Crystal Umbrella

The Leader of the Conservative Party, David Cameron, is urging the government to select IT contractors from a wider range of sources, rather than always awarding contracts to large technology companies, such as Capita. He said that these jobs should not always be reserved for “the big players” and that smaller outfits should also have the opportunity to provide these services for the government.

During a speech in London, Mr Cameron said that these smaller outfits may well be voluntary groups or small firms but either way they would typically be “inventive and doing exciting things.” Mr Cameron’s speech backs up the Conservative Party stance on freeing the government and, indeed, the marketplace from “monopoly supply” situations.

He continued, “At the moment in the civil service there’s a sort of mentality of ‘no-one got fired for giving the contract to Capita. We’ve got to have a culture that’s a little bit more experimental and is prepared to take a leap sometimes with a small organisation.”

George Osborne, Shadow Chancellor, spoke in January of plans to open up the Whitehall’s IT outsourcing in a move which he claimed would save £600 million per year and would result in a “better IT deal for the taxpayer”. His plan included large projects being divided into smaller, manageable pieces which could be individually sourced out, therefore several companies and contractors could be working on the same project instead of the contract being awarded as a whole to one large company.

High Street accountancy firms have been investigated by Freelance World, a contractor services company based in Aberdeen. Freelance World carried out their ‘mystery shopper’ survey which found that many high street accountancy firms have little or no knowledge of legislation pertaining to contractors such as IR35 and Managed Company legislation. They also noted that many of the firms they approached had a “worryingly vague attitude to the need for compliance within the legislation”.

Managing Director of Freelance World, Alasdair McGill said, “We have been genuinely alarmed at the poor advice being given by some firms to prospective clients. It is like going to a GP for treatment when you really need to see a specialist consultant. It is quite clear that many high street accountancy firm simply do not have the expertise to advise contractors on key legislation, compliance and management of their specific requirements.”

He continued, “One accountant offered an off-the-shelf incorporation service – a practice that is prohibited by the Managed Service Companies legislation of 2007. Another told a researcher that they ‘didn’t need to worry about IR35′”

Worryingly, one firm that was approached by the researchers said that IR35 “had died a death”. The repercussions for a contractor accepting that advice could be large HMRC fines and possibly even long term credit problems due to non-compliance. Contractors are therefore advised to only use specialist accountants.

Jonathan Djangoly, Shadow Minister for Corporate Governance and Solicitor General has given an interview in which he discusses important contractor issues such as IR35, income shifting and the Agency Workers Directive.

Djangoly, who is also MP for Huntingdon, said, “The regulatory atmosphere for business has become totally over the top and it’s not just over-regulation but the very process by which government consults with business.”

Djangoly stated that the IR35 is on the Conservative Party agenda and would be looked at closely by a Conservative government. He commented, “We have to ask whether we should simply scrap IR35 and return to pre-2000 conditions, or whether we should amend the legislation. We are aware that there will be unintended consequences if IR35 is simply scrapped, with nothing to replace it.”

Djangoly confirmed that he is in contact with the stakeholders of the Agency Workers Directive. With regards to this hot topic, he had this to say: “We have accepted that the deal is done and the Agency Workers Directive will be put into law. The reality is that different organisations have very different views on its implementation. However, the one thing that very nearly everyone agrees with is that we should be calling for a delay in its implementation. This is for two reasons. Firstly, with the current economic climate, it is the wrong time to introduce further regulation that increases costs for business.”

On the issue of income shifting policies, Djangoly said that the current Labour government has yet to indicate whether or not they will be introducing income shifting legislation into this session of parliament. The conservatives stance is that “these would constitute yet another tax increase and place an increasing regulatory burden on small businesses.”

He continued, “And secondly we should wait to see how other countries implement the directive first. The UK will be the country most affected by the directive, so why should we be the first to implement the legislation?”

Djangoly has provided an insight into how the current regulations and policies may develop if we has a Conservative government but only time will tell if the Conservative Party will win the next General Election and, if so, how his comments will be put into practice.

Source: Contractor Calculator

A tribunal ruling which has awarded employment status to a contractor could have far reaching repercussions for the thousands of contractors in the UK.

An Employment Tribunal in Watford has found that Andrew Tilson, who was paid by Alstom Transport through both a limited company and a separate payroll organisation, should be regarded as an employee of the firm under the Employment Rights Act 1996. As such, Tilson then has the rights of all employees under the Act, including the right to claim unfair dismissal.

Alstom had claimed that Tilson was self employed as he worked through a limited company and therefore did not have an employment contract.

Tilson was represented by Mark Sahu of Harold Benjamin. He was successful in his argument that the factors which determined Tilson’s employment status were the work that he carried out on behalf of the company and the way in which this work was structured, not the fact that he paid his own income tax and National Insurance contributions

The Tribunal judge found in favour of Tilson, as he stated that he and Alstom had a close working proximity and that was they key factor in determining his employment status as an employee.

Cyril Dennemont, Partner and Head of Employment at Harold Benjamin Solicitors said, “This is a significant judgement as it followed the latest Court of Appeal guidelines on employee status, as reviewed in James v Greenwich Borough Council. Having been promoted to a senior managerial position in March 2006, the work he did and the wide range of duties and responsibilities he had for the company and the manner in which he was supervised on a day to day basis meant that, in effect, he was deemed to be an employee.”

The treasury has revealed that there are no current plans to alter the restrictions on pension tax relief for high-earning contractors. Contractors have discovered a way to work around this depending on your income bracket.
The pension simplification rules were introduced in 2006 and have been widely used by thousands of contractors to significantly reduce their tax bills. These rules allowed freelance workers to make ‘employer’ contributions up to £245,000 annually which was a very effective tax planning tool. The treasury is now planning to cap this tax relief at £20,000. This should come into effect by April 2011.
In order to prevent people trying to make the most of the current rules while they are still in effect, a set of interim restrictions has been applied.
If you have earned over £150000 from all income streams in the past two years or if you expect to do so in the tax year 2009/10, there is a special allowance that will cap what you and your company is allowed to pay into your pension fund.
However, high earning contractors who have been making regular pension contributions prior to 22nd April 2009 will be allowed to continue making these contributions at their existing level, even if these contributions exceed the £20,000 limit.
If you do fall into the higher earning category, you will still be able to make contributions over and above £20,000 but you will be personally responsible for the higher rate tax relief on any contribution made by you or for you. This reclaim of the twenty per cent tax relief will be made via self assessment tax returns.