Crystal Umbrella

Since April of this year, the government has reclaimed more than £125,000 in unpaid wages for agency workers. This has been carried out by the Employment Agency Standards inspectorate who have been given more powers over the past year. They have managed to win back more than double the wages in these past four months than they did in the whole of last year.

Situations in which they have successfully recovered wages include £17000 for four engineers from West Sussex, one of whom had to sell his car in order to pay rent. They also won back £30,000 from a London modelling agency which had folded. This money accounted for the lost earnings of 55 models.

Pat McFadden, business minister said: “I’m pleased that the bigger, more powerful agency standard team is out there delivering results for agency workers. The recession should not be used as an excuse to deny people their employment rights, and the agency standards inspectors are a crucial tool in ensuring this.”

Alongside claiming back unpaid wages, the EAS team also work to recover monies that have been wrongly deducted by agencies or where workers have been charged for agency services which they had not requested or signed up for.

Managing director of The Employment Agents’ Movement (TEAM), Kirsty Craig commented: ‘This sort of behaviour does our industry no favours whatsoever and while most recruitment agencies more than fulfil their obligations to their temporary staff, there are others who consistently flout the law time and again. These people need to understand that they are not above the law and that appropriate action will be taken.”

Congratulations to IT contractor Ian Boylett, who, after submitting the recent Crystal Umbrella Customer Survey, was the lucky winner picked out of the hat this week.
Ian takes home £250 worth of vouchers, and Crystal Umbrella would like to take this opportunity to thank everyone who completed to survey. The results are an integral part of our strategy to offer superior services to both contractor and agency.
Once again, congratulations Ian.

Japanese electronic firm Fujitsu has announced 1200 job cuts within its British IT services unit. Fujitsu have attributed these redundancies to reduced client spending and have deemed them “reluctant” but “necessary”.

Analysts had predicted the redundancies as Fujitsu had been hit rather hard by the economic downturn. In a bid to avoid paying off permanent staff, Fujitsu had previously reduced its contractor pay rates by 15% as a ‘take it or leave it’ ultimatum. They had also frozen permanent staff salaries and curtailed pensions. They had then reduced the number of contractors that they used.

Fujitsu released the following statement regarding the new redundancies, “This measure [a reduction of 1200 jobs] is being proposed because of lower than anticipated revenues.
Fujitsu has proposed this measure reluctantly. However action is necessary to ensure that the company remains competitive in the current difficult global economic climate and is in a solid position for future growth when the economy starts to recover”

However, the Unite union has slammed the announcement of redundancies at Fujitsu, calling them “wholly unwarranted” in light of the company’s recent profits.

Unite national officer for IT and communications, Peter Skyte, commented: “These proposed redundancies amounting to 10% of its UK workforce are wholly unwarranted given that the company made £200m profit last year. It even paid two directors £1.59m in compensation for loss of office. Unite is pressing for detailed information about the reasons for this proposal and the areas affected. We will be doing everything possible to protect the jobs of the workforce.”

The Institute for Chartered Accountants in England and Wales (ICAEW) recently conducted their Business Confidence Monitor (BCM) survey which resulted in the first positive reading for two year. The findings concluded that optimism had increased from -28.2 to +4.8. Some have commented that the results of this survey, amongst others, show that Britain is now coming out of the recession.

As a response to these claims, the ‘Recruiter’ has spoken to several recruiters throughout the country to get their thoughts, which have been mixed.

Managing Director of Armstrong Human Resource in Oxfordshire said, “I think there is certainly some movement going on. August is a particularly difficult month anyway. You can’t gauge what’s happening at the moment. Our temporary workforce is building up but whether the recession is over, I am not sure about that.”

Director of Conceptuality, Spencer Symons was much more positive, commenting: “January to mid April was pretty horrendous. Since then it has been pretty fantastic. We have got more vacancies than we have ever had. We placed more vacancies on contract on perm in IT and engineering in the past three months than we have in any previous year. We are also recruiting consultants for the first time in eight months.”

However, the director of Brightwork Specialist Recruitment, Shan Saba was certainly not as positive, stating: “The feeling we get from our clients is that it is far from over. Our client base in the surveys we have been conducting is there is more to come and it is not going to get better sooner.”

Only time will tell whether the increased optimism from the Business Confidence Monitor is warranted.

As news comes that the government is set to toughen the rules regarding intra-company transfers, figures have been released which show that twice as many IT workers were imported into the UK last year than workers from all other industries combined. This was despite the number of IT workers who were out of work in the UK due to the recession. Throughout 2008, 29,240 non-European IT workers were brought into Britain using the intra-company transfer system. Only 14,255 non-European workers came into the country on intra company transfers to work in other sectors, including finance and telecoms.

The original theory behind intra-company transfers was that employers could transfer workers who had necessary skills that proved difficult to find within the UK. However, the Association of Professional Staffing Companies who have obtained this data under a Freedom of Information request, found that the majority of these workers were imported from India and were working at software houses. The Association believe that all vacancies must be advertised in the UK before companies should be allowed to import workers. As it stands there is no obligation on companies to do this and as they can often pay the foreign workers a lower wage, these transfers are often used in a bid to cut costs.

Now, the government have disclosed their plans to tighten up the rules of intra-company transfers. Companies will now have to prove that no UK worker is being displaced by the introduction of a non-EU worker. The Association of Professional Staffing Companies believe that this does not go far enough. They have stated that the decision not to insist on positions being advertised in the UK first was “disappointing”.

‘Intra Company Transfer’ work permits have received much negative press of late owing to their reputation for displacing skilled workers, including IT contractors. The government is being advised on this issue by the Migration Advisory Committee (MAC)  but is choosing to take a tougher stance than the MAC is recommending. They have advised that all that is required is for the existing rules to be more stringently enforced. However, the government have over-ridden this advice and decided to ban the use of ICT to replace a UK worker.

Managing Director of the Professional Contractors Group (PCG), John Brazier commented in a press release: “The government is to be congratulated on taking a tougher line on the ICTs than the MAC recommendations, exactly what PCG has been calling for. This new measure seems to send a clear signal to those abusing the system: replacing highly skilled contractors with ICT workers will no longer be tolerated.”

He continued: “However, the new rules are still too vague and we will be seeking clarification from the government on their exact implications. It must be totally clear that firms cannot work round the system and seek loopholes.”

MAC has advised the government that they should lengthen the time an ICT migrant has worked for the company, from 6 months to 12 months, prior to being able to work in the UK.

As it stands, ICTs are the simplest work permits to acquire as there is no requirement on the company to prove that the position could be filled by a worker in the UK. Companies can, and often do, transfer in thousands of workers at a time. Currently 65% of ICT permits are for the IT sector.

Speaking about the MAC report, John Brazier said: “These additional changes, though welcome, simply do not go far enough. It is certainly true that the government needs to take a harder line on enforcement, and we strongly urge that they do so, but we wanted to see the MAC come up with more specific measure to protect the UK’s freelance workforce.”

He concluded, “Freelancers are key to the UK’s future economic recovery, and we will continue to campaign hard for more stringent ICT rules.”

HM Revenue and Customs brief 50/09 stated that non-compliant umbrella companies were due to come under close scrutiny. Speaking to Contractor UK, Bob Jones, an independent tax expert who previously worked as an inspector of taxes for HMRC, has said that we must look to the past when umbrella companies existed alongside composite companies to fully understand this brief.

Jones reminds us that both composite and umbrella companies allowed travel expenses for tax purposes. Composite companies, however, also had to use dividends in order to avoid the necessity for payment of employers national insurance contributions and they had to ensure they worked outside of IR35. Of course, the introduction of MSC legislation was supposed to deal with this issue but the MSC legislation did not include umbrella companies. Jones states, “I knew from my time at HMRC that there was serious concern over the travel expense effect of umbrellas”.

The fact remains that a person needs to be required to move between workplaces during a period of employment for travel expenses to be permitted for tax purposes. It is the continuity of an overarching contract through an umbrella company provides that allows someone to claim travel expense, even when working at only one specific location for each specific employer. This is only the case if the overarching contracts meet the specifications laid down by HMRC and many of them do. This, however, was not the aim of the legislation and, therefore, Jones comments that the HMRC have been faced with the difficulty of how to deal with this situation.

The granting of dispensations has, perhaps, occurred on occasions when the appropriate checks have not been made. Jones says, “…there was a time a few years ago when the staff dealing with dispensations would be unaware of exactly the nature of an umbrella company. In fact, the term ‘overarching contract’ had probably not been thought of and consequently any umbrella companies at that time would have been granted a dispensation with the minimum of effort. It follows, therefore, that there are perhaps umbrella companies out there who do not have overarching contracts and/or whose dispensations are of doubtful validity.”

Jones states that HMRC will exploit any flaws or discrepancies in day-to-day bookkeeping. He also states, “have no doubt that HMRC will scratch beneath the surface to see whether overarching contracts are applied correctly in practice.”

Brief 50/09 also refers to umbrella companies who may be flouting minimum wage legislation. £5.73 is the minimum wage but some employers may include expenses within that figure, therefore reducing the actual minimum wage and applying tax and national insurance to the net figure.

Jones comments that HMRC do not know how many umbrella companies there are, which makes it difficult to know which they should be investigating. This is the reason why HMRC have now asked workers and end users to contact them with any cause for concern.

Umbrella companies who are not operating correctly face a huge financial implication. Jones gives the example: “Say an umbrella has not been operating its dispensation correctly as a result of which there is then the tax loss of £100 per employee per year. If there are £500 employees and five years that is a quarter of a million pounds – add interest and a hefty penalty – and, well you can work it out yourselves.”

Brief 50/09 should only be of concern to those umbrella companies who have given their workers, end users or HMRC reason to believe that they are not operating as they should be.

Accountancy body ICPA has disclosed that thousands of businesses, including many who are struggling financially through this economic downturn, are still waiting for tax refunds. The delays in issuing these refunds have taken so long that HMRC have been forced to issue a standard apology. They have stated that these delays are due to extra security checks that are being carried out by a specialist department in Bristol.

Tony Margaritelli, chairman of ICPA commented: “Refunds are taking an interminable amount of time. Many accountants are pretty unimpressed by the excuses – the general consensus is that the Government wants to hang on to the money as long as possible and has asked HMRC to drag its feet by delaying payments.

He continued, “What is most galling is that HMRC have been encouraging accountants to file self-assessment for clients because refunds are automated and should come through within days. They are sending many more claims for ‘scrutiny’ on a completely random basis. Last year the system worked reasonably smoothly, but this year payments that previously would come through in a matter of days are months overdue.”

Mr Margaritelli also said that these extra security checks raise serious questions about the processes used in previous years.

He said: “Everybody understands that there should be checks because the Exchequer shouldn’t give away money willy-nilly. But it is how they have gone about it that is puzzling – are they saying they’ve been lax in the past? It gives everyone the impression that last year HMRC paid significant refunds that weren’t due.”

An IT contractor who has been the subject of an IR35 investigation for the past five years has finally won his case against HMRC. This freelance worker had provided an abundance of evidence to prove that he was self-employed and not subject to the control associated with working for anyone else, yet HMRC began investigating him at the end of 2004.

This freelance worker has been supported by the Professional Contractors’ Group (PCG) throughout this process. They have commented that despite HMRC probing this freelancer for nearly five years, they did not even come close to proving that he owed them taxes as a result of having ‘employee status’. The group said that one of the main issues was that HMRC did not understand the way that he worked or the manner in which he worked for his clients. Unfortunately this is a common misunderstanding between contractors and HMRC.

The freelancer in question actually closed his company which the PCG said left “no way of paying the liability”. HMRC themselves held up the investigation, at one point taking five months to reply to the freelancer’s adviser.

The IT contractor changed his adviser to Accountax to coincide with the case going to independent review in June. Accountax compiled a six page report which detailed the manner in which he worked and the failings of HMRC throughout the investigation process. Last week, Accountax were contacted by HMRC to say they were now dropping the case.

PCG made this comment on their website: “This case demonstrates the fundamental importance in arguing IR35 enquiries forcefully and applying the pressure on HMRC. Over four years worth of distress and painstaking delays for the PCG member neatly tied up within 9 months simply because the pressure was put on the inspector to reply to all points, on time. For the contractor’s part, he said he felt his adviser’s efforts in recent months had forced the Revenue to withdraw, and added he was ‘delighted the nightmare was over’.”

HM Revenue & Customs (HMRC) is set to hold a number of Business Advice Open Days across the next few months. These new dates, organised by the Business Liaison Team come off the back of the successful Business Advice Open Days which were attended by over 10,000 in 2008. At these events, contractors, self-employed workers and small-to-medium enterprises (SMEs) can gain invaluable advice and technical support. HMRC have advertised these free events as an opportunity for experts to provide advice and information on government regulations, tax and cash flow issues. Seminars on pertinent topics are also held at these events. It is advisable to book your place if you wish to attend one of these seminars as numbers are limited.

Advice will be offered on the Business Payment Support Service through which businesses may be able to delay paying their tax bill. Advisors will also be on hand to discuss issues specific to the self-employed.

These events are due to take place in Birmingham on 16^th September, Bournemouth on 1^st October, London on 6^th October, Londonderry on 5^th November and Barnsley on 12^th November. There are also a number of events scheduled for 2010.

HMRC business liaison team manager, Roger Lovell, commented: “HMRC runs a number of schemes to make tax as hassle free as possible, and engages with our customers. And our attitude has always been to assist businesses in short term difficulty so that we can help keep viable businesses afloat. Our partner organisations will also be on hand to explain their services and how they can help SMEs.”