Crystal Umbrella

The PCG carried out a survey on National Freelancers Day which asked for the opinions and experiences of 1600 freelancers. The results have shown that, with the exception of business services, IT contractors have been affected more by the recession than contractors working in any other sector. A massive 70 per cent of contractors working in computer services stated that work for IT contractors had become more difficult to find since the start of the economic downturn. In fact, only 16 per cent of IT contractors had not experienced an effect on their pipeline of contracts during the recession.

Of course, other sectors have been affected too. 60 per cent of engineers surveyed have experienced a reduction in contracts. However, the lucky few working in sectors including journalism, PR/Publicity and other creative roles had not experienced as severe an effect from the recession.

Speaking about these findings, a spokesperson for PCG commented: “Due to the fact that IT contractors tend to work for big clients, such as financial institutions and government departments, it is more likely that in the recession they will shed contractors as a savings exercise. There is a greater propensity for big business and large departments to outsource and look for the most efficient way of managing this procurement process.”

One contractor who took part in the survey commented that IT jobs within the public and  private sector were always vulnerable to outsourcing, with or without a recession, although  a recession does make the contracts even harder to come by.

Much focus has been placed on the key themes of the Chancellor’s Pre-Budget Report, however, there have been many more low-key messages within the speech including the confirmation that HMRC would be keeping their ‘equitable liability’ powers. These powers award HMRC the discretion to write off tax when it would be ‘unconscionable’ for them to pursue it.

Back in 2008, a review of tax concessions listed equitable liability as a practice which should be abolished from 2010. The Chartered Institute of Taxation then campaigned against this.

Responding to the news that equitable liability would remain, CIOT’s Andrew Hubbard said: “This is very good news indeed. The most vulnerable in society need protection when things have gone badly wrong, even when they themselves may have caused the problems by their own action – or more often inaction – and the equitable liability practice was an important safety valve of last resort. So I am delighted that a decision has been taken to introduce legislation to put this on a proper, permanent footing.

He continued: “It is clear that the Government were caught by surprise by the strength of the reaction to their proposal to abolish this practice. To their great credit they immediately agreed to sit down with us and other tax professionals and listen to our concerns. We presented a careful analysis of the legal background to the practice and suggested ways in which the practice could be given legislative effect, and we coupled this with a number of real examples of cases where equitable liability had been used to prevent what would otherwise have been a wholly inequitable result.”

The Chancellor used his Pre Budget Report to outline plans for dealing with offshore tax dodging. Previously HMRC only had the power to fine tax dodgers a maximum of 100% of the unpaid tax but this will now double to 200%. This is one of the aims set to save the government money lost through lost tax – a figure which currently stands at £5bn per year. The government also stated that tax evasion cost them £40bn in 2007-2008 financial year alone.

The government stated: “Legislation will be brought forward to ensure that those who fail to declare offshore tax liabilities will face the tough penalties attracted by deliberate tax evasion. There will also be a new requirement to notify HMRC when opening offshore bank accounts in certain jurisdictions, supported by a separate penalty regime. Evading tax offshore could therefore result in combined penalties of up to 200% of the unpaid tax.”

HMRC is currently advising people and companies holding money offshore to take advantage of their ‘disclosure opportunity’ and thus benefit from reduced fines as long as a request for disclosure has not already been made by HMRC. The deadline for this disclosure is January 4^th. The penalty for those involved in this scheme will be limited to 10% of the tax owed although they will still be liable for interest on the tax.

Talking about his latest campaign, the government commented: “This is the last chance for offshore tax evaders – of they do not come forward now, they can expect much tougher penalties in the future.”

Freelancers and contractors have been left disappointed by the Chancellor’s pre-budget report. In fact the sector has once again been left feeling irrelevant despite the important part that contractors will play in the recovery of the economy.

There had been hope that the PBR would promise to repeal the controversial IR35 rule but this did not happen. Contractor accountant, Brookson, fear that the Chancellor missed an opportunity with their managing director, Martin Hesketh, stating: “It is fair to say that the 2009 Pre-Budget Report has been another missed opportunity for the flexible workforce. Initially, there seems to be very little in the report which supports self-employed professionals. Yet again this shows the failure of the Government to recognise the value of this population as the economy strives to recover from the recession. As usual though, there is a lot of work to be done to examine the detail in the report to ensure that there are no major implications for the contracting market within the detailed documentation.”

He continued: “While the Chancellor did refer to the flexible workforce in his speech, little direct support has been proposed. A number of provisions have been announced to support a number of key industries, including digital, bio and low-carbon technology, to help generate both growth and revenue over the coming years. This can, however, only be seen as a potential opportunity for those operating within these sectors, which are heavily populated by self-employed professionals.”

The PCG were also in agreement that despite the Chancellor constantly referring to fairness throughout his speech, the report was actually far from fair to contractors.

John Brazier, PCG managing director, stated: “The Chancellor claimed that the UK has the most flexible labour market in Europe and yet the iniquitous IR35 was not abolished, and a categorical commitment to drop the ‘Income Shifting’ proposals was not in the PBR. This directly hinders freelancers in their work and makes the economy less flexible. PCG firmly believes that increasingly flexible labour markets are essential to get the UK out of this very deep recession.”

He concluded: “There was a lot of talk by the Chancellor about fairness, however this PBR has failed the fairness test for the UK’s 1.4m knowledge based freelancers. IR35 was not abolished, NICs are to go up in 2011, by double what he previously said and the only crumb of comfort is that the small business corporation tax rate rise is to be deferred. The borrowing figures are huge and the public expenditure cuts in years to come are bound to be savage, affecting all sectors of the economy and ordinary people.”

The Chancellor of the Exchequer, Alistair Darling, has confirmed during a TV interview with Andrew Marr on BBC1 that he will be cancelling elements of the NHS IT Programme. These cut backs are due to be confirmed in the Chancellor’s Pre-Budget Report today. However, Mr Darling did state that, despite cutbacks, there will still be opportunities for IT contractors within the healthcare sector.

The news of these cuts comes after heightened criticism by opposition parties of the increased budget for the National Programme for IT. This currently stands at £12 billion.

The original aim of the programme when it was launched in 2000 was to transform and modernise NHS IT systems. The government highlighted a need for a comprehensive update of all IT systems across the healthcare sector. The Health Secretary yesterday told the House of Commons that IT within the NHS is a “key part of delivering modern, safe, joined-up healthcare.”

He continued: “We have no intention whatsoever of canceling the programme overall, not least because it is already making the NHS safer, more efficient and more convenient for patients.”

The programme has been faced with many issues from the start, including escalating costs, work running late, a lack of support from healthcare staff and difficulties with suppliers. There has also been much controversy regarding the national health record which seems no closer to fulfillment. Many critics of the scheme have argued that national records are unnecessary.

Exactly what opportunities continue to exist for contractors in this sector remains to be seen, but should be clearer following today’s Pre-Budget Report

Home Office figures have revealed that 30,000 foreign IT workers entered the UK on intra-company transfers last year from seven companies who have their headquarters in India. The main three users of the ICT scheme were Tata, Infosys and Wipro. The figures, obtained through a Freedom of Information request, show that most of the positions filled by these ICTs were for entry and mid-level IT positions, which could easily have been filled by UK based staff. Actually none of the positions filled with Indian workers required a skills base currently in shortage within the UK.

Ann Swain, chief executive of APSCo, commented: “These figures show just how easy it is for foreign companies to bypass the UK labour market. The majority of companies relocating non-EU IT workers to the UK aren’t British companies looking to plug skills shortages, but foreign companies with their headquarters abroad moving staff to UK subsidiaries.

She continued: “Foreign companies are supposed to pay workers brought in on intra-company transfers UK market rates, but you have to wonder whether there is some economic benefit to transferring Indian workers from a low wage economy to the UK? If there is no cost-saving, then why do they do it?…These figures show that they [ICTs] are being used to fill entry to mid-level roles in which the [IT] skills used are largely standardised.”

She concluded: “There is no requirement for companies to tap the UK labour market before transferring workers from overseas. This is a major loophole which the government has failed to close, despite intra-company transfers accounting for about 80% of all work permits issued in the IT sector.”

As HMRC continue their crackdown on offshore accounts, they are now set to investigate global companies who claim to have moved their headquarters out of the UK. Tax investigators will trawl through emails and records looking for concrete evidence that the brains behind each operation have physically moved offshore.

Countries such as Ireland and Switzerland have become popular tax havens through the years and companies such as Henderson Global Investors have moved their headquarters accordingly.

Now, if HMRC investigations highlight that high level staff within such companies have not actually moved offshore, the firms are likely to be liable for large fines and they will also be requested to pay the unpaid tax that they owe.

HMRC stated: “We will be looking for substantial evidence that a move has taken place and is genuine. We will want to see emails to establish there has been a physical relocation and that the brains of the company have moved.”

Forensic accountant Richard Murphy added: “Time and again stories in the press talk about people and companies planning to leave the UK because of tax. The reality is that this is not easy because most who want to leave for tax also want to enjoy the continuing benefit of trading or having accommodation and their family here and the Revenue are rightly making it as hard as possible to get the benefits that trading and living in the UK economy offers while not make a contribution in tax to our collective wellbeing.”

As we begin to slowly move out of the recession, all eyes are on the jobs market for signs of continued improvement. The Recruitment and Employment Confederation (REC) has just released their latest Jobs Outlook report and it signals that employers’ hiring intentions are once again on the increase.

Data contained within the report shows that ten per cent of the employers that the REC spoke to believed that their permanent staff quota would rise in the next three months. In the report released at the end of the last month only five per cent of employers were predicting an increase in permanent staff. Similarly, looking over the year ahead, sixteen per cent of employers believe that their permanent staff will increase over the twelve months, which is an increase of three per cent from last month.

However, with regards to temporary staff, seventy two per cent of employers believe that the number of staff they use will stay the same over the next year. Only five percent of employers expect an increase in temporary staff over the next quarter.

Rather startling was the disclosure by forty per cent of employers that the recession had not affected their staff at all. Of course, redundancies do continue and twenty two per cent of employers are planning redundancies, although this was a reduction of two per cent from the previous month. However, as the recession continues to loom large, employers are still required to take action to cope in these difficult financial times and as such, three per cent are planning to cut employee working hours and introduce pay reductions.

Director of research at REC, Roger Tweedy says: “It is encouraging that employer confidence is slowly but surely starting to manifest itself in terms of hiring intentions. However, it is very early days and a number of employers are still making redundancies or cutting working hours. Regular data on how employers are reacting to subtle changes in the jobs market is essential and will help recruiters to plan ahead over the coming months.”

HMRC are increasingly choosing to launch IR35 investigations on contractors who work through agencies. HMRC are particularly interested in the substitution clauses which are commonly used as a test of employment status. The right of substitution clauses exist to allow another contractor to complete a piece of work in place of the original contractor.

Kate Cottrell, former Inland Revenue tax inspector, commented: “We are seeing more and more IR35 investigation cases where a claimed substitution clause has simply been treated as one clause amongst many carrying little weight in the [employment] status argument.”

While speaking to Contractor UK, Ms Cottrell stated that her experience showed “most substitution rights are unrealistic where there is an agency in the middle.” The only difference occurs when contracts are back-to-back.

She continued: “In most cases the client will state that they would expect the agency to provide the replacement, if this was necessary, and there would be nothing wrong in a contract that passed this down the line.”
Commenting on IT contractors, Cottrell said: “It all comes down to educating all the parties in the contractual chain and ideally at the outset. A contractor should seek the views of the client if they are planning to rely upon a right of substitution to take them outside IR35. On the basis that most substitution clauses are unreasonably fettered and do not work, I would recommend concentrating on the control issues in the contract which is the most important status issue.”

The founder of Ecademy, a social business network, believes that more companies are shunning permanent staff in favour of freelancers and contractors. Penny Power is an expert in business matters and she has said that this increase in freelance hiring is inevitable while the effects of the recession continue.

She said: “Businesses have hired consultants, suppliers and external advisers for a long time, but there is now a distinct shift toward a ‘networked model’ of resourcing your company rather than an ‘institutional’ one of having employees that work full time, when perhaps their niche skill is only needed for a smaller amount of the week. In a global market, that competes on costs, sourcing suppliers is the only way to keep your business competitive.”

Power’s comments are echoed by those detailed in the recent CBI report that explored a move towards more flexible workforces across all sectors. Power stated that she believes that focus will now be on freelancers’ core skills rather than their previous contracts.

She concluded: “A job is something that gives you security and ties you to the company, but only for as long as your are useful. ‘Work’ on the other hand gives you the freedom to look for the right type of work to suit you and allows you to find many people who may want you to ‘work’ for them as a supplier. Having six clients that you work for in a freelance or consultant capacity is far more secure than having one employer in the current climate,” says Power.