Crystal Umbrella

Lloyds TSB Group Union (LGU) has criticised the company for importing cheaper workers from abroad while shedding nearly 6000 UK jobs in the past three months. They also announced that another 15,000 jobs are likely to be cut in the months to come.

Lloyds have recently cut their pay rate for IT freelancers by 15%. The LGU has attributed this to the importing of cheaper IT workers from India on the quiet. They said that the importing of workers from the subcontinent was to “undercut the pay and replace the jobs” of IT freelancers from the UK.

IT contractor wages have been cut across the sector and many jobs have been lost. However, LGU have branded Lloyds Group actions as “wholly unacceptable” due to their counter action of importing workers to fill their job cuts. They added, “Replacing existing UK-based staff with lower paid staff from India raises very important issues and concerns.”

Questions have also been raised over the role of the government in Lloyds TSB Group practices. LGU commented, “The government has important questions to answer over why, when it owns 43.4% of Lloyds Banking Group after bailing the bank out early this year, it should not be using its influence to force Lloyds into investing in – and protecting – the jobs of UK-based staff?”

“Furthermore, why is it providing work visas to overseas workers, who would otherwise have no legal right to work in the UK, when it could instead force the bank to invest in the jobs of existing workers in the UK?”

IT consultancy, Dragonfly Consultancy Ltd, has been defeated in its IR35 appeal at the High Court. The appeal had been funded by the Professional Contractors Group (PCG).
It was back in 2008 that Wiltshire-based Dragonfly Consultancy ltd lost its IR35 case before the Special Commissioners. This left Jon Bessell, co-owner of the company with a tax and NIC bill of £99,000. This decision has now been supported by the High Court.
In January last year, Special Commissioner Charles Hellier had stated that as Mr Bessell was an integral part of his client AA’s business and should therefore be treated as an employee. Mr Bessell had provided his services to AA for three years through agency, DPP International Ltd. He would have had limited rights of substitution but AA had declared that they would have expected to vet or choose any replacement prior to them reporting for work.
Mr Andrew Stafford QC appealed the Special Commissioner’s initial ruling on four grounds:
1)    The right of substitution in notional contracts was wrongly concluded as being inconsistent with employment. Instead his conclusion should have stated that the notional contracts would have been prevented from being full contracts of service due to the provisions which they contained.
2)     That the commissioner incorrectly asserted that the rights of control the AA had over Mr Bessell’s work could have allowed the creation of a contract of service
3)    The incorrect conclusion that the intentions of AA and Mr Bessell were irrelevant.
4)    The service commissioner did not take into account that while a person may be self-employed this does not mean that he is in business for himself. There is a category in-between.
At the High Court, Mr Justice Henderson answered each point in turn.
1)    He considered it unreasonable that the AA would have agreed to unqualified rights of substitution and that the existing rights of substitution were on a par with a relationship of employment.
2)    He concluded that Mr Bessell’s work was subject to control and supervision. He stated that the level of control exercised by the AA was for the Special Commissioner to analyse and he had found the balance tipped towards employment.
3)    He concluded that there had been no error in law on the part of the Special Commissioner.
4)    Mr Stafford, QC had entered the special definition of ‘worker’ pertaining to an intermediate category of people who are neither employed nor self-employed and that the IR35 legislation only applies to [notional] employees. He again reiterated that he ruled with the Special Commissioner that no other categories of worker needed to be considered as Mr Bessell’s position fell “on the employment side of the line”.
On this note the appeal was dismissed, leaving Mr Bessell to pay the £99,000 tax and NIC bill.

Contractors at Lloyds have had their pay rates cut by up to 15 per cent. Contractors who do not agree to the wage cuts will face termination of employment. The recession continues to affect employment as agents report that clients are continuing to interview for positions but failing to actually recruit.

The Centre for Economics and Business Research (CEBR) said that 38,000 IT jobs will be removed from the IT sector by next year. This research shows that IT contractors continue to take risks and can inevitably find themselves in a weak position, even if they have been working on the same project for years. The CEBR stated that between 2008 and 2013 the IT market would suffer a reduction in jobs by around 334,000. It is likely that the IT jobs market will take years to recover to the buoyant levels of 2008 and earlier.

The controversial IR35 rule continues to cause problems for contractors but even with the opportunity of a new government next year there is no clarity on where the Conservative Party stands on this issue. They issued a letter to contractors saying, “Conservatives are concerned about the intentions behind IR35, but we must think carefully about how to resolve this complicated issue. It is not as simple as just abolishing the provisions altogether.”

This seems to suggest that the Conservative Party will spend years discussing and tweaking the IR35 rule only to eventually repeal it anyway. Contractors must wait and see what a change in our country’s leadership may mean for them in the long term.

The concerns regarding the forthcoming Temporary Agency Workers Directive continue. Its aim is to award agency workers the same rights that permanent employees have. APSCo, the agency group, has advised the government that freelance workers working through umbrella companies or personal service companies and earning three times the National Minimum Wage should be exempt from the directive. High earning freelance workers are apprehensive that this European Directive will have an impact on the work offered to them.

This directive must become UK law by 2011 and the government is currently consulting on its implementation. If they accept APSCo’s proposal, freelancers earning upwards of £17.40 per hour or £33,930 per year would be excluded from this legislation.

Chief Executive of APSCo, Ann Swain, said, “The Government has acknowledged that this legislation is intended to enhance the rights of ‘vulnerable’ workers and is receptive to the idea of excluding professional level temporary workers. It has indicated to APSCo that an exclusion based on an income threshold which is a multiple of the National Minimum Wage could be an appealing situation.”

She continues, “We feel that three times the National Minimum Wage is about the right income level for the exclusion. It means that about 90% of workers placed by APSCo members are outside the scope of the legislation. This would be a workable solution which would be easy to understand and enforce.”

The Agency Workers Directive aims to give agency workers working on the same assignment for twelve weeks or more ‘equal treatment’ to permanent members of staff. ‘Equal treatment’ is likely to include pay and basic working conditions.

A study carried out by KPMG/Total Politics has shown that as a result of the recession and cuts of up to 15% in local authority budgets, major job cuts are likely in the next 18 months. HR recruiters have claimed that this will create opportunities for contractors and freelancers.

UK Head of Government at KPMG, Ian Hasdell said, “Reductions in Whitehall funding to local governments in England and Wales could be in the order of 15 per cent in real terms, the toughest squeeze on council finances in the post-war era.”

Director of Optimus Consultants Mike Henry, commented, “Clients will require an expertise in areas of change. Those councils that are experiencing change will be letting people go in certain areas.”

This was echoed by the Associate Director of Hudson HR, Anthony Pierce. He said, “Organisational change professionals will be in demand on short to medium term contracts. Employee relations staff will be in demand. They might need to up skill there. The big opportunity is in organisational development.”

The survey responses showed that 57% of local authority chief executives agreed that reductions in staffing levels were, “very likely”. They also admitted that they were uncertain how they would uphold service levels, with efficiency cited as one of their main concerns.

This is set to be a hot topic as the general election looms within the next twelve months with cuts in spending predicted whoever wins power. Professional contractors look set to benefit from these cuts as their expertise will be called on to fill gaps in services.

During this current economic downturn, most employers have been cautious regarding regarding the hiring of staff. However, recruitment consultants Badenoch & Clark are warning employers that if they do not act on hiring new employees now they could find that they miss out when the economy turns around.

Managing Director of Badenoch & Clark, Neil Wilson, warned that too many employers have a ‘wait and see’ approach in terms of riding out the current economic storm and this is continuing despite economists providing positive predictions of an economic upturn.

He said, “This is understandable at one level, but employers do need to start thinking about their resource requirements for when the upturn comes or risk being caught out. There are some employers who see the current economic difficulty as an opportunity to attract professional talent that might not normally be available to them.”

Mr Wilson continued, “Professionals in demand include commercially minded accountants, business analysts, programme and project managers, IT specialists and compliance/risk management experts.”

He predicted that the second half of 2009 would see the demand for professional staff to fill temporary contracts grow in line with the predicted turnaround in the UK’s current economic difficulties.

The Federation of Tax Advisors (FTA) has voted to join the IFA group. The vote took place at their General Meeting on 3^rd June with an overwhelming majority voting for the proposal. The FTA itself has nearly 600 members who will now become affiliates of the IFA.

David Woodgate of IFA group said, “At a time when there is a greater focus on the role of tax agents, and tax business is an increasingly important part of the work of IFA members in practice, this opportunity was too good to miss.”

It is likely that the FTA will retain its name, effectively becoming the specialist tax grouping within IFA who will now promote FTA services alongside their ongoing promotion of existing services. This means that members of the FTA and IFA will now be offered a wider range of benefits.

The IFA regularly hold regional and national events which members of the FTA will now be eligible to attend. Paul Harmsworth of FTA will head a new FTA committee whose role will be to look after the interests of its members.

Due to new regulations, a Tax Practicing Certificate will be issued to FTA members. Some FTA members also prepare accounts and they will also require a Certificate of Compliance to practice that area of their work.

The IFA is in the process of developing and introducing new initiatives in marketing, educational programmes and plans for development, including this new affiliation with FTA. The final aim of such initiatives is to support the IFA to gain full membership of IFAC while also supporting the professionals who are working in and for the SME sector.

Glenn Andrews, an IT contractor, is petitioning the Prime Minster Gordon Brown on the issue of security clearance regulations for contractors working on delicate public sector contracts. He is requesting that that new rules are brought in to allow all IT contractors to pay for a renewed security pass whenever the previous one expires.

His petition has been lodged on Gordon Brown’s website and claims that by permitting IT contractors to ‘self-clear’ to the required level of security will offer a “better choice” of candidate to clients and will promote a healthier job market for professional freelance workers.

As the system stands at the present time, contractors are often forced to wait for as long as three months while they are checked by the Defence Vetting Agency who must grant them clearance. Although some security checks can be cleared in a few days this is not always the case and this means that often contractors cannot take on projects which have short deadlines. The difficulty lies with current Cabinet Office guidance which states, “you cannot obtain work without a security clearance, but you cannot obtain clearance without work.”

For this reason, no IT contractor positions are being advertised by state agencies. Mr Andrews explains, “This is usually because they need someone to start right away and are not able to wait for clearance to be done, or it may be down to money as it is very expensive to get done.”

He also absolved recruitment agencies, claiming that in the majority of cases their “hands [were] tied” He continued, “Employers are dictating to them [recruiters] the need for clearance in place first, so it’s the Home Office that need to relax the rules as to who can apply for clearance.”

Mr Andrews’ security clearance expired in 2006. He has previously worked on contracts for state organisations and departments and is a highly experienced contractor. He is calling on all IT contractors to sign his petition.

The case of Stringer v HMRC has reached its conclusion at long last. This case, which was previously called Ainsworth v Commissioners of Inland Revenue, has been full of twists and turns. Essentially, though, the crux of the case was focused on two key questions: Should workers be entitled to take paid statutory holidays while they are off work on sick leave? Also should employees who have been on long term sick leave have the entitlement to be paid in lieu of their accrued statutory holidays if their employment is terminated?

The European Court of Justice (ECJ) addressed these two questions on the 20^th January and the answers have overturned the current position in the UK, which has not been welcome news for employers. Further clarification was also provided on the issue of accruing statutory holiday entitlement when sick leave straddles two or more holiday years. The House of Lords has now made its final ruling which supports the previous judgements of the ECJ.

The Working Time Directive entitles workers to a minimum of four weeks holiday. The House of Lords ruling concludes that workers continue to accrue holidays for the duration of their sick leave and must be allowed to take their holidays on their return to work or be compensated in terms of sick pay if their employment terminates.

Employers will now need to review their sickness, holiday and maternity policies and come to terms with the financial implications of this judgement. They will also have a responsibility to effectively manage sickness otherwise workers will continue to bank plenty of annual leave days whilst off work for long periods of time.

Employees can now use this ruling to challenge those employers who continue to deny workers their legal rights.

Having seen the announcements that HMRC were to ‘get tough’ with tax evaders in a targeted investigation spending 24% (£960 million) of their entire £4bn budget for 2009/10 , it has now become apparent that in addition, they are turning their investigations towards Recruiters and Umbrellas.

As part of HMRC’s ongoing review, some of the focus will turn to whether travel, subsistence and accounting expenses are being correctly paid. With three possible outcomes from the investigation, many Recruiters and Umbrellas should be extremely concerned that their incompliant practices will finally be dealt with and they should be well prepared for the consequences.

The three outcomes are simple. The first is that HMRC is happy with how the agency or Umbrella Company operates. The second, being that HMRC is unhappy, and will demand changes are made to operations. The third, being that HMRC decides the agency or umbrella should not have paid the expenses tax-free and in this case a settlement would be agreed between the parties, with one or the other agreeing to pay the tax due.

This is a very serious concern for many involved within our industry. However, agencies that deal with reputable, fully audited and compliant Umbrellas, such as Crystal Umbrella, need have no cause for concern as they can be rest assured that all practices and operations are well within HMRC regulations.

Another focus will be on the “Spotlight Campaign” which is being utilised to weed out those unscrupulous companies which still allow UK contractors to take their money offshore and get out of paying their social contributions used to maintain and balance UK Plc.