Crystal Umbrella

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.”

Contractors working for umbrella companies or limited companies may be interested to hear that the PCG has been asked by the Government to join the new IR35 Forum, which meets for the first time in May.

The Forum was set up after the Government’s decision to retain the controversial IR35 legislation, despite trenchant opposition, but improve its administration by HMRC. Exchequer Secretary David Gauke recently met with senior representatives from HMRC, HM Treasury and the PCG, which pressed the need for greater consistency, transparency and clarity over IR35. Mr Gauke agreed that this would indeed be a priority.

The Forum will be monitoring and evaluating the administration of IR35 by HMRC. At its inaugural meting next month, terms of reference will be formulated to ensure that the views of the freelance contactor community are heard in addition to those of the Revenue, Government and Treasury.

There is widespread agreement amongst organisations such as PCG, the Office of Tax Simplification (OTS), accountancy firms, tax experts and small businesses that HMRC has much work to do in order to improve its performance in this area. The Forum is, however, intended to be a constructive body, assisting in the improved implementation of IR35. Nonetheless, even officials from HM Treasury now openly acknowledge that HMRC needs to improve its performance considerably.

PCG Managing Director John Brazier said that he had been assured that the Forum would not be a “talking shop” but a “positive force for change.” A “genuine climate for change” in the HMRC’s administration existed, he added, and promised that PCG would do everything in its power “to deliver that change and to ensure the best business environment for freelancers.”

Few people would disagree that Bank Holidays and Royal Weddings are occasions for fun and relaxation; but umbrella companies and other businesses will need to be especially prepared this month if cash flow problems are to be averted. That’s according to professional service firm RMS Tenon, which is reminding entrepreneurs and contractors alike that April consist of only 18 working days after Easter and the Royal Wedding bank holidays are taken into account. Cash-strapped businesses in particular should begin tracking down outstanding invoices immediately, as they are likely to be hit the hardest by the breaks.

The company estimates that a significant number of UK workers (around 15 per cent) will simply take the three days between Easter and the Royal Wedding as annual leave, giving them an overall break from work of eleven days. Many parents also tend to take time off over Easter, with the result that the staff limited companies and umbrella companies rely upon to process their remittances might well not be available.

The statistics are unambiguous – every time there is a bank holiday, British businesses lose around £6 billion worth of productivity. And we can expect this to be considerably worse this month with two bank holidays falling so close to one another.

There will, however, be beneficiaries to the holidays, notably in the hotel, restaurants and retail sectors. Demand for their services is bound to soar this month, with around 43 per cent of Brits planning to take a short break away from home to coincide with the Easter break and the wedding. But the bottom line for umbrella companies is – chase those outstanding invoices today.

Contractors working through umbrella companies may be interested to hear that HMRC is to go ahead with a “real time” reform of the PAYE system.

From October 2013, it will become mandatory for employers to supply HMRC with information concerning income tax, national insurance contributions (NICs) and student loan payments every payroll day, rather than in accord with the current annual system. HMRC maintains that the new system will be much more accurate, making it easier for individuals to pay the right amount of tax after changing jobs. The P45/P46 process will ultimately be rendered obsolete under the new system.

Employers would, HMRC claims, benefit from a greatly simplified end-of-year PAYE reconciliation process. The current uncertainty which leads to errors in tax credits would also be largely abolished.

HMRC has announced that a pilot scheme involving software developers and volunteer employers will be launched in April 2012 following a period of consultation. Measures to ensure data quality will be introduced in October this year, with the aim that employers begin using the new system in April 2013 (it becomes compulsory in October of the same year).

The introduction of Real Time information will improve the PAYE system and, according to the Treasury’s Exchequer Secretary, David Gauke, make it “more accurate for taxpayers and easier for employers and HMRC to administer.”

HMRC spokesperson Stephen Banyard insisted that agency payroll providers and employers had been listened to, and plans have already been amended to take account of concerns raised. He urged anyone interested in being involved in the new pilot to contact HMRC.

PAYE umbrella contractors who have worked chiefly in the public sector may have to learn a new language if they are to find work in the commercial world, a leading recruiter has warned.

This month the government’s public spending cuts will really start to take effect and a veritable exodus of former public sector workers is well-nigh inevitable. Amongst them will be people considering setting up as freelancers and seeking work through umbrella companies in the commercial sector. However, such a step may not be plain sailing, according to Mark Staniland, Managing Director of Career Transition at Hays Recruitment.

Mr Staniland believes that many refugees from the public sector could well find themselves in commercial environments where they will need to talk “a completely different language” if they are to succeed in finding new work.

The expert went on to say that in order to secure new jobs, ex-public sector workers (which will include contractors who have worked predominantly in that sector) will have to show that they “understand how the private sector works, make their experience relevant and demonstrate commercial acumen.”

He also pointed out there were actually more similarities between the two sectors than many people seem to assume but jobseekers “need to be able to work hard to show how this is the case.” They will, he added, need support from their current employer if they are to find work in a more commercial environment.

Gloomily, the New Economics Foundation has forecast that as many as 1.4 million people could remain unemployed upon leaving the public sector.

Umbrella companies supplying professionals in the IT skills market are set for a bumper year in the London area thanks to the 2012 Olympics, according to the specialist IT recruitment company Langley James.

The firm’s founder and director, recruitment expert James Toovey, says that the city’s hosting of the games in 2012 should lead IT professionals across the UK to consider a move to the capital, at least temporarily. IT contracting in particular is likely to experience a major boost in demand, with the Olympic and Paralympic Games generating a major surge in short-term IT jobs ideally suited to freelancers.

Although IT job opportunities of all types will rise, IT specialists looking for short-term contractor posts are likely to be most in demand, he added. The sheer weight of the workload required to get the show up and running on time will feed this demand, as will the amount of time being taken off by people during the Olympics event itself. Temporary vacancies will have to be filled by adequately skilled and qualified staff.

IT professionals sticking to the permanent model of employment will not benefit nearly as greatly as temporary contractors, however, warned Mr Toovey, even though some long-term new ventures will start up on the legacy of the event. Mainly, short-term contractor posts will be available largely because of IT staff taking time off to view the Olympics.

If ever there was a good time for IT professionals to consider a switch from permanent roles to PAYE umbrella contracting, this is very probably it.

PAYE umbrella contractors may wish to read the recently published draft guidance from the Department of Business, Innovation and Skills (BIS) on the Agency Workers Regulations (AWR), which comes into effect this October. It’s now clear that limited companies will not be affected by AWR – but umbrella companies will be. Contractors wishing to give feedback on the guidelines may do so by emailing Lisa Moses (LisaMoses@bis.gsi.gov.uk) – but be forewarned that you only have until 15^th April to get your comments in.

The guidance which will be used in the AWR to determine employment status is identical to that currently used to decide IR35 status. Contractors beyond the scope of IR35 will be unaffected but, under its definition of a “temporary work agency,” the guidance is unambiguous that umbrella companies will be included: “This could be a “high street” agency, but also an intermediary, such as an umbrella company or a master or neutral vendor if they are involved in the supply of the agency worker.” (p. 6)

One likely effect of the regulations under current guidance is that clients will be encouraged to make sure that any contractors they hire are placed outside the scope of both AWR and IR35. In the small number of cases where such a contractor claims equal pay and rights to an employee, smaller umbrella companies particularly may need to alter their business model to ensure that the equal pay aspects of the AWR do not apply.

Full details are available on the BIS website www.bis.gov.uk.

Contractors across the UK may be interested to hear that the Chancellor’s decision to retain IR35 has come under heavy shelling from a leading contributor to the OTS review of small business taxation.

The PCG, which played an active role in the review, has published an open letter on its website expressing profound disappointment that Chancellor George Osborne failed to suspend IR35 legislation in his recent Budget. Signed by the organisation’s Chairman, Chris Bryce (who describes himself as “an ordinary contractor), the letter likens contractors under IR35 rules to dolphins caught in a tuna net. Mr Bryce said that he believed HMG, a majority of MPs and the Coalition Treasury team recognise that ‘catching’ most dolphin-like contractors in their tuna nets is inherently wrong. He added that he thought some HMRC agents would agree. How, he asked, can the tuna nets be shaped to catch only tuna and not dolphin?

Announcing PCG’s intention to participate fully in the proposed new IR35 Forum, Mr Bryce also said that, in preparation, his organisation’s website would be publishing suggestions for “lines in the sand” and “rules of engagement” for consultation with PCG members over the next few days.

Urging pragmatism, he warned that the Government was under no obligation to accept PCG and that drastic demands for outright abolition at this stage would merely make the organisation look foolish. It will, however, “always be PCG’s aim that IR35 is abolished” but while it is in place, “we must fight to ensure that our members and all genuine freelancers are free to do business without the burden of IR35 hanging over them.”

Contractors working through umbrella companies or limited companies may well be encouraged by a new poll from the Institute of Directors (IoD).

The post-Budget IoD survey of 620 UK firms recorded a “significant boost” in business confidence. Well over half of the respondents – 58 per cent – said that they felt more confident following the Chancellor’s announcements last week. A mere nine per cent claimed to feel less hopeful.

The rise in confidence may well result in an employment surge, too, which would generate new placement opportunities for PAYE umbrella contractors and many others.

Noting that the economic recovery in the UK is very fragile, the IoD’s Chief Economist and Director of Policy, Graeme Leach, said that the poll provides encouraging news that business leaders “have responded so favourably to the Budget.” He added that confidence in these precarious times could make the difference between recession and recovery. The IoD’s Policy Voice Survey, thankfully, suggests that “the Budget has improved the outlook for business investment.”

The poll contrasts with one published last week by the Federation of Small Businesses (FSB) in the immediate aftermath of the Budget, which suggested that nearly half of FSB members (45 per cent) believed the Chancellor’s plans would have no positive impact on their businesses. Only 31 per cent thought that they would be beneficial.

Even so, FSB’s National Chairman, John Walker, commended the Chancellor for producing a pro-business Budget and listening to his organisation’s concerns. He believed, however, that Mr Osborne missed an opportunity to stimulate the economy by failing to extend the NIC holiday to micro-businesses.

PAYE umbrella contractors may be amongst those to benefit from the new private sector-led “Start-Up Britain” initiative to support prospective entrepreneurs. Aimed at delivering the best possible support and advice from established entrepreneurs to startup companies, the project is a response to the Government’s call for an “enterprise-led recovery.”

Promising to champion the 270,000 new businesses staring up every year in the UK, Start-Up Britain could help generate new work for freelancers on contractor payroll as small firms adopt the growing trend for flexible workers rather than permanent staff. It has received warm endorsements from Prime Minister David Cameron and the Confederation of British Industry (CBI).

The initiative will provide new entrepreneurs with expert support worth £1,500 and is committed to promoting entrepreneurship within every school in England and creating Enterprise Societies in all UK universities. It has attracted the backing of several major international brands so far, including Virgin Media, Microsoft, Intel, Experian, BlackBerry, Barclays and McKinsey and Co.

Talking to the contractor news outlet Shout 99, Mr Cameron said that there were thousands of people in the UK who were entrepreneurs but just didn’t know it yet. There are, he insisted, “millions of success stories that haven’t been written yet.” He urged people who had been turning over good ideas in their minds for years to seize the opportunities offered by Start-Up Britain and “make it happen” to drive the economy forward.

The CBI’s Head of Enterprise and Innovation, Dr Tim Bradshaw, was equally positive, saying that the initiative could encourage more young people to become “business-savvy.” Providing extra support for entrepreneurs could, he believes, “inspire more people to take the plunge and start a new business.”