Crystal Umbrella

Contractors who work through umbrella companies instead of their own Limited Companies may be relatively safe from unwelcome entanglements with IR35 legislation – but this doesn’t necessarily mean that they’re completely out of the HMRC frying pan. With deficit reduction being the superordinate priority of the UK’s coalition government, HMRC is making it plain that it intends to collect every penny of tax from the citizenry that it can find.

Anyone who has held two or more jobs during the course of a single tax year could well attract the scrutiny of the tax man, which means that agency temps and employees of umbrella companies may find themselves the focus of revenue raising attention. It’s in the nature of contractor work to move from project to project and HMRC’s decision to use this particular criterion as an “alert” signal is leading to some anxiety amongst the flexible workforce.

Things shouldn’t be too bad if your umbrella company has maintained your paperwork properly – you should, if required to do so, be able to demonstrate fairly easily that you’ve paid all due taxation through your PAYE umbrella as well as all necessary national insurance contributions. Whilst this may not spare you an unwelcome phone call or letter inviting you to attend an HMRC interview, you probably only need to worry if your company has been a little on the slapdash side in its financial record-keeping. This is a little more likely to be the case where record-keeping systems are manual rather than automated.

The up and coming National Freelancers Day serves as a reminder of how quickly this year has passed since it seems like no time at all since the 2009 event. However, it serves a much more important purpose than that. Every single contractor and freelancer in the UK plays a pivotal role in business and the economy. There are approximately 1.4 million contractors in this country who are responsible for generating a turnover in the region of £82 billion. The Professional Contractors Group (PCG) are determined to celebrate this fact on an annual basis through their National Freelancer events to be held on the 23rd November.

This year’s event follows on from the great success of the principal National Freelancers’ Day which was held last year. The event was a massive success as t raised the profile of the UK’s flexible workforce while celebrating the work which is done by these skilled individuals every day. However, there was another angle to the day which was to create a think-tank amongst those skilled workers where ideas could be shared around ‘The Future of Work’ which was last year’s theme. Once again, the event is themed this year around the concept of ‘Freeing up Potential’ which will promote the flexibility which working flexibly provides for contractors.

This is a belief which is echoed by John Brazier, managing director of PCG. He has highlighted that freelancing can improve an individual’s quality of life by providing a greater balance between work and personal life. There are events taking place across the country to mark this day of celebration. More information can be found on www.pcg.org.uk

In April 2011, the Bribery Act is due to come into force in the UK. This will have an effect on contractors working for small and medium sized enterprises in the months preceding its implementation.

At present the guidance notes for this legislation has not yet been published but SMEs are still expected to be setting in motion steps they will be required to take to comply to the legislation. Speaking to Contractor UK, Winston and Strawn solicitors commented that such companies have “ample time” to prepare. They continued by stating that any company found to be in breach of the legislation would find them in receipt of “little sympathy” as a result.

The legislation places a responsibility on all SMEs to ensure that all contractors working for them comply. This is the case even when contractors are not operating in this country. The Act criminalises bribery in all forms – taking a bribe, offering a bribe and not taking the appropriate steps to prevent bribery. SMEs now need to test their contractors to ensure that they are aware of all relevant policies and procedures.

Wilson and Strawn warned; “If you get it wrong you risk prison. Your business risks unlimited fines, blacklisting from EU contracts and forfeiture of proceeds of illegal deals.”

They concluded: “Whether you know about it or not on top of your own obligations, you will be criminally responsible for bribery by business partners worldwide if your business was intended to benefit or benefits, directly or indirectly.”

Agency group Association of Professional Staffing Companies (APSCo) have stated their position on the immigration cap and intra-company transfers while responding to UK Border Agency and Migration Advisory Committee consultations . APSCo have said that they are opposed to the immigration cap but they are also against the introduction of any cap which does not include ICTs. The group believes that ICT rules are often exploited with many non-EU workers coming to the UK with skills which are not in short supply.

APSCo Chief Executive, Ann Swain, commented: “While APSCo is opposed to an immigration cap in principle, if we are going to have one it is nonsensical to exclude intra-company transfers. The Government is determined to push ahead with a cap, but if intra-company transfers are excluded, it’s largely a political gesture that will do little to restrict the influx of non-EU IT workers to the UK.”

Ms Swain continued: “We urge the Government to include intra-company transfers within the cap. A reduction in the number of intra-company transfers would be compensated for by increased employment within the existing pool of resident IT professionals. Most workers coming to the UK on intra-company transfers have generic skill sets that are readily available in this country. We are certain that a large proportion of these roles, if advertised at UK market rates, could be filled by the resident labour market.”
She concluded: “A cap is a blunt instrument that would struggle to provide the flexibility that UK plc needs. How would employers access specialist skills once the immigration limit had been reached?”

Yesterday we reported on plans by the government to tackle tax evaders and tax avoiders in equal measure. Tax experts are warning that the result of this crackdown will be innocent individuals and businesses finding themselves the subject of lengthy HMRC investigations. The government are spending £900 million in a bid to recoup taxes which they feel have been illegally evaded or avoided through clever accountancy or use of offshore schemes.
Accountancy firm Hurst’s tax partner, Rachel Murphy, spoke to Shout 99 stating: “Everyone knows taxes are largely a given but there are many legitimate ways they can be managed to lessen the burden. The risk is that the Treasury is increasingly merging the two premises of avoidance of tax – which is legitimate – and evasion, which is illegal, couching it in terms of what is ‘acceptable avoidance’ and ‘unacceptable avoidance’.
She continued: “However, with the economic situation as it is, we have to be aware of the political sensitivities and the pressure the Treasury are under to raise revenues. Individuals and businesses need to be aware of this and the increasing scrutiny their tax affairs will be under.
Ms Murphy concluded: “If HMRC does start going through the affairs of business or individuals, it’ll take time and energy to answer their queries. If you do get a letter or a call, don’t ignore it – speak to your tax advisor about how to deal with it.”

The chief secretary to the Treasury, Danny Alexander, has delivered a hard-hitting speech in which he condemns individuals and companies who work with accountants to reduce their tax burden legally as being the same as tax evaders. Mr Alexander was speaking as he unveiled plans to spend £900 million to tackle anyone who avoids paying their “fair share” of taxes, whether by legal means or otherwise. He stated his intention that such individuals and companies “will no longer get away with it”.

Mr Alexander has taken the view that evasion and avoidance is one and the same, labelling both “morally indefensible” and “unacceptable” particularly in light of the current state of the economy.

During his speech, Mr Alexander stated that avoidance and evasion is equivalent to “stealing money from your neighbours” and that such behaviour has become a “lifestyle choice that is socially acceptable”.

Despite the huge sums being invested in tackling avoidance and evasion, Mr Alexander, together with Chancellor George Osborne, believe that it will reap rewards financially for the state with an expected annual return by 2014-15 of £7bn.

Mr Alexander continued: “We will be ruthless with those often wealthy people and businesses who think they can treat paying tax as an optional extra.”

He said that they will be tackling those who avoid paying higher rate taxes and HMRC will continue their campaign to recover taxes from money sheltered offshore.

In conclusion to his tough speech, Mr Alexander said: “To those who think the taxman will never come knocking. To those who hire accountants to dream up a clever new tax dodge. I say this: Think again.”

The rate of VAT in the UK is set to increase to 20% on the 4th January 2011. In these months preceding the rise, VAT-registered businesses are planning for the change. They have to change their accounting systems to deal with the increase but they also have to plan how their business will cope.

As a result, most businesses are actually increasing their prices now as they are worried about the effect of rising inflation. Therefore, they aim for the increase to be absorbed by their customers. A poll was conducted by Kraeb Gavin Anderson on this very issue. They found that around 20% of their respondents said they were planning to pass on some of the increase to customers.

However, all businesses have to be very careful of what action they take due to the anti-forestalling legislation which will be enforced by HM Revenue & Customs. This legislation will effectively block any attempts at planned pre-payments which are against ordinary commercial practices. They will be paying close attention to any firms who charge VAT at 17.5% now for orders or services which will be delivered from 4th January onwards.

Speaking to Contractor UK, accountancy firm MMH partnership commented: “Special scheme [users on the] annual accounting and flat rate schemes must ensure they are aware of how the rate change affects them.” They continued by acknowledging that there were special rules applicable to sales that straddle the change on 4th January and for any supply of services which is continuous. Obviously any business with concerns should seek accountancy advice.

The Freelancer and Contractor Services Association (FCSA) has written to Mark Prisk, Small Business Minister, regarding the lack of clarity which still surrounds the Agency Workers’ Regulations. They believe that these issues could have a detrimental effect on the freelance workforce in this country. Freelancers and contractors play an important role in the UK economy which is still fragile at present. To undermine their position in the country would be to undermine the recovery from recession.

Stuart Davis, FCSA Chairman, stated: “It is now clear from this advice that there are a number of other issues behind the scenes of the flexible labour market that could impact on freelancers. There are very serious questions that need to be answered about under what circumstances workers can claim to be genuinely self-employed or not and what information freelancers can use when choosing their model of working.”

Mr Davis concluded: “Without clarification these questions will naturally lead to uncertainty for freelancers and so risk undermining the smooth operation of the freelance workforce. That workforce is the engine that has driven the UK’s economic recovery. If those issues are not addressed soon, then the Government risks undermining that contribution.”

The FCSA are asking Mr Prisk for clarification on these outstanding points in relation to this legislation. They have also asked him to review the assessment of ‘vulnerable workers’ with regards to any future legislation.

The European standard for payment terms is set at 30 days. However, the UK government has been aiming towards a target of 10 days since 2008. Now, small business group The Forum of Private Business have made a fresh pledge to the government to stick to their original targets and not be swayed by the standards from the European Union.

The new European legislation comes courtesy of the European Parliament and European Council who have amended the EU Late Payments Directive. This is as a result of the problems faced by small businesses across Europe when customers fail to pay invoices on time. The Forum have welcomed the fact that the EU are attempting to do something about this issue but they do not believe that it goes far enough.

Phil Orford, chief executive of FPB, commented: “If approved by the European Parliament, as expected, these new rules under the Late Payments Directive should make significant inroads in tackling the £24 billion hole in the UK’s economy caused by late payment to small businesses. However, although it is still not a widespread success across the public sector, abandoning the UK’s domestic 10-day payment target would be a significant step backwards in tackling the culture of poor payment.

“Central government departments, for example, are largely meeting the 10-day target and it is important that the UK’s public sector continues to strive to set the standard for other countries and private companies to follow.”

The furore surrounding HMRC’s incorrect tax calculations seems to have calmed down to an extent but HMRC are still receiving a high volume of calls from people who are worried about receiving notifications. As such, they have released the following statement: “If you do get a letter it will include a Tax Calculation (form P800) from us telling you if you have paid too much or too little tax for the tax years 2008-09 and 2009-10. The calculation shows your total income and the allowances that are due to you for each of these years. To ensure that the tax system is fair for everyone – where everyone pays their fair share – we are taking action to recoup these funds as painlessly as possible.”

The statement continues: “Those individuals who have overpaid will receive a full refund. Those who have underpaid will make additional payments through the PAYE system, provided the payment due is under £2,000. All payments will begin next year, and no immediate, one-off payment will be required. In cases of genuine hardship HMRC will allow payments to be spread across a period of 3 years. If the payment due is over £2,000, HMRC will write to the individual again setting out the next steps for repayment.”

With regards to contractors who are worried that they may find themselves receiving a P800 detailing an underpayment, this is more likely to affect contractors who have moved positions several times within the financial year. While there have been reports that underpayments will be written off by HMRC, they have confirmed that this will only happen in exceptional circumstances.