Crystal Umbrella

Mildly dispiriting news is in the air for PAYE umbrella contractors working in the IT skills market. A survey of 8,000 umbrella contractors reveals that average pay rates for those specialising in IT have fallen from £33.12 in February 2011 to £32.39 now, amounting to a drop of £1,300 in annual gross income.

According to the poll, pay rates have fallen for two consecutive years, with women faring significantly worse than men: the gap in annual income between male and female IT contractors has grown from £3,225 in 2011 to £4,459 in 2012.

The data, which comes from service provider Parasol, may reflect the slashing of contractor pay rates that took place last year in the banking and finance sector. Rates are expected to pick up again when the economy starts to grow more robustly, however.

Permies may have better prospects for pay rises, however. 59% of IT directors polled by ReThink Recruitment expect pay rates for their IT staff to rise over the next twelve months. Last year, only 47% expected pay increases, although this was at least a step up from the mere 27% anticipating income boosts in 2010.

43% of those polled also expect to increase head counts over the coming year, an increase of 7% on last year’s proportion. ReThink’s Director, Michael Bennett, said:

“This is the first really positive outlook that we have had from IT directors since the credit crunch began.”

“From the feedback that we are getting from many of the UK’s largest employers, the purse strings for their IT departments might finally be loosened.”

2012 may herald the start of lucrative times in the world of IT contracting, with two major new developments underway.

PAYE umbrella techies may be interested to discover that a small but significant stampede is beginning amongst IT professionals in the direction of mobile technology. Specialist IT recruiter CWJobs.co.uk has released a poll showing that almost a fifth of IT specialists (19%) are planning a major overhaul of their skills base to concentrate on mobile computing. Over three quarters (78%) believe that graduates entering the industry would be well advised to get into mobile computing.

A joint survey by the marketing agency Vanson Bourne and software company Antenna Software reveals why: over the next 18 months, UK businesses are likely to double their spend on mobile projects.

CWJobs’ website director, Richard Nott, said: “Who would have guessed five years ago that apps such as Angry Birds would turn into a multimillion pound product? Mobile computing presents huge opportunities for businesses, and in turn, fantastic career opportunities for skilled IT pros.”

There is more encouraging news for those specialising in the IT skills market. The Indian IT giant Tata Consultancy Services, which already employs 6,739 staff in the UK alone, has announced its intention to hire a further 1,500 British IT professionals during 2012. Other big Indian IT firms planning to hire in the UK are Wipro and Infosys.

The move to the UK marks the possible beginnings of a turnaround in IT jobs, many of which were outsourced to India and the Philippines in recent years, at least so far as software development was concerned.

Prepare to get busy, IT contractors.

The latest meeting of the IR35 Forum has now taken place after being postponed from its original date on 18^th January to permit extra time for additional work by HMRC on reform.

While PAYE umbrella contractors have little to be concerned about over the policing of IR35, many contractors working through limited companies are exceptionally wary about HMRC’s previous management of the regulations. The Forum was created in the wake of last year’s Budget after the Chancellor decided to retain the controversial rules but improve the administration by the Revenue.

In addition to officials from the HMRC, the Forum also includes representatives from the contracting and recruiting world, such as the PCG and REC, as well as employment status and accountancy boffins. So far, the Forum has agreed that HMRC should target its policing of IR35 on high risk cases rather than adopt a generalised suspicion that limited company contractors are up to no good. Dedicated IR35 teams are scheduled to be set up by the Revenue to ensure this and to reduce the protracted periods over which investigations can drag on.

The REC’s Gillian Econopouly, who attended the latest meeting, said: “The work of the IR35 Forum is ongoing, and the REC will continue to actively represent the views of the recruitment industry in the run up to the 6^th April deadline when the Government will formally adopt changes to how the IR35 regime is administered.”

The minutes of the last meeting have not yet been published, but the signs appear to be that the full package of proposals for reform will be in the bag by the April deadline. Watch this space.

The REC’s latest JobsOutlook – its monthly survey of 600 employers – strikes an upbeat note for jobbing PAYE umbrella contractors. Despite the continued precariousness of the economy, employers remained confident last month. Agency staff were more in demand than this time last year, even after the implementation of the Agency Workers Regulations.

The number of employers planning to hire more permanent staff in the coming three months climbed three points to 65%. Nearly a third (30%) say they will maintain current permanent staffing levels. A mere 5% intend to cut staff.

Although it is still too early to gauge the full impact of the AWR, contractors working through umbrella companies or personal service companies are solidly in demand. Over the next three months, 82% of employers say they will increase their temporary personnel. In the longer term hiring intentions are even more robust, with 84% planning to increase or maintain their agency staff.

Anyone hoping to find contractor roles or permanent posts in the public sector may have less of a struggle than they might have expected – more public sector employers now believe that budgetary cuts will have a less harmful effect than previously. 38% believe they will have little effect on their business while 32% believe they will have no effect at all. Only 28% think the cuts seriously harmful.

Roger Tweedy, Director of Research at the REC, noted with approval that the employer confidence barometer had risen to 24 – a substantial rise on than the low point of 19 recorded in September.

A frequent contender for the UK’s unemployment black spot winner back in the day, 2011 continuing into 2012 sees Northern Ireland benefiting from a healthy growth in umbrella company contractors and in temporary staff. Of course this is great news for the people of Northern Ireland and must also be viewed as a positive sign governmentally that the UK recruiting bodies are continuing to prosper in the wake of the Agency Worker Regulations (AWR), which came into effect on 1^st October 2011. The independent inspection organisation Recruitment and Employment Confederation (REC) believes strongly that the need for temporary workers in all sectors has not experienced a negative reaction in the wake of AWR.

This is because a large percentage of employers have had to come up with new and innovative strategies to find workable ways to operate inside the AWR rules by using short-term bank staff and temporary workers coming through employment agencies. The advance of this modus operandi raises the bar for flexible working and for the role of employment agencies in general. Ipso facto, employment agencies will enjoy further growth and the Agency Worker Regulations will continue to have a negligible effect.

Crystal Umbrella appreciates innovation and managing change, and carries on working with clients across all sectors supplying a unique range of services to take on the worry and time consuming administration whilst giving the client time to take a hands-on approach to running their business.

The first umbrella company in the UK to offer customers unique benefits, Crystal Umbrella is rolling out an exciting news service on a daily basis, keeping clients up to date with news events, legislation changes, professional opinions, hints and tips for business success, and much more.

Contractors seeking a mortgage should exercise extreme caution henceforward thanks to a new scheme of ‘income checks’ with HMRC.

The scheme is the brainchild of a joint initiative by HMRC, the Building Societies Association and the Council of Mortgage Lenders. Launched last year, it is aimed at combating mortgage fraud and is rapidly gaining momentum. In a nutshell, it permits lenders to verify the income declared by borrowers by contacting HMRC to check that it matches tax returns.

Contractors have often innocently declared gross contract rates when approaching lenders or mortgage advisers. This is where some very nasty problems could now arise: if you adopt this approach instead of, say, submitting payslips from your PAYE umbrella service or providing company accounts, the annualised figure, if passed on to HMRC, will almost certainly fail to match that recorded in the tax return. Expect a visit from the taxman and a stressful investigation as a result.

Independent Financial Adviser Tony Harris suggests that anyone working through umbrella companies or limited companies should refrain from approaching a high street branch and instead find lenders “who specifically welcome contract based income underwriting.” He said:

“You need to ensure that your application lands on the desk of a key decision maker at the lender’s HQ who already appreciates your employability as a freelancer and is happy to therefore base affordability on the contract alone.”

There are contractor mortgage specialists available who will not charge broker fees for the advice they give, he continued. However, he added: “[I]t is very important that you don’t get this wrong because with HMRC now involved the repercussions could be very serious indeed.”

The sulphurous whiff of possible IR35-dodging in Whitehall refuses to die down, as Treasury officials confirm their belief that the number of civil servants paid as directors of limited companies may be in the region of 100 and not 25 as previously reported.

The Financial Times reports that the UK tax authority is about to launch a tax avoidance crackdown and has expanded its staff to investigate potential breaches of IR35 in both public and private sectors. If there are times when it feels good to be a humble PAYE umbrella contractor, secure in the knowledge that all tax and NI contributions are up to date and paid, this is surely one of them.

A spokesperson for HMRC said that while many people work through personal service companies for a variety of reasons, “where the arrangement is really only a way of avoiding PAYE tax and national insurance, then the law says the service company must pay the PAYE and national insurance to us on behalf of the individual at the end of the year.”

In the wake of the Lester revelations, Treasury Chief Secretary Danny Alexander ordered a cross-Whitehall investigation. Government officials have just reported, confirming that the number of civil servants being paid through limited companies is four times the number previously identified.

Prominent tax specialist John Whiting explained that the charge of tax avoidance “doesn’t apply to someone doing a day here and a day there and working for several clients.”

He added: “ But where you have someone working half-time for one organisation and for say six months, or a couple of years, they’re bang to rights.”

While the Agency Workers Regulations appear to have left skilled PAYE umbrella contractors relatively unscathed in spite of dire warnings from some experts, it seems that misleading myths about the legislation are starting to proliferate among some recruiters. The PCG has moved to dispel some of the wilder rumours and has published a list of the ‘five most-heard AWR myths’ – and shreds every one of them.

For example, there is no truth in the claim that, post-AWR, all contractors must work through umbrella companies. While those who do have nothing to fear, recruiters can also work entirely successfully with contractors from limited companies, which can also be safely beyond the scope of the legislation.

Moreover, AWR will not, as has been claimed, make contractors more expensive, nor will it mean that all liability must be transferred to the contractor in new contracts. It is also false that giving contractors full access to all facilities – which is much easier to administer – will automatically place them in AWR’s scope.

The PCG has produced a guide for contractors and recruiters to clarify exactly when the regulations do and don’t apply to contracting. Drawn up by academics, lawyers and industry experts, the guide is designed to help recruiters, and HR staff especially, to capitalise on the input of skilled contractors.

John Brazier, PCG’s Managing Director, said: “Let’s be very clear, the AWR itself is not intended to apply to freelance workers in business on their own account.”

He added that the new guide is “…vital to ensure that those working with freelancers on a day-to-day basis have the confidence to conduct business as usual.”

We recently reported on the scandal of the Student Loans Company’s Chief Exec, Ed Lester, who was given official sanction to save himself £26,000 in unpaid tax and national insurance by filtering his lucrative pay deal through a personal service company. Now it has emerged that he was far from being the only beneficiary of such arrangements.

The Guardian newspaper has found evidence that getting paid through limited companies is not a rarity at the Department of Health – 25 senior figures are dealing with their income in this way, with nineteen of them commanding annual salaries in excess of £100,000.

It is not the use of limited companies per se that is raising eyebrows. Rather, it is the kind of ‘old school tie’ nodding and winking that has understandably outraged many PAYE umbrella contractors, who pay their tax and NI dues honestly and efficiently as they earn.

A spokesman from the DoH sought to limit the damage, saying that the DoH “can confirm that no civil servant who is an employee of the Department of Health is paid in this way.”

PCG Chairman Chris Bryce has moved to cool the outrage, however, warning against creating an “orchestrated witch-hunt against the nation’s smallest businesses.” He said:

“The Government is right to look closely at how public servants are being remunerated and where there is disguised employment or tax evasion it should be stopped and fully investigated by HMRC. However, it is fundamentally inaccurate to brand all one-person limited companies as employees attempting to avoid tax.”

“We should ensure those rushing to attack limited companies don’t trample the only green shoots of recovery we have seen for quite a time – freelancers.”

Jobbing PAYE umbrella contractors may be heartened to hear that figures recently released by the temporary labour supplier de Poel reveal that the number of temporary staff hired in the UK rose by 13% in January, contra the forebodings of several prominent commentators who had predicted a mass cull of temporary workers in the early New Year because of the Agency Workers Regulations.

The biggest increase in temp hiring took place in the manufacturing sector, which saw a 35% rise. Businesses services were the runners up with a rise of 33%. Increases were also seen in the care sector (19%) and construction (13%).

De Poel’s MD, John Salisbury, commented: “Our data indicates that the AWR has not directly impacted the use of temporary staff and that any changes are more related to the economic climate and specific industry trading patterns.”

Elsewhere, the REC and PCG are continuing their vigorous campaign to educate and inform employers about the AWR, which both organisations insist should not jeopardise highly skilled contractors working through umbrella companies.

Gillian Econopouly, Head of Policy at the REC, said: “The REC and PCG have always been in agreement that the AWR was never intended to apply to genuinely self-employed freelancers. We are united in making every effort to help freelancers, HR professionals and recruiters understand what this means for how they work.”

She added: “Recruiters, freelancers and hirers all want the same thing: a healthy, vibrant contractor community which is not affected by these regulations, which were designed to protect workers at the other end of the job market.”