Crystal Umbrella

The Treasury’s recent statement concerning personal service companies, published in the Red Book accompanying the Chancellor’s Budget statement, is attracting growing hostility from industry experts.

The statement pledges the government to initiate a consultation on the practicalities of “requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged.” This appears to have been a political reaction to the media furore over the ‘exposé’ of top civil servants working as directors of their own limited companies. It is not going down at all well amongst experts representing the UK’s contractor community and the recruitment industry.

One of the latest to speak out is the REC’s Head of Policy, Gillian Econopouly, who described the unexpected consultation as “extremely disappointing.” She went on:

“The IR35 Forum, which the REC sits on alongside other professional bodies, has worked extremely hard in the past year to improve the administration of IR35, a tax rule whose uncertainty causes many concerns among legitimate contractors. Bringing forward new legislation in this area risks replicating this uncertainty and cuts the heart out of the valued flexibility that highly skilled contractors bring to organisations across all sectors.”

Vowing to challenge the proposals head-on, she added that the best way of ensuring that contractors were deployed properly within organisations, including public sector organisations, was to improve hiring policy and workforce management processes. Imposing new and frankly unnecessary legislation on the whole economy would be likely to damage the productivity of firms that rely on skilled contractors and undermine the competitiveness of the flexible labour market, Ms Econopouly concluded.

Contractors specialising in the IT skills market may discover the are in demand again in financial services in the wake of a disquieting report by PricewaterhouseCoopers: there are rather a lot of security holes in the sector which urgently need patching to prevent cyber bandits from stealing valuable data.

The PwC survey is a disturbing read for the financial sector. Half of the financial services respondents polled said that cybercrime risks had grown over the previous twelve months, and 38% of reported cybercrime incidents in the sector took place via cyber platforms. Only 36% of respondents from other sectors reported increased cybercrime, and the figure for reported incidents was less than half that for the finance sector at just 16%.

Andrew Clark, PwC’s forensic services partner, said that the figures were “not so surprising.” The finance sector holds a huge amount of data that is especially attractive to cyber villains and, he explained, there is “an established underground economy servicing the needs of the market for stolen and compromised data.”

Mr Clark acknowledges that this is a major problem, adding:

“Our survey shows cybercrime accounts for a much greater proportion of economic crime in the FS sector than in other industries. Cybercrime puts the FS sector’s customers, brand and reputation at significant risk. Regulators are increasingly viewing cybercrime as a key area of focus and financial institutions are expected to have appropriate systems and controls in place to fight this growing threat.”

PAYE umbrella techies who have been treated a little shabbily by the finance sector over the past year may well find themselves welcomed back. Urgently.

The intrepid PAYE umbrella contractor making a living in the IT skills market will be heartened by a new analysis by giant group plc, which reveals that the UK’s IT consultancy businesses grew in number by 2% in 2011, reversing two years of precipitous decline.

The IT sector “is at last turning a corner,” according to giant group’s MD Matthew Brown. However, he also noted that the growth was “still quite modest” and urged the government to do more to help small businesses grow and generate new jobs.

Brown added that IT depends heavily on investment but that many businesses have responded to the recession by hoarding cash. IT spending has “taken a hit”. With the eurozone crisis starting to stabilise, more organisations are starting to “push the button” on IT projects that had been on ice since the downturn.

He went on:

“IT investment is crucial to boosting productivity. If businesses do not invest in IT, their long-term competitiveness will suffer. Organisations now have a lot of legacy systems in place, which require upgrading. With the economic outlook improving, IT departments should hopefully get the green light to spend.”

Investment in IT is not uniform, however. Insurers and retailers have led the way, with the former seeking hybrid actuarial/IT specialists to handle Solvency II projects and the latter developing new online platforms. Prominent amongst these is mcommerce, which allows customers to do their shopping through tablet devices or mobile phones.

In the public sector and banking, however, IT investment is likely to stay below pre-recession levels for some time to come. Even so, Brown noted, “demand for contractors is holding up reasonably well.”

Jobbing PAYE contractors may be encouraged by trends emerging in the February JobsOutlook report from the REC. Employer confidence has hit its highest level in 12 months, with hiring intentions continuing to improve steadily from December.

62% of hirers said that they planned to expand their permanent workforce over the next three months, while over half (54%) said that they would maintain current levels. Longer term, 57% said they planned to increase their permanent staff.

Contractors working through umbrella companies on the lookout for shorter term contracts can draw some comfort from the fact that, despite worries earlier in the year that the AWR was beginning to dampen the temporary jobs market, employer hiring intentions for these workers appears to be strong. 31% of respondents said that, in the coming three months, they intended to expand their temporary workforce (which of course includes many skilled contractors) while over half (54%) said that they intended to maintain it at current levels. Over the longer term, 26% of hirers plan to take on more temporary personnel and 63% plan to maintain existing levels.

The REC’s Director of Research, Roger Tweedy, said that the results of the poll strongly suggest that business and consumer confidence is picking up, even though it remains fragile. Sounding a mixed note of caution and optimism, he added:

“Last year, employer confidence began to build at this time only to fall away sharply over the summer, so it is still early days. However, there are signs that the current momentum in the jobs market will be more durable this time round.”

HMRC has now published online the minutes of the IR35 Forum’s last two meetings (held on 21^st February and 8^th March) and the contents confirm that new trial business tests will be applied from April.

PAYE umbrella contractors, of course, don’t need to worry about IR35, but freelancers running their own limited companies have frequently been ensnared by the apparently elastic ways in which the regulations have so far been interpreted by the Revenue. It is by no means without precedent for limited company directors to find themselves accused of practising the dark arts of disguised employment when the are, in fact, acting as legitimate businesses.

The new business tests are designed to put an end to these HMRC-orchestrated shenanigans, which may owe more to cock-up than to conspiracy. A set of typical scenarios will also by published on the Revenue’s website, aimed at assisting contractors to clearly determine the likelihood of their business being caught by IR35.

Originally, the Forum examined 17 typical scenarios. Eventually, agreement was reached between Forum members, the HMRC and external assessors on 14 of them. To minimise the risk of confusion, just six of them will see the light of day online. They include two illustrations of contracts ‘caught’ by IR35, two contracts clearly outside the regulations, one ‘grey’ example, and a final illustration showing how a contract may begin outside the rules but subsequently enter their scope due to alterations in a company’s practices. The scenarios will not be sector specific.

Work is underway right now in the Forum to finalise online publication of the business tests and scenarios in time for the April launch.

It is still very much a man’s world as far as IT contracting is concerned. This is the view of the BCS, the Chartered Institute for IT, which reveals that despite strong growth in the IT sector, women IT professionals in the UK still comprise only 19% of the total.

This puts us well behind many other European countries, which appear more adept in achieving a more balanced gender distribution in the IT skills market.

BCSWomen, a specialist group within the Chartered Institute that exists to provide networking support for women IT professionals, is clearly unhappy about the UK situation. The group’s chair, Gillian Arnold, pointed out that despite the fact that virtually everyone uses IT in their daily lives today, the number of women involved in the development and design of the systems we all rely on is derisory.

Perhaps the tide may be slowly turning. Some major IT employers, she said, are making clear efforts to recruit and retain female IT professionals. However, there is a veritable mountain to be climbed to reach anything resembling equality: the few women who occupy top IT roles get paid a disgraceful 30% less than their male counterparts. The boardrooms of FTSE100 companies are still overwhelmingly male: 85.8% male to a mere 14.2% female – a distribution that, breathtakingly, actually represents an improvement.

BCSWomen insists that there are many talented women out there who are perfectly capable of holding these prized positions, and argues that more needs to be done to encourage them into the sector and support them if the are returning to work after a career break.

Many jobbing PAYE umbrella contractors will be rather pleased that they chose not to work through their own personal service companies following an ambiguous statement in yesterday’s Budget relating to contractor taxation. Already a chorus of concern has been sounded by a number of prominent industry experts, who fear it may be a knee-jerk reaction to the media feeding frenzy surrounding top civil servants who work through their own limited companies.

No one will be surprised to learn that, as widely predicted, IR35 regulations will remain in place unchanged, and that measures will be implemented in April to improve HMRC’s administration of them. The statement that has squeezed expert adrenals announces that the Government is to consult on “requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged.”

The PCG lost no time in responding to these words, stating that it was “deeply concerned about the ramifications of this proposal on the interim sector and we will seek urgent clarification on what exactly this will mean for freelancers.” The organisation’s MD, John Brazier, said that the plans sounded “ambiguous,” and could have an adverse effect on senior interims. He added that it is “crucial that these legitimate businesses do not suffer as a consequence.”

A somewhat ambiguous statement in the Chancellor’s Budget yesterday concerning IR35 may leave contractors who have opted to work through umbrella companies breathing a sigh of relief that they didn’t take the personal service companies route. A number of industry experts are already sounding urgent notes of circumspection about the statement.

It came as no surprise to find that IR35 rules will remain in place, but that measures are underway to improve their administration by HMRC; this much we already knew. In a measure which appears to be bowing to the media frenzy over high-ranking civil servants who work through their own limited companies, the Budget stated that the Government intends to consult on the prospect of “requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged.”

The PCG has been quick off the mark to respond to this, stating that it is “deeply concerned about the ramifications of this proposal on the interim sector and we will seek urgent clarification on what exactly this will mean for freelancers.”

PCG Managing Director John Brazier said he found the plans “ambiguous” and expressed concern that they would adversely affect senior interims. He warned that it is “crucial that these legitimate businesses do not suffer as a consequence.”

His views were shared by other industry experts, including the Chairman of the FCSA, Stuart Davies, who frankly stated his thought that the Government was attempting to “prevent senior civil servants from legitimately working as freelancers and contractors as recently highlighted in the media.”

The speculation will soon be at an end: Chancellor George Osborne will unveil his fiscal plans for the next twelve months in the 2012 Budget today. Contractors working through umbrella companies or limited companies will be keen to discover whether or not they will emerge unscathed from his continued infatuation with austerity.

The writing on the wall is that Mr Osborne will do little to alter existing rates of National Insurance Contributions and income tax, although more people will fall inside the 40p tax band after 6^th April this year, when it drops to £34,371 (only two years ago, it stood at £37,401).

Some pundits are predicting that the 50p tax band will be cut to 45p, a move which could well bring charges that the Chancellor is helping the most well off at the expense of lower income households.

Companies generating profits in excess of £1.5 million will see a cut of 1p in the main rate of corporation tax and there are suggestions that he may act more boldly, chopping the main rate down to the 20p small profits rate familiar to many contractors.

If against all the odds you are still expecting the abolition of IR35, you are almost certainly going to be disappointed. Don’t anticipate any substantive changes to IR35 rules themselves but (thanks to the work of the IR35 Forum) do expect some key changes to the way HMRC administers them. Also widely predicted is the announcement of a General Anti-Avoidance Rule (GAAR).

Given the blatant unfairness of the original proposals, it is going to be interesting to see how Mr Osborne intends to reform the current system of child benefits.

The bullish ‘take it or leave’ approach to pay rate cuts displayed by many leading banks toward experts in the field of IT contracting may be far more counterproductive than imagined, according to a new poll of 160 techies working through umbrella companies.

It appears that a number of technology hirers have copied the big boys in the banks and implemented unnegotiated pay rate cuts mid-way through contractor placements. Whether this turns out to be good for business in the longer term is seriously open to question – a mere 8% of the PAYE umbrella contractors polled said that they would simply roll over and accept a cut.

Nearly a third (29%) said they would flatly reject a pay cut and seek a new placement with immediate effect, while over half (54%) said they would seek to ‘jump ship’ as soon as a better role appeared.

The poll was carried out by Pulse, whose Chief Executive, Chris Futcher, said:

“With cost control still a priority, it is worth noting that any attempt to scrimp on the fees of short-term staff is unlikely to work. The message to employers is clear; reducing contract fees halfway through an engagement is likely to mean losing valued staff mid-way through a project.”

Meanwhile, a survey of 700 IT professionals and finance workers by the professional resourcing firm Experis found that almost half of them are seriously considering working abroad.

UK businesses, it would seem, need to pay rather a lot of attention to how they can retain their most skilled and talented staff – a skills exodus could well be on the way.