Crystal Umbrella

Dell has become the latest company to find themselves in the Forum of Private Business’s payment league table which serves as a ‘hall of shame’ for those companies whose payment terms are deemed unacceptable by FPB.

Dell suppliers have received communication to inform them that they will now face an additional 2 weeks waiting time before invoices are settled. This means that suppliers will now have to wait a total of 65 days before they receive payment. The communication stated that the “current economic conditions” were forcing the company to “standardise” payment terms for all of their “valued” suppliers.

The government has been striving to ensure that small firms have their invoices settled promptly but Dell’s decision is completely at odds with this. The FPB commented: “When they receive a letter like this, smaller suppliers have no choice but to agree and stay silent.”

One of the suppliers who received the communication stated: “As a ‘valued’ supplier of IT services to Dell I was dismayed to receive this notice via email regarding a change to their payment terms. Ironically, the reason for the change is apparently due to the current harsh economic climate. How is extending payment terms beyond the current draconian 50 days to 65 days going to help Dell’s legion of ‘valued’ SME suppliers, particularly when most of our suppliers demand 30 days net?”

FPB concluded: “Small businesses continue to suffer from the blight of late payment, which devastates cash flow and forces firms into administration. Companies like Dell have a responsibility to pay promptly – failure to do so can mean the whole supply chain seizes up.”

The CBI yesterday published data, which shows that spending in IT is likely to remain “broadly flat” over the next year. The CBI attributed this freeze in IT spending to the last quarter’s upturn falling short and the expectation that profits in the sector will level out over the next quarter.

Powerchex stated that there are fewer opportunities for financial IT contractors than any other contractors within the IT sector. Commenting on this news, Powerchex founder Alexandra Kelly said: “IT contractors are suffering because of a lack of new projects. When there are new projects, clients are starting to staff up the major ones with permanent IT workers. Many financial organisations are still delaying investment in support and functions [in] it.”

She continued: “There is now more willingness on the part of the contractors to go for the safer option of becoming employees which[ because of the economy] should not come as a surprise.”

Parity Resources’ Alan Rommel told Contractor UK that opportunities in the public sector had been “slower than usual to pick up”.

However, managing director of Hays IT stated that despite the focus on “cost efficiency” it is not all bad news for IT contractors. James Lloyd-Townshend stated: “[Organisations] are ultimately after professionals who can provide technical solutions in a structured and cost effective way, consequently this has led to sustained demand for architecture expertise…[and] has fuelled demand for business intelligence consultants [with] Sharepoint.”

Mr Lloyd Townshend also stated his belief  that opportunities would increase for IT contractors in the second half of 2010: “Initially we expect that senior interims will manage the majority of projects. We would then expect to see companies increasing their permanent headcount gradually as the market starts to pick up and confidence improves.”

The hopes of the contracting community were dashed last week when the Budget failed to make clear any plans to abolish the contentious IR35 rule. Instead, the chancellor merely confirmed that a review would take place. However, the Daily Telegraph then published an interview with Mark Prisk, small business minister. The interview appeared to have taken place after last week’s Budget and suggested that IR35 “will now be abolished” without quoting Mr Prisk directly.

Many accountants have taken this article as a sign of success in the long running battle against the ‘deemed payment rules’. This is the reaction from Francesca Lagerberg, head of tax at Grant Thornton. Speaking to Contractor UK she said that “the hopes for abolition looks very much on the cards” since contractors have suffered under the IR35 rule for “over a decade”.

However, following this speculation it has now been confirmed that the Daily Telegraph interview with Mr Prisk was actually conducted weeks before the Budget and he did not make any confirmations that IR35 would be abolished. This confirmation was made when Contractor UK contacted his office and HMRC who confirmed that the government’s position on IR35 stands, i.e. a review will be taking place with no guarantee that the tax rule will be repealed.

HMRC commented: “The review of IR35 is linked to the proposed wider review of small business [tax]. Until the precise terms of reference are agreed, we cannot say much more.”

The cost of self employment could be set to rise due to EU regulations. The legislation, which was only endorsed last week by the EU government, aims to give more rights to ‘assisting spouses’ of self-employed individuals which includes the rights to benefits such as maternity leave.

This new directive must become law in the UK within the next two years. The ‘assisting spouses’ legislation relates to those who help the business of the self-employed individual and have no earned income of their own. The ‘spouses’ can be married or ‘life partners’. The legislation is designed to counteract the disincentives for female entrepreneurs while also recognising the contribution that is made by partners and spouses.

As this imminent directive was introduced, recruitment firm Lawspeed commented: “ As some agencies use self-employed workers, the big question is who is going to pay for this? The answer is almost certainly not the agencies. In the current economic climate the most likely conclusion is that all self-employed workers will have to pay into the pot to meet this directive’s requirements.”

Adrian Marlowe, Lawspeed Managing Director, stated his belief that the implementation of the directive would require much consultation which would likely lead to amendments.

He concluded: “For the most part, the entitlement to leave, and some compensation for the pregnant self-employed worker, is already provided for in existing social security legislation. It will be interesting to see how the proposal is transposed into UK law in due course.”

Managing director of accountancy and tax advice firm Brookson, Martin Hesketh, has given his reaction to Tuesday’s Budget.

Mr Hesketh stated: “The challenge facing George Osborne in the coalition’s first Budget announcement has been, to say the least, extensive. It was no surprise, with over £100 billion to re-coup, unemployment levels still on the increase and the post-recession economy more fragile than ever, the Chancellor positioned the Budget, in his opening statement, as an unavoidable one.”

With regards to the self-employed, the chancellor did commit to supporting UK enterprise, however cautiously. Corporation tax was reduced for small businesses and a commitment to review IR35 has already been given. Mr Hesketh does point out, though, that the extensive public sector cuts will have an effect on contractors currently working on public sector contracts and those looking for future work.

IR35 was not specifically mentioned in the Budget but Mr Hesketh believes that the review of the contentious tax rule will be placed within the overall review of Corporation Tax. Hesketh believes this is likely to take place over five years. The government is likely to consult with such professional bodies as PCG and APSCo to name but a few although clearer details on the review process will be made public in the autumn.

One of the most startling announcements in the Budget was the VAT rise from 17.5% to 20%. This will come into effect on 4th January 2011. The Chancellor is expecting this tax hike to recover £8.1 billion of the overall savings planned for this tax year. Capital Gains Tax is also increasing to 28% for high earners.

Mr Hesketh concludes: “The Chancellor made much in his speech of making sure that Britain was seen as being ‘open for business’ and supporting those that are working hard to grow or set-up new businesses within the UK, both of which will contribute towards getting the UK’s economy back on track. The flexible workforce will play a critical part in the recovery of the UK economy and on face value, the new coalition Government appears to be making the right noises in terms of wanting to genuinely understand the self-employed professional market, which I believe the industry should see as optimistic.”

PCG, the contractor group, has responded positively to the Emergency Budget delivered yesterday by the Chancellor, George Osborne. Speaking after the speech was delivered, managing director of PCG, John Brazier commented: “George Osborne delivered an intelligent and decisive Budget which has tried to tackle the historical deficit this country faces. He stated he wanted to create certainty and stability and we believe that many of his measures will do this. The roadmap for corporation tax and the laying out of income tax changes over the course of the Parliament are welcome and will help PCG members in their businesses.”

It was also welcome news to PCG, and all contractors, that the budget Red Book reiterated the commitment of this government to reviewing the IR35 tax rule. However, the group is concerned about the guaranteed public spending cuts which will become clearer when the spending review is published on the 20^th October 2010.

PCG Head of Public Affairs, Simon McVicker, said: ”We will only really know the severity of these public sector cuts when the spending review is completed in October but many public sector contracts may end due these cuts and at least in the short term Government contracts will be severely limited.”

Also commenting on the new Budget, Anne Redston from King’s College London gave her views to Shout 99. The Visiting Professor of Taxation stated: “This Budget has left freelancers and contractors relatively unscathed on the tax front. The promise of a small business review has been firmed up, and the Office of Tax Simplification is long overdue. In this Budget the Government has set out the big picture; now they can start colouring in the details.”

The Chancellor of the Exchequer, George Osborne, will deliver his first Budget later today. It is expected that he will detail the tax rises and spending cuts which the coalition government plan to initiate in order to recover the £153bn UK deficit. There are some specific expectations from this Budget which will have a direct impact on contractors.

IR35

Treasury ministers have already confirmed that more information of the fate of IR35 would be confirmed in due course. Ernst & Young, speaking to Contractor UK, commented: “The proposed review of IR35 is likely to take the form of a consultation document. While a simplification of the provisions would be welcome, there remains a significant tax disparity between carrying on business within a small company and being self-employed. As such, the tension between tax avoidance and administrative burdens is likely to continue at least in the short-term.”

Capital Gains Tax

The expected rise in capital gains Tax has already been confirmed by the new government. It will be increased in line with income tax. High earners will be subject to CGT at a rate of 40% but relief for business assets is expected to remain. The only factor which is, as yet, unclear is when the rise will be implemented.

VAT

Currently VAT stands at 17.5%, however across the EU the average for VAT rates are between 19% and 21%. It could be a possibility that the UK rate is risen to 20% in line with the rest of the EU. However, it is likely that such a rise would be phased in over several years.

Corporation Tax

In the Conservative manifesto they stated their commitment to reducing corporation tax to 25% while further reducing the small companies’ rate to 20%. Since the Liberal Democrats’ manifesto also discussed reductions it is likely that today’s Budget will announce these reductions.

NICs

Employers’ contributions to NICs for those earning £20,000 and above will increase by 1% as proposed by the previous Labour government. However, the NIC threshold for employer contributions is also likely to increase.

Cuts in Public Sector Spending

The Chancellor is likely to announce cuts of between £30bn and £60bn in the public sector. Wages will be frozen over the next year although many public sector workers are likely to face pay and pension cuts. Speaking to Contractor UK, managing director of Parity, Alan Rommel, stated: “ Big IT projects will be stopped where they don’t drive future efficiencies. Several bodies are scheduled to close where duplication occurs or integration can support savings, while projects that don’t demonstrate big returns may also be cancelled.

He concluded: “But hopefully the front line impact will be minimal and efficiency drives the savings. Potentially IT will be required to drive those savings and, if permanent headcount is restricted, the contract market could be required to deliver the skills to generate the savings.”

Following the success of last year’s National Freelancers Day, PCG have just announced that the event will run again this year. The date for your diary is Tuesday 23^rd November. The National Freelancers Day is an opportunity to celebrate the growth of the contracting community and the contribution that all freelancers make to the UK economy.

Last year the theme of the event was ‘The Future of Work’ which ultimately resulted in the launch of the PCG’s ‘Manifesto for Freelancing’. This year, PCG have decided to centre the even around the concept of ‘Freeing up Potential’.  Particular emphasis will be placed on the flexible lifestyle choices afforded by freelancing and the continued strength which contractors bring to the economy.

Managing director of PCG, John Brazier, believes that this annual event will become an important date in the calendars of the 1.4 million freelancers in the UK. He commented: “The success of last year’s events underlined the growing importance of the freelance community to the economy of the UK. More and more people see freelancing as their ideal 21st century work choice. They see the potential of freelancing as a positive and rewarding choice for their work while enhancing their lifestyle.”

Mr Brazier concluded: “We reached out to the freelance community throughout the UK and the attendance at regional events underlined the growing confidence and pride freelancers have in their role in society.”

HM Revenue and Customs are launching an increasing number of disqualification proceedings against directors of insolvent companies. Over the past year, HMRC have launched such action against 813 company directors for failing to pay their company’s taxes. In comparison the previous year only 654 company directors faced the same disqualification action.

Philip White, Syscap chief executive obtained these figures. The financing company commented: “This is a huge increase in court proceedings against directors.” He also stated his belief that these figures would act as a “wake-up call” for any existing directors of companies who are currently facing cash flow problems. White said that they should pay heed to these figures as proof that HMRC will not be sympathetic in the face of the fragile UK economy.

Disqualification action taken against company directors prevents those individuals from becoming directors of other companies or being involved in their management, formation of promotion for a period of between one and fifteen years. They also incur unlimited liability for the losses of the companies they have been involved in. They could then face criminal charges accordingly.

White continued: “It’s all the more shocking because the number of company insolvencies has declined sharply over the last year. [But] continuing to trade while neglecting to pay HMRC is a risky strategy that could backfire if the company subsequently becomes insolvent.”

Small business minister, Mark Prisk has set out his plans to revolutionise the support systems for entrepreneurs in the UK.

His first action could be to axe the regional offices of Business Link. Prisk stated this would be his intention back in February, prior to the General Election. Business Link costs £190m per annum to run and it is expected Prisk will reach a final decision on its fate within the next two months. In their place, start ups and small companies can gain support and advice from existing enterprise agencies. Meanwhile knowledge and advice for higher growth ventures will come courtesy of ‘growth hubs’ which will be set up across the country based on the Business and Intellectual Property Centre at the British Library. Prisk’s overall aim is to increase face to face contact while cutting costs.

Prisk commented: “I remain very sceptical about the effectiveness of the existing regional Business Links and that is why I am examining them very carefully.”

He also out lined his online plans, stating: “I am keen to make sure that the intervention government offers is a modern service and that means a strong emphasis on it being online, so that it is accessible on every business person’s hand-held and desktop computer.”

Mr Prisk has also stated that he wishes to spend five days working at five different small businesses across the country and will be encouraging his civil servants to do the same.

Speaking on this topic, he said: “If I am going to be an effective voice in government and indeed the voice of government to business, then I need to better understand the current issues affecting small firms. So I intend to spend a full working week with small businesses.”

Prisk, 47, previously ran his own chartered surveying firm for ten years so his background is in business. His tour of British businesses will begin in Bethnal Green, East London at DIY Kyoto – a firm which makes energy meters and has an annual turnover of £1m. Its founders are Richard Woods, Joe Sawdon Smith and Greta Corke. This will be the first of two businesses Prisk will visit in his constituency.

Further to these visits, Prisk will be assisted by the Federation of Small Businesses whose assistance he has sought to find work placements for himself and his civil servants.

Mr Prisk has also set forth plans to allow individuals who rent council houses run businesses from home as there are currently rules which prevent them from doing so. Prisk is prepared to legislate on this matter if necessary. He said: “I have already talked to my ministerial colleagues at the communities and local government department and we have agreed that we want to remove the restraint on being able to establish a business.”

He continued: “Obviously we don’t want to remove sensible regulations on noise and nuisance but we do want to make sure that tenants can reasonably start a business just as any other occupant would be able to do elsewhere. I want to crack on with it as soon as we can.”

Concluding this issue, he commented: “In some areas, where it is written as a firm guideline, we may need to change the law. In other areas it comes down to the guidelines of individual housing associations. The key thing is to work with those bodies out there at the moment. I think many of them recognise that this is one of those hangovers from the past that actually they would like to change.”

It is also in his plans to extend the Enterprise Finance Guarantee scheme which was originally introduced under the Labour government. The purpose of this scheme is to provide government guarantees for loans made to small businesses by banks. Currently the scheme is set to end in March 2011 but Prisk would like to see it extended beyond this term. He would also like the size of individual loans available under the scheme to be increased. This would open the scheme up for medium sized enterprises also. Currently small businesses are able to apply for loans of between £1000 and £1m with terms of between three and ten years. The total guarantee offered by the scheme is for £500m. Prisk is aiming, in extending the scheme, to encourage banks to be clearer about the decision making timescale regarding loan applications.

He stated: “One of the things most small firms talk to me about is not the speed of the decision-making but the lack of certainty. One of the crucial changes is to make sure we get a more certain decision timetable…that allows you to plan.”

He concluded: “If you don’t know whether the decision is going to come in week three or week seven, it is hopeless. That element of greater certainty is a crucial part of reforming the Enterprise Finance Guarantee scheme over the next year.”