Crystal Umbrella

New research has suggested that the worst effects of the current economic downturn could be at an end for financial IT contractors. Pre-employment firm Powerchex carried out this research which showed that in April and May IT contractors were offered double the amount of jobs in financial services as they were in the first quarter. An increase of 23 per cent was noted in insurance employment opportunities and 19 per cent in the banking sector.

Commenting on their research, director of Powerchex Alexandra Kelly said, “Most firms in the sector have an official freeze in recruitment; however firms continue to recruit selectively. We are seeing a split in strategy amongst firms that operate within financial services. There are those companies that are not actively recruiting and only replacing people who leave critical roles, and on the other hand there are those companies who believe now is the time to position themselves to take advantage of any upturn by hand picking new staff from a large and talented pool of people.”

Sanderson is an IT and business change recruiter whose managing director, Nick Walrond, interpreted this new data. He said that while there have been some indications of improvements over the past two months in comparison with the previous three, there is still no comparison to the buoyancy in the jobs market this time last year.

He continued, “A lot of organisations are beginning to look at professional roles in the contracting space. A number of mergers and acquisitions and takeovers in that market is driving the need for business change professionals, such as project managers, and integration specialists.”

Following the news last week that BT had replaced British contractors with imported workers from overseas, a Home Office review into the rules surrounding migration has concluded that employers should be made to advertise vacancies in the UK before they can import staff to fill them.

The Association of Professional Staffing Companies submitted BT’s actions to the Migration Advisory Committee. They feel that the intra-company transfer system “inhibits job creation in the UK” and “undercuts” wages of UK workers.

Whilst giving evidence they said, “The Home Office should clampdown on practices which make it difficult to ensure workers brought to the UK on intra-company transfers are being paid at the UK market rate. These include paying workers in foreign currencies, in offshore bank accounts or providing accommodation in lieu of pay.”

Manager of the Professional Contractors Group (PCG), John Brazier said of the BT revelations, “Contractors are losing out, and in a recession, action needs to be taken to protect livelihoods.”

However, in terms of the recession, fresh data from two IT staffing groups has shown that the IT skills market is beginning to show signs of recovery. Powerchex said they saw a higher number of jobs offered to IT contractors in May than any other sector. Meanwhile, the REC Report on Jobs has been released which showed that even though the number of contract opportunities has shrunk overall, demand for IT contractors has, at best, remained steady, but appears to be on the increase. The report also showed that the most in-demand contractors last month were SharePoint, .NET and CNC specialists.

The Professional Contractors Group (PCG) held a round table event yesterday, chaired by their managing director, John Brazier. The key issues on the agenda were the legal definition of the term ‘contractor’, how to influence political parties ahead of the general election and how the negative effects of the ‘Agency Workers Directive’ can best be tackled.

This event was attended by stakeholders from sector, industry and national bodies along with recruiters and industry commentators. There were speakers from the Recruitment and Employment Confederation (REC), the National Union of Journalists (NUJ), tax specialists and an Emeritus Professor of Employment Law. The PCG had invited a government speaker to attend but the invitation was declined.

The different terms for contractors were discussed as used in different industries such as freelancers, interims, locums and supplies. Information gathered at the event suggests that politicians view only full time employment as the ‘proper course’ and therefore contractors are seen as ‘deviant’ for not following this route. With regards to defining contractors in the employment law statute books it was agreed that they must make a distinction between contractors and traditional small businesses.

It was agreed that contractor bodies hoping to influence political agendas must reach agreement now as manifestos are currently being created. One speaker, however, warned that no political action on contractors will happen quickly as it will take until the next election – to be held no later than 3^rd June 2010 – for pledges to reform legislation to be written into manifestos and then at least another year for implementation by the victorious political party.

The EU has driven the Agency Workers’ Directive and this was widely recognised at the meeting. This has been particularly problematic as there is no understanding of the flexible workforce which is represented by freelancers and contractors in the UK using agencies who effectively act as sales and marketing departments to contractors. Also, it is difficult to reach an understanding of what constitutes a ‘vulnerable worker’. The implementation window for this directive is April 2010-October 2011. A consultation is in process by the Department of Business, Innovation and Skills on its implementation.

The consensus of the day was that contractors continue to be poorly defined and understood despite providing a necessary and valuable service to UK PLC.

It has been revealed that IT budgets are being cut by around 10% across the board despite corporate technology leaders being given assurances to the contrary. Department heads who were given a ‘finalised’ budget have found that the budget has now been cut further. This has been accredited to higher levels of management having a deeper understanding of the ongoing effect of the economic slowdown.

These further cuts are believed to be affecting around 46% of CIOs across all sectors and are based on figures from the first three months of this year. The indication is that the majority will reduce their spending on IT by at least 7%.

Gartner’s analysts have been comparing how IT budgets are doing during this recession against the prediction back in December that they would weather the storm. Back then, most CIOs stated that they would effectively freeze their IT budgets for the year, indicating a tiny increase of 0.16%. This has been the case for half of CIOs but with an equal number now cutting their budget, this results in an overall reduction of 4% on IT spends across the sector.

According to Gartner, a reduction in headcount and renegotiation of contracts with external workers would be top of the list in terms of cost cutting. SQ Personnel’s Bernie Potton commented that he would expect to see, “much belt-tightening” in companies that use IT contractors over the next few months. He continued, “I think the view that the [IT jobs] market may have reached its bottom and is beginning to turn is based on optimism rather than any firm figures or facts. We are still finding our PSL clients not doing much recruiting, permanent or contract, with the obvious difficulties in opening up new clients when they’re not recruiting too.”

Thanks to Contractor UK for the initial report.

An investigation by Radio Four’s File on 4 has discovered that British IT contractors have been losing out on jobs to non-EU workers because they are cheaper. This programme had previously uncovered BT’s large-scale use of ‘onshore offshoring’ in their quest to reduce costs. A former BT contractor was told that he was being replaced by a worker from India who would cost about half of what he was costing. BT themselves said that they were trying to stop depending so heavily on contractors and that the Indian company was merely providing them with specialist staff.

Businesses can use intra company transfer visas to employ staff from outside the EU, permissible through immigration law if the staff can provide skills which are not available in the UK. BT said that they have a “long standing relationship” with Tech Mahindra and are now just tapping into their “highly skilled workforce”.

The Professional Contractors Group (PCG) has condemned this situation. Their managing director, John Brazier, said: “We had been hearing for some time from contractors that BT may perhaps be one of the worst offenders, replacing contract staff with workers on Intra-Company Transfer visas. Such behaviour reduces opportunities for IT contractors that exist in the UK, and in a recession opportunities should be created, not limited.” He continued, “We believe the system should be amended, and Professor David Metcalfe’s recent comments stating that the Migration Advisory Committee (MAC) will be exploring potential options for doing so are encouraging. We will shortly be making our submissions to the MAC calling for significant amendments to the system. Ideally we would like to see no position filled by Intra Company Transfer without first enduring that no UK worker is available to fill the post.”

High-earning UK contractors are set to have their ability to financially plan for retirement penalised by new tax laws. Tony Harris from Contractor Financials, Independent Financial Advisors (IFAs) comets, “Until now, contractors have legitimately used pension contributions to invest tax efficiently and to plan for their retirement – a strategy strongly encouraged by a government keen to get people to save for their futures.” He continues, “Removing and reducing tax relief sends some very mixed messages. This is especially concerning as there’s an element of retrospective taxation which is against long-established principles of taxation policy.

Prior to the Budget in April, contractors we allowed to invest sizeable amounts into pension funds as per government recommendations. However, the Chancellor has announced these changes which mean that from April 2011, contractors who earn over £150,000 per annum will no longer have tax relief contributions to pension funds.

To prevent contractors who attempt to plough large sums of cash into funds prior to these rules coming into effect in 2011, the Chancellor has put “anti-forestalling rules” into place. This means that contractors earning £150,000 and above will only be in receipt of tax relief at the rate of 20% on contributions to their pension above £20,000 which is the ‘special annual allowance’. Contractors earning below this amount could effectively plough the lot into their pension fund. Any contractors paying money over and above the limit will be required to pay back the difference between the basic and higher tax relief rate through their tax return.

Tax relief benefits still apply to those who have paid regular contributions to a pension fund before 22 April 2009, even if they exceed the £20,000 limit, providing the regular payments are maintained.

The newly formed Association of Recruitment Consultancies (ARC) has declared that the directive for agency workers to be awarded the same rights as permanent members of staff after a period of twelve weeks should be abandoned. They believe that these plans would dissuade employers from taking on new staff and would destabilise the ability of the UK to keep ahead of competitors, both of which are necessary to support the restoration of a healthy economy. Many freelancers neither need nor want these protective measures, worrying that it would prevent clients from wanting to work with them.

The ARC is recommending a two-tier system which would allow vulnerable agency workers to retain those rights after twelve weeks thus avoiding exploitation. Those contractors who do not meet these criteria, however, would have the freedom to work on complex contracts for longer without being subject to these protective measures.

The UK blocked the EU Directive for many years but finally came to an agreement with the CBI and TUC last year. Adrian Marlowe, Chairman and co-founder of ARC commented, “The 12 weeks agreed by the CBI and TUC in May last year took the recruitment industry by surprise. The idea that it is a done deal and not open to review is simply not correct, and this should be part of the current discussions. ARC has gained widespread backing for our plan. We have written to the CBI and BERR to open urgent discussions, and we need action now, before the new legislation comes into force.”

The Keep Britain Working campaign has carried out a new survey which reveals the effect the recession has had on working in the business services sector. 28% have been affected by a reduction in salary while 25% have taken a reduction in working hours. Also 22% have lost their benefits package.

This level of flexibility is unparalleled for permanent employees and their employers but contractors and freelancers have long worked in this manner and it is certainly good news for contractors. UK organisations are realising the benefits of an adaptable freelance workforce that has no associated employment risk.

The 1.4 million strong workforce of contractors has been credited with making the UK a very appealing place to do business. It is satisfying to these workers that their flexibility and creativity has been proclaimed to be the saviour of the UK economy.

James Reed from Keep Britain Working commented, “The UK workforce has demonstrated unprecedented flexibility during this recession allowing organisations to explore a whole range of cost-cutting responses, other than relying solely on redundancies.”

Further research by Harvey Nash, a specialist IT recruitment firm, demonstrates that within the next 12 months there is likely to be a wealth of work opportunities for contractors throughout Europe as 76% of senior IT executives plan to outsource more opportunities in IT, project management and interim management.

Only time will tell if employers only enjoy a flexible workforce during the economic downturn and return to a more permanent employment structure once the economy has recovered. However, if employers do decide to stick with this model of flexible working, it could open up significant opportunities for contractors in the future.

The Professional Contractors Group (PCG) have condemned the MP expenses scandal after it was revealed that nine cabinet members, including the Chancellor of the Exchequer, claimed on their parliamentary office allowances for the professional help they hired for assistance with their personal taxes.

John Brazier, managing director of PCG commented, “This is frankly galling. Tax rules prevent most people claiming the cost of employing an accountant to handle their self assessment return. There seems to be one rule for cabinet ministers but another for the rest of us. This is morally indefensible.”

The freelancer trade group stated that the current system for small businesses is too complicated and the tax and regulatory framework which applies to them is unjust. Freelancers are burdened with a convoluted tax return to complete due to the vague guidelines associated with the contentious IR35 legislation. The complex nature of these tax returns leads many freelancers to seek professional help with their self-assessment returns, yet these are classed as private expenses and are therefore non tax-deductible.

Brazier continued, “A normal taxpayer completing the self-assessment form has to be not just accurate, but able to prove with hard evidence that they are paying the right amount of tax. Failure to do so can have very serious consequences.”

“For the freelance contractor there is a significant cost in making sure the self assessment return complies with the raft of tax legislation which constrains small businesses and subjects the employment status of the individual freelancer to obscure and ambiguous rulings.”

The idea of naming and shaming those who deliberately default on their tax responsibilities arose during last month’s Budget. This year’s finance bill will include legislation allowing HMRC to publish details about individuals and companies who have received a relevant tax penalty following an enquiry and if the tax loss is in excess of £25,000.

Odos Consulting have commented on what this could mean. They state that the circumstances resulting in a relevant tax penalty are:

· Taxpayer deliberately providing inaccurate information

· Taxpayer deliberately providing false information

· Taxpayer deliberately withholding information

· Taxpayer failing to notify HMRC

· VAT penalties for deliberate action

HMRC will be given permission to publish the person’s name and address. This includes the trading name, any prior names or pseudonyms, and the registered office. They can also make public the type of business this person is involved in. In order to shame the perpetrators, details of the amount of tax, interest, penalties and the period to which the default related will be released. HMRC will also be able to make public any other information which they consider to be appropriate in order to clarify the person’s identity.

HMRC will be required to notify the taxpayer before publishing their details and they will have the opportunity to make representations to HMRC. They will only be able to publish details after all appeals against additional tax and penalties have settled and within the 12 month period of the penalty becoming final. The lists will appear quarterly on HMRC’s website and will remain there for 12 months before being removed. Taxpayers will be given the opportunity to be spared from being named and shamed by making a full disclosure to HMRC of their defaults within a permitted timescale.

IF HMRC made a successful IR35 challenge for one or two years, it could conceivably result in a £25,000 tax loss. With the new penalty regime in its early stages it could be tricky to determine how Inspectors of Taxes will determine deliberate acts. Therefore a contractor could be facing the possibility of HMRC publicly naming and shaming them. The subsequent impact on a freelancer’s business could be detrimental.