary workers are actually staff made redundant who then returned to work for the same employer for fewer hours as a freelancer or contractor, sparking concerns about IR35. However, even if former permies are returning to the same company as temporary workers, they could well use the experience as a launch pad to becoming contractors and working through umbrella companies as a new career. If so, this is no bad thing – and they’re unlikely to want to return to permanent employment anyway.

The Government’s decision to retain IR35 has come in for yet further heavy shell fire, this time from a prominent contractor and former external director of the freelance trade group, PCG.

In a letter to the contactor news outlet Shout 99, Phil Ross didn’t mince his words. He claimed that the Coalition has “blown it” as far as seizing an opportunity to IR35 was concerned and expressed his “bitter disappointment” in the government’s failure to act more decisively.

In his outspoken response to the decision, Mr Ross accused both the Conservatives and the Liberal Democrats of doing a U-turn on pre-election promises made in private to contractors and small business leaders. He believes the Coalition should have abolished IR35 within their first 100 days of taking office, a move which would have powerfully signalled that they were trustworthy enough to stick to their promises. Instead of the abolition or reform expected by the UK’s freelance community, they have ended up with “nothing but tepid words about working more closely together with HMRC.”

He argued that the previous Labour administration had declined his suggestion of a limited liability self-employed scheme to compliment the limited liability partnerships it had introduced, chiefly because ministers had not wanted to “deny themselves the huge tax yield that HMRC promised IR35 would deliver.” He believes that Chancellor George Osborne has fallen for the same questionable argument from HMRC as his Labour predecessor.

He urged contractors and the PCG to redouble their efforts to win the social and economic arguments in favour of IR35 abolition.

Umbrella companies and limited companies alike may share the concerns raised by the Chartered Institute of Taxation (CIOT) over HMRC’s decision to begin its enhanced Business Records Checks (BRC) programme earlier than planned.

In response to the news, CIOT Deputy President Anthony Thomas met with officials from the Revenue this week and was reassured that the new development was only a “test and learn pilot” which will run until July. No penalties will be imposed unless evidence is found of loss, deliberate destruction or a complete lack of business records.

Mr Thomas welcomed HMRC’s reassurance of a no penalty trial but added that they “should have made this clear to tax advisers, business organisations and, above all, those tax payers – represented and unrepresented – they are targeting, from the outset.” He sharply criticised the Revenue for giving the impression that they were proceeding with the BRC project prematurely “and without listening to consultees.”

CIOT has held concerns over the BRC scheme from the outset, especially over how it would be implemented and advertised as well as over the legal basis for issuing penalties before tax returns had been submitted. During the consultation period, CIOT made submissions identifying the necessity for HMRC to train the appropriate staff adequately and apply the correct standards in their assessments.

The organisation also insisted that HMRC should ensure that businesses are made fully aware of what’s expected of them vis-à-vis business records and should only issue penalties for the most serious breaches. Mr Thomas also believes that HMRC should not expect the smallest businesses “to have perfect records written up every day.”