Crystal Umbrella

PAYE umbrella contractors could be among the beneficiaries of the government’s quest to cut the miles of red tape currently impeding job creation in all sectors of the economy.

Some initial findings from its “Red Tape Challenge” have just been published and, although on this occasion referring specifically to the retail sector, the data and process have broader implications for the wider economy.  The aim is to tangibly cut excessive and unnecessary bureaucracy and boost the recruitment industry in particular – a development that will have a positive knock-on effect for umbrella companies if successful.

The Recruitment and Employment Confederation (REC) played an active role in the initial red-tape review and will be using ongoing feedback from its members to propose concrete follow-up measures.  The organisation’s Director of Policy and Professional Services, Tom Hadley, said that lingering barriers to growth had to be removed:

“Today’s announcement is limited in its scope but is only the start.  We will continue to make the case for measures that would lighted the load for recruiters.  For example, a fundamental review of the Conduct Regulations should be considered.”

Hadley went on to highlight the immediate effects of the Agency Workers regulations (AWR), which are due to come into effect from the beginning of October.  He signalled his organisation’s concern about the “potential administrative overload” for recruitment agencies and noted that, as with other EU directives, the government’s “wiggle room” over AWR is limited.  He considered it essential to ensure that the UK was not faced “with any further ‘offerings’ from Brussels in terms of future AWR type regulations.”

Employment relations Minister Edward Davey has assured the REC that the government will resist further EU-driven AWR complications and continue to cut red tape.

HMRC has announced a quasi-amnesty for people it suspects of tax fraud.  The new disclosure facility will allow those who believe they may have committed tax fraud to declare their guilt without fear of subsequent prosecution.

PAYE umbrella contractors usually have little to worry about when it comes to matters of tax – all due payments to HMRC are calculated and deducted automatically by their umbrella companies.  However, some in the world of contracting, especially those who run their own limited companies, face a more arduous struggle to get their tax affairs right.  HMRC’s new Civil Investigation of Fraud proposals will, if implemented, allow 60 days for individuals suspected of fraud to sign a contract admitting to fraudulent conduct.  Failure to do so within the time limit will result in a full investigation, at the culmination of which all outstanding tax must be paid in full.  Moreover, interest will be added and a penalty will also be charged.

However, perhaps the most unpleasant consequence of failing to “fess up” will be the real prospect of criminal investigation and prosecution.

The consultation document outlines how the process will work.  HMRC plans to write to all individuals it suspects of committing significant tax evasion.  Those who agree to sign the contract will be subject to a civil investigation rather than a criminal one.

David Gauke, the Treasury’s Exchequer Secretary, explained that the proposal is designed to assist those who genuinely wish to own up to wrongdoing or error.  Nevertheless, the measure is not motivated entirely out of forbearance – it will help settle outstanding tax payments much faster than in cases where fraudsters fail to admit to their misdeeds.

Some recruitment agencies and umbrella companies might want to ditch a new business model for travel and subsistence payments if they’ve recently adopted it, following a warning from HMRC.

Under the new model, known as ‘pay day by pay day’, employers can apply National Insurance and Income Tax relief each pay day to any travel and subsistence expenses incurred by their employees. In these revenue-squeezed times, HMRC’s gimlet eyes have not failed to detect what this means: NI and Income Tax then only become payable on the balance. This is a feature that Her Majesty’s Revenue and Customs are not at all keen on.

It is a bit more serious than simple dislike for any PAYE umbrella outfit that has adopted the model – HMRC insists that the scheme fails to comply with two important bodies of statute: the Taxes Act and the Social Security Act. All Income Tax liabilities must be calculated over the course of a year to remain compliant with tax law and the ‘pay day by pay day’ model conspicuously fails to do this.

Furthermore, where employees pay travelling expenses out of total income, the Social Security (Contributions) Regulations of 2001 prohibits deductions from earnings. So as not to appear entirely resistant to innovation, HMRC has announced that it will consider a different business model that enables employers to pay subsistence and travel schemes to employees in cash so long as the latter pay a ‘financial advice payment’ back to the employer.

A tax expert from the accountancy firm Saffery Champness advised that businesses which employ others could find themselves under heightened scrutiny if they use the ‘pay day by pay day’ model and face the unwelcome rigours of a formal investigation.

McGrigors law firm has recommended that all taxpayers should review their submitted tax returns as they have determined that the results of recent court cases clearly indicate that the HMRC are incorrectly fining ‘wrongdoers’ for what they perceive to be incorrect or late filings.

Although the HMRC has lost only a few cases in recent months, McGrigors believes this to be the “tip of the iceberg” since many who were fined have not appealed the decision or come forward to complain about the fine.

It is of course justifiable that the HMRC fines those who contravene the defined regulations, but should not penalise those with a ‘reasonable excuse’ for late filing, perhaps due to postal strikes or other related delays such as public holidays. However, the HMRC, of late, has been overly strict in the enforcement of their rules.

One of the partners at McGrigors, Jason Collins, said, “In a lot of these cases the courts have taken the completely opposite view to HMRC’s guidance. [It] should revise its guidance because at the moment taxpayers are being misled.” He also added that HMRC instruction should not be blindly accepted and that if people believe they have been unfairly treated during the process, they should immediately make an appeal.

Examples of overturned fines include one taxpayer who was late filing, despite proof of postage four days prior to the deadline. Another was unable to figure out the online filing process and was late with his paper return. The tribunal also excused cases where the taxpayer believed that the accountant would look after it and, perhaps most interestingly, cases where taxpayers relied exclusively on advice provided by the HMRC helpline.

PAYE umbrella contractors with a knowledge of and experience in the healthcare sector will be in a prime position to take advantage of a pending staff shortage in the NHS, but only if NHS managers act on the recommendations of the Recruitment and Employment Confederation (REC).

A recent survey from the Royal College of Nursing (RCN) highlighted that a number of unavoidable circumstances, such as staff retirement, training budget shortages and reduced hiring from foreign sources, is making the possibility of widespread staff shortages ever more likely. Expectations include a reduction of 28% in nursing staff over the next decade – the worst-case scenario. In an attempt to prevent this from happening, the REC is recommending that NHS manager consider flexible hours and conditions for all their workers in order to attract more interest in the area.

Ed McRandal, REC Healthcare advisor, indicated that the care of patients must remain the primary focus of the NHS and that staff shortages should not be allowed to influence this situation as shortages in out-of-hours doctors have already had a negative impact. He added that the Government “must ensure that these pressures do not spread to the nursing service.”

He also indicated that imitating the private sector by allowing flexible working conditions and adding temporary (locum) staff to the mix would be of immense benefit to the NHS, adding, “We have seen cases across the UK of patient care suffering as a result of understaffing in hospitals – we must ensure that such instances do not recur.”

Umbrella companies who can supply professionals suitable for NHS positions are likely to perform very well in the foreseeable future.

Contractors working for umbrella companies or limited companies are likely to endorse comments made by the Minister for the Cabinet, Francis Maude, who has just issued a warning to big business suppliers of Government services – make prompt payments to the smaller firms and contractors they use, or risk being named and shamed.

Mr Maude was forthright in his condemnation of late payments, which adversely affect small enterprises and individual contractors far more severely than bigger businesses.  He said, “Prompt payment is crucial to smaller companies.  The Government has an excellent record on paying our bills quickly and we expect our suppliers to do the same and pay sub-contractors well within the 30-day limit.  When work has been done, especially by an SME, it is just inexcusable not to pay up quickly for that service”.

Ominously for the indolent culprits, he added that the Government would be “keeping a close eye” on the performance of its big suppliers vis-à-vis payments to sub-contractors and “we won’t shy away from naming and shaming those that we find have failed to pay promptly.”

Moreover, the “close eye” Mr Maude spoke of is not just rhetoric – he announced that the performance of prime contractors will be monitored by all Government departments as part of routine contract management processes.  Contractors and SMEs with a grievance can alert the Government to any backsliding over payments due via the “Mystery Shopper” service, the details of which will then be published on its website.  Finally, the Government’s prime suppliers will be pressured into paying more quickly that the 30-day standard by the Crown Representatives Team, which co-ordinates the management of major suppliers across all departments.

Late payers beware.

The economic role of freelance contractors working through umbrella companies and limited companies was highlighted this month by the PCG at the All Party Parliamentary Group (APPG) for the freelance sector.

The PCG’s aim was to generate discussion on how the Government can strengthen the economy by embracing the flexible working model exemplified by these often highly skilled workers.  The event, the first roundtable of the APPG, took place at the House of Commons and was attended by representatives from trade associations, business leaders, and academics.  It was chaired by Brian Binley MP.

John Brazier, PCG’s Managing Director, told the meeting that the UK’s freelance workforce today numbered at least 1.4 million, covering all industries from media to construction.  “We believe this figure is increasing and is adding value to the economy in a time of slow growth.  Now is the time to come together and work with Brian and the APPG to highlight these issues.  This event will allow the APPG to produce a report to raise awareness of freelancing in Government and amongst policymakers,” he said.

The meeting also heard from Professor Andrew Burke, founder and Director of the Bettany Centre for Entrepreneurial Performance and Economics, who explained that the task of securing wider appreciation of the role of freelancers had been hampered by a lack of research that could validate their economic importance.  The PCG responded by pledging to address the issue in the months ahead, aiming to produce new research in time for the next National Freelancer’s Day on 23^rd November.

The APPG aims to compile a report on “The Value of Freelancing” and present it to MPs in the autumn.

PAYE umbrella contractors specialising in healthcare might well be the beneficiaries of a looming staffing crisis in the NHS, provided NHS managers heed the advice of the Recruitment and Employment Confederation (REC).

A report from the Royal College of Nursing (RCN) warns that a combination of factors –workers retiring, cuts to training budgets and reduced overseas recruitment – was making a serious staffing shortfall increasingly likely.  At worst, the nursing workforce could fall by 28 per cent (99,000) over the coming ten years.  However, the REC is urging NHS managers to consider the benefits of flexible working options to compensate for the personnel losses.

Ed McRandal, the Healthcare advisor to the REC, said that patient care should remain the first priority of the NHS and staff shortages should not be permitted to compromise this.  He noted that shortages in out of hours doctors and midwives had already adversely affected patient care.  The Government, he insisted, “must ensure that these pressures do not spread to the nursing service.”

McRandal urged hospital trusts to take a leaf out of the private sector’s book and turn to flexible staffing solutions.  Temporary (locum) staff can bring “huge value” to the NHS, he added.  “[T]hey are highly trained professionals who can step in to deliver vital services,” he explained, adding, “We have seen cases across the UK of patient care suffering as a result of understaffing in hospitals – we must ensure that such instances do not recur.  Locum healthcare professionals who have been sourced from a recruitment agency… are vetted professionals who are only engaged as and when the needs of patients require.”

Umbrella companies supplying such professionals might find themselves receiving calls from the NHS very shortly.

The PCG (formerly known as the Professional Contractors Group) has notched up another victory against HMRC in its relentless fight against the misapplication of IR35 rules to legitimate contractors working through their own limited companies.

Phil Winfield, the Director of Primary Path Ltd and a member of PCG, emerged triumphant after the first tier tax tribunal he attended ruled that he had been working as an independent and self-employed contractor for the company GSK, not as an employee, as HMRC contended.  He had endured eight years of uncertainty following HMRC’s decision to investigate him in 2003.

In response to the ruling, PCG’s Director, John Brazier, said, “We are still fighting IR35 on all fronts to defend our members….Frankly, clarity for Phil was long overdue, but we are delighted he can finally get on with developing his genuine freelance business”.

Mr Winfield spoke of the effects of the investigation after the tribunal’s ruling.  It had led to considerable emotional and financial strain, he said, with the shadow of stigma hanging over him and his business over many years.  Had he not received help from Accountax Consulting through his membership of PCG, he would have faced costs exceeding £50,000, largely because the investigation took so long.  “In today’s age of accountability, the amount of time HMRC took to argue their case means that the figure this has cost the taxpayer must be enormous, when compared with the amount they were fighting for,” he added.

Winfield’s victory is the third one chalked up by PCG and Accountax in recent months.

PAYE umbrella freelancers specialising in IT contracting look set for a bumper year as demand for their skills soars and IT spending rises.  That is according to two new reports – one from the Association of Professional Staffing Companies (APSCo) and the other from industry analyst In-Stat.

Commenting on the APSCo research, the organisation’s Chief Executive Ann Swain said that in certain areas of the IT industry, shortages in the IT skills market were becoming widespread.  The deficit has led to burgeoning demand for highly skilled IT specialists and a surge in pay rates – the essential ingredients of a bidding war.

Candidates with highly sought-after niche skills are receiving multiple job offers; according to Ms Swain, “double digit pay increases are now commonplace.”

IT spending had dropped during the recession, Swain observed, but is now seen as the key to competitive advantage.  “IT directors are increasingly keen to push the button on projects which will deliver significant productivity gains,” she added.

Her comments are borne out by In-Stat’s findings, which forecasts that enterprises will increase spending on IT services by six per cent during 2011, despite the still-uncertain conditions in the global economy.  The report identifies wireline data, VoIP, and cloud computing as the areas likely to expand.

In-Stat analyst Greg Potter said positive growth will be seen in all areas of IT, “with education and healthcare and social services leading the surge with growth of ten per cent and nine per cent respectively”.  The only area likely to see a small decline, he said, will be wireline voice, which will probably see spending fall by half a per cent.

Umbrella companies with IT professionals on their books, it seems, are about to get very, very busy.