Crystal Umbrella

The Public and Commercial Services Union have stated that political parties should be concentrating on tackling unpaid taxes instead of cutting public sector spending in the months running up to the general election. They believe that at present each party is consumed with this “bidding war” which sees them pledging to cut more than their rival parties.

Mark Serwotka, general secretary of the Public and Commercial Services Union said: “The end of this year has been characterised by the main political parties engaging in a bidding war over who can cut the most. To close the public deficit, they need to make it a New Year resolution to start focusing on the £130 billion worth of taxes which is either lost to tax cheats or simply goes uncollected due to a lack of resources.

He continued: “Job cuts in HMRC illustrate the short-sightedness of crude cuts where staff chasing tax have been axed, even though they recoup £600,000 each after staff costs. It is no coincidence that as HMRC staff have been cut, the amount of uncollected tax written off as doubtful has nearly doubled. More cuts in the New Year will damage the economy, prolong the recession and hit those who need public services the most.

He concluded: “With a general election looming, the main political parties need to start valuing and respecting the civil and public servants who keep this country running, rather than penalising them for a financial crisis not of their making. The people who caused this crisis should be made to pay their fair share rather than public services and the people who rely on them.”

As we reach the end of the year, we are faced with the return of the 17.5% VAT rate. However, the Chartered Institute of Taxation (CioT) has issued a warning to all contractors and businesses that the VAT increase is not the only taxation change which will come into effect in 2010. The EU VAT package will also come into force on New Years Day and, according to CioT this will result in “big changes” to the taxation rules governing services provided across countries.

At present, for tax purposes, services are considered to be supplies wherever the supplier is based. However, from next year the services will be classed as having been supplied wherever the client’s customer is based.

The purpose of these changes is to put an end to businesses relocating with the sole aim of cutting their VAT bill.

Chairman of the CIOT’s VAT and indirect taxes sub-committee, Douglas Gordon said: “Any business which supplies or receives cross-border services needs to be ready for these changes. Most will be already have been contacted by their advisers but any that haven’t should seek advice straight away. The introduction of a general rule that the place of supply of services is where consumption takes place is sensible. In the process we have lost a number of areas of uncertainty, which will deliver significant benefits.

He concluded: “However, I fear that the changes will add to the administrative burden on many businesses. This is because the shift in the general rule means that national governments need statistical data on cross-border transactions in order to police them.”

While experts are predicting that the IT sector is set to recover next year, 44 per cent of those seeking jobs from the IT Job Board believe that it will take until 2011 for the sector to recover. Twenty five per cent of those surveyed said they were looking for work as their role had been made redundant.

The IT Job Board reflected: “As we approach the last month of the year, this is a common time to start re-evaluating your position, your pay and your career progression. Many [IT professionals] decide to rethink their situation and start contemplating a new challenge for the New Year.”
Peter Healey, the IT Job Board’s sales director, commented: “I believe that next year the finance sector will really pick up. Banking was the first to be hit during the recession, but it will also be the first to recover, and it will offer a lot of opportunity in terms of IT recruitment. As we continue to get to grips with social and business networking, Web 2.0 skills will be critical, for example .Net and Java.”

The website continued: “Many companies’ budgets are renewed in January and this coupled with positive forecasts for the economy in 2010, could mean the New Year jobs wave will counterbalance the number of applicants. Fortunately, IT seems to be a thriving area that has not been as badly hit as some other industry sectors, so if you are considering a career move, there’s no time like the present.”

Last month the Government’s enterprise tsar Lord Alan Sugar made some comments about small business owners being moaners which caused a great deal of upset within the business community. However, Lord Sugar has spoken out to insist that his comments were taken out of context.

In a new article for the Forum of Private Business, he writes: He writes: “The majority were cases where it wouldn’t have been right for the bank to lend in the first instance, owing to things like having a poor business case, a lack of security or simply unrealistic expectations. The Government has always made it clear that it only expects banks to lend to viable businesses. Inappropriate lending in a large part precipitated the global financial crisis. When I started my business career there was no question of going to a bank to get money to set up a business. The reality then, and now going forward, is that the banks want to do business, but they will expect sound business cases to be put before them. It would be both unrealistic and undesirable to expect them to lend as freely as they did over the last 10 years.”

Lord Sugar continued: “In my business career, when I found a bank wouldn’t lend to me, I went back to my proposals, took account of what I was being told and reworked my plans to get the finance. The banks proved a good barometer of the advisability of my plans.”.

In response to the article, Phil Orford, chief executive of FPB commented: “When Lord Sugar’s comments hit the headlines last month, I was one of the first people to take issue with them. However, Lord Sugar insists his words were taken out of context and I applaud him for taking the time to set the record straight. I still can’t say I support his views on the credit conditions currently faced by small firms – I think the problem is much more widespread than he realises. But at least he cares about his perception among small firms and has made the effort to address their concerns through our magazine.”

The HM Revenue and Customs (HMRC) permanent tax secretary Dave Hartnett has revealed that those wishing to hold £25,000 or more in an offshore account will have to make a tax notification. Speaking to the Chartered Institute of Taxation (CIoT) regarding the New Disclosure Opportunity, Mr Hartnett explained “People are going to have to make a notification going forward of an offshore account which hits £25,000 balance or is newly opened with that sort of money. Now people who don’t do that and whose tax returns are wrong will face a penalty of up to 100 per cent of the tax for not notifying us plus up to 100 per cent of the tax for an incorrect return. That’s a big penalty.”

Later adding that increasing cooperation between tax administrations and an ever decreasing world in regards to communications and data sharing he said “Be afraid, be very afraid, if you want to keep hiding your money offshore.”

Whilst holding an offshore account is not illegal, residents of the UK are obliged to disclose all of their income, including that made, or saved abroad. Following the interview with Mr Hartnett, CIoT said that he had given a clear message on the HMRC’s view on offshore banking. Meanwhile, Brookson managing director Martin Hesketh explained “Now more than ever it’s important for individuals to seek professional advice if they are uncertain of their tax position. This move takes a firm hand against tax evasion and gives us further evidence of HMRC’s recent clampdown on compliance. This is clearly an issue they are taking very seriously.”

Later adding that increasing cooperation between tax administrations and an ever decreasing world in regards to communications and data sharing he said “Be afraid, be very afraid, if you want to keep hiding your money offshore.”

Whilst holding an offshore account is not illegal, residents of the UK are obliged to disclose all of their income, including that made, or saved abroad. Following the interview with Mr Hartnett, CIoT said that he had given a clear message on the HMRC’s view on offshore banking. Meanwhile, Brookson managing director Martin Hesketh explained “Now more than ever it’s important for individuals to seek professional advice if they are uncertain of their tax position. This move takes a firm hand against tax evasion and gives us further evidence of HMRC’s recent clampdown on compliance. This is clearly an issue they are taking very seriously.”

The IT Job Board has revealed that there is a positive outlook in 2010 for contractors with IT skills. Reporting that there is likely to be a rise in demand for business analysts, web development professionals and project managers, the study concluded that 34per cent of professionals within the industry expected that 2010 was see a surge in demand for managers, closely followed by analyst recruitment.

With companies embarking on large expansion plans and new IT projects in 2010, sales director at the IT Job Board Peter Healey expressed that he expected “a great deal more” management roles being recruited for. Furthering his point, Mr Healey said that along with project managers, new schemes would also ensure rising posts for those in development and testing niches. Particularly badly hit during the recession, these positions are likely to flood back into the 2010 job market, a positive sign for contractors working through PAYE umbrella companies.

He added “as we continue to get to grips with social and business networking, Web 2.0 skills will be critical, for example .net and Java,” explaining that now was the ideal opportunity for individuals to increase their skill set by developing .net, Java, web development and SAP competences.

Also spurring the movement for the uptake of freelancers on a short-term basis was last week’s claim by the PCG. Explaining the benefits of hiring short term contractors, PCG managing director John Brazier said that both cost and risk to companies could be minimised by outsourcing job positions for contract work.

When the PCG recently hosted National Freelancers Day they used it as a means of gathering important information about relevant contractor issues. According to their findings, contractors are struggling with a lack of choice available to them with regards to the framework they work within.

According to their data, currently only two per cent of IT contractors are self employed while three per cent are working through an umbrella company. These figures are based on a survey of 900 contractors. The other 95 per cent of IT contractors who took part in this research are actually working through a limited company.

One contractor spoke of his experience: “When I first started out, I was self-employed, direct to client but going out to the wider market meant using agencies [so] I was forced to go ‘Ltd.’”

PCG commented: “Freelancers in the IT industry most generally work through recruitment agencies. According to the S134 rules, the agency could be held responsible for unpaid taxes of a Schedule D worker. The risk-averse nature of agency businesses resulted in nearly all of them refusing to accept ‘workers’ who were Schedule D. This forced freelancers who use agencies to incorporate.”

Experts suggest that many contractors would prefer to be Schedule D but this option is not available to them unless they work direct with their client.

The PCG concluded: “PCG wants to see the repeal of sections 44-47 of the Income Tax (Earnings and Pensions) Act 2003 – which effectively force a nano-business to operate on a corporate basis, denying freelancers the opportunity to be truly self-employed.”

According to government insiders, Britain could be developing a new approach to IT contracting over the next few years which could see IT contractors only be required to sign up to one or two ‘mega’ service companies. This insight comes as the government plan to privatise a quarter of the public sector and they have been looking to outsource IT and other departmental services to two FTSE 100 companies. These companies would work in a similar manner to Serco and Capita, although they would, of course, be in competition with them.

If portions of government services were sold on the open market it is believed they could generate around £16bn. Permission has already been granted for business to be skimmed from certain departments and repackaged.

Speaking to The Sunday Times, one government insider stated: “There is no reason every department should do its own IT contracting, for example. There are incredible inefficiencies in the system. These businesses can be a store of value for the taxpayer rather than a cost centre.”

Analysis firm TechMarketView,’s Richard Holway also commented: “Shared Services are really the preserve of the larger companies…Scale is vital.”

Holway concluded: “We should remember that Capita was formed out of CIPFA [the Chartered Institute of Public Finance and Accountancy] which itself has similarities to the privatisation plans being mooted by Whitehall. The returns to shareholders from Capita in the last 20 years have been huge. So I am certain the interest in the opportunity to be part of or buy one of these new ‘outsourcing giants’ will be intense.”

The Payments Council will meet today to decide if cheques should be phased out over the next eight years. The Forum of Private Business (FPB) have declared that they are not opposed to this move in principle but they do understand why many small business owners could have concerns. The FPB have stated that they feel the Payments Council should only agree to take this step if they can ensure that it will result in increased payment innovation from the banking institutions. If cheques will no longer exist, there needs to be at least one appropriate alternative which should be driven by customer needs and not by which process is best suited to the banks.

Matthew Goodman, FPB policy representative commented: “Of course, lots of people have reservations about the idea of ending cheque payment. It’s a familiar and centuries-old system which is still used by countless small businesses for ‘arm’s length’ payments.

He continued: “However, we shouldn’t let sentimentality dominate the debate. Cheques are generally the most expensive payment method for businesses to process and those costs are only set to rise as fewer and fewer people use them. As a result, our view is that if the decision is made to gradually phase out cheques over eight years, then we aren’t opposed to it in principle. However, the Payments Council needs to be confident that the decision will lead to practical and convenient alternatives being put in place. If they set this roadmap, the onus will be on the banks to come up with solutions for the many small business who still use cheques.”

HMRC have released figures which suggest that assistance awarded under the Time To Pay Scheme (also known as Business Payment Support Scheme) could be winding down. Back in April the cumulative figure owed by businesses was £1.15bn but this has now reduced to £1.01bn by the end of last month. Top twenty five accountancy firm Wilkins Kennedy believe that this evidence proves that the scheme will inevitably cease, however the Chancellor stated in his Pre-Budget Report that businesses would continue to have access to this scheme over the longer term if required.

Director of Wilkins Kennedy, Anthony Cork, stated: “All the signs indicate that Time to Pay is being wound down. However, HMRC seems to be overlooking the fact that historically, businesses have needed as much support, if not more, as the economy goes into recovery. This recession is unlikely to be any different.”

He continued: “With the economy still shrinking in the Third Quarter of this year, Time to Pay facilities of less than three months may seem more like a stay of execution than a lifeboat. If a business is truly struggling and unable to secure funding from anyone other than HMRC then it is unlikely to see a meaningful improvement in its fortunes in just three months. However, HMRC is agreeing to allow less than 1% of businesses to defer their tax payments for a year or more and is failing to take into account the seriousness of the situation and the seasonality of many businesses.”