Crystal Umbrella

PAYE umbrella contractors used to spending varying proportions of their daily life working from home might be interested in a new study from the TUC, which suggests that the number of people working from home in the UK has fallen slightly.

At the start of 2010, 3.7 million worked chiefly from home.  The number actually rose by a further ten thousand during the year but, in statistical context, it nonetheless reflects a small but perceptible drop, from 12.9 per cent of the workforce to 12.8 per cent.

Even though companies that allow their personnel to work from home usually find that it is a cost-efficient approach, saving money on office costs and allowing staff to manage their workloads more personally and effectively, the TUC believes that fewer workers are requesting home working arrangements due to anxieties over current economic conditions.  Rising unemployment and greater job insecurity seem to be deterring people from seeking the home working option.

Work Wise UK’s chief executive, Phil Flaxton, sought to encourage more people to request flexible working arrangements, however, insisting that it was sensible to allow staff to work from home occasionally – it prevents the stress of commuting and allows workers to get on with their tasks without the everyday distractions of the office.  Many contractors working through umbrella companies will undoubtedly be aware of these benefits already.

The Director of research at the Telework Association went further, claiming that flexible home working arrangements benefit both employees and employers and should be more actively promoted as good for business.  His comments coincide with those of Work and Pensions Minister, Maria Miller, who recently said that flexible working arrangements should increasingly become the norm, not the exception.

Perhaps those numbers might just start to rise again.

PAYE umbrella contractors disheartened by recent news of feeble economic growth may support suggestions from a leading small business group.

Last week’s announcement of a distinctly underwhelming growth in GDP – just 0.5 per cent between January and March – hardly amounts to encouraging news for umbrella companies or anyone else seeking new work opportunities.  The insipid rise has spurred the Forum of Private Business (FPB) to call for a “two pronged” economic growth strategy.  The group believes that measures to increase consumer confidence along with urgent new business-friendly policies from government are both required in order to generate a genuine economic recovery.

FPB Chief Executive Phil Orford acknowledged  that the 0.5 per cent increase was “as good as we might have hoped for” and at least suggests that the UK has not slipped back into recession, as many feared.  However, he added, “it doesn’t indicate any great surge of economic activity, and it won’t dramatically increase confidence in the small business sector”.

Mr Orford called for “radical and immediate measures from the Government” if real growth was to be seen in the coming quarter.  Tangible improvements in the conditions for small businesses are needed; he added, especially the need to cut “costly and time-consuming red tape”.  Moreover, he believes the Government should act swiftly to introduce a simpler and more sympathetic tax system and tackle the soaring cost of fuels and utilities without further delay.

Initiatives such as this, Mr Orford continued, will help bring about “the second thing we need to see – a significant increase in business and consumer confidence”.  Maintaining confidence, he insisted, was essential if small businesses are to succeed in driving economic recovery.

His comments were reported in the news site Shout99.

The Government’s decision to retain IR35 has come in for yet further heavy shell fire, this time from a prominent contractor and former external director of the freelance trade group, PCG.

In a letter to the contactor news outlet Shout 99, Phil Ross didn’t mince his words. He claimed that the Coalition has “blown it” as far as seizing an opportunity to IR35 was concerned and expressed his “bitter disappointment” in the government’s failure to act more decisively.

In his outspoken response to the decision, Mr Ross accused both the Conservatives and the Liberal Democrats of doing a U-turn on pre-election promises made in private to contractors and small business leaders. He believes the Coalition should have abolished IR35 within their first 100 days of taking office, a move which would have powerfully signalled that they were trustworthy enough to stick to their promises. Instead of the abolition or reform expected by the UK’s freelance community, they have ended up with “nothing but tepid words about working more closely together with HMRC.”

He argued that the previous Labour administration had declined his suggestion of a limited liability self-employed scheme to compliment the limited liability partnerships it had introduced, chiefly because ministers had not wanted to “deny themselves the huge tax yield that HMRC promised IR35 would deliver.” He believes that Chancellor George Osborne has fallen for the same questionable argument from HMRC as his Labour predecessor.

He urged contractors and the PCG to redouble their efforts to win the social and economic arguments in favour of IR35 abolition.

PAYE umbrella contractors may be amongst those to benefit from the new private sector-led “Start-Up Britain” initiative to support prospective entrepreneurs. Aimed at delivering the best possible support and advice from established entrepreneurs to startup companies, the project is a response to the Government’s call for an “enterprise-led recovery.”

Promising to champion the 270,000 new businesses staring up every year in the UK, Start-Up Britain could help generate new work for freelancers on contractor payroll as small firms adopt the growing trend for flexible workers rather than permanent staff. It has received warm endorsements from Prime Minister David Cameron and the Confederation of British Industry (CBI).

The initiative will provide new entrepreneurs with expert support worth £1,500 and is committed to promoting entrepreneurship within every school in England and creating Enterprise Societies in all UK universities. It has attracted the backing of several major international brands so far, including Virgin Media, Microsoft, Intel, Experian, BlackBerry, Barclays and McKinsey and Co.

Talking to the contractor news outlet Shout 99, Mr Cameron said that there were thousands of people in the UK who were entrepreneurs but just didn’t know it yet. There are, he insisted, “millions of success stories that haven’t been written yet.” He urged people who had been turning over good ideas in their minds for years to seize the opportunities offered by Start-Up Britain and “make it happen” to drive the economy forward.

The CBI’s Head of Enterprise and Innovation, Dr Tim Bradshaw, was equally positive, saying that the initiative could encourage more young people to become “business-savvy.” Providing extra support for entrepreneurs could, he believes, “inspire more people to take the plunge and start a new business.”

Contractors working through limited companies or umbrella companies may be pleased to hear that the Government is adopting a more novel approach to the issue of tax avoidance.

A paper entitled “Tackling Tax Avoidance” has just been released by HM Treasury and has quickly won approval from a prestigious tax organisation, The Chartered Institute of Taxation (CIOT). CIOT has been campaigning for some time to persuade the coalition to change its stance on retrospective tax changes, which it believes would cause widespread uncertainly and confusion. The proposals contained in the new paper have been hailed as a victory for the organisation, as the retrospective approach to tax has at last been dropped.

Commenting on the development, the CIOT’s President, Vincent Oratore, said that government’s adoption of a new strategic approach will be welcomed by many small businesses and contractors throughout the UK, and will provide “a route towards greater certainty in the tax system.” He praised the decision by government to set out the principles by which it would decide when to announce unscheduled tax changes, which he described as “a good step forward.”

Expressing his pleasure that the Government had listened to his organisation’s concerns about retrospective taxation, he added that the measure would have led to “an impression of an unpredictable tax system.”

There were less favourable comments for the government, however, issuing from the respected think tank, the Adam Smith Institute. Responding to the recent budget, the organisation dismissed many of the measures aimed at encouraging growth as “timid modifications.” The Institute maintains that they fail risibly to tackle the single most important obstacle to economic growth in the UK – excessively high levels of taxation.

Contractors working through personal service companies may be intrigued by critical comments from an expert concerning a key proposal in the recent OTS Small Business Tax Review.

The document continues to provoke controversy, with a leading staffing organisation now claiming that one of its central recommendations – the integration of income tax and National Insurance Contributions NICs) – is likely to deter people from considering self-employment or freelancing as a career path.

The Association of Professional Staffing Companies (APSCo) insists that the proposed realignment of income tax and NICs to reduce the present differential between self-employed and employed workers will effectively sabotage the very goal the Government has set so much store by: the encouragement of self-employment. Under present arrangements, self-employed contractors working through limited companies will pay around 15 per cent less tax on their income than employed workers if they pay themselves by dividends. They also pay less in the way of National Insurance Contributions.  The OTS considers this unfair on employees, and thinks the different rates should ultimately be abolished. This would remove the need for IR35 regulations, according to the OTS.

But APSCo considers the proposal to be a retrograde measure which will make contracting considerably less attractive by removing the tax incentive that encourages people to become self-employed in the first place. It would also, the organisation argues, drive employment costs up by millions of pounds.

APSCo’s Chief Executive, Ann Swain, said that limited company contractors were a “vital component” of the UK’s flexible workforce. Changes to IR35 which resulted in deterring people from considering contracting would simply drive up employment costs without generating the economic growth that small businesses are known to deliver.

One of the major issues influencing whether prospective contractors chose to operate through umbrella companies or their own limited companies is the thorny issue of IR35 legislation. Introduced by the previous Labour administration in 1999, it was created in an attempt to prevent tax avoidance. In reality, because of the complex and ambiguous ways in which the distinction between employed and self-employed statuses are cast in the legislation, many freelancers have been subject to distressing and time-consuming IR35 investigations by HMRC, with the prospect of facing heavy penalties if deemed to be in disguised employment.

PAYE umbrella contractors have largely been spared these ordeals, with their status clear and their tax calculations handled by the agency. As is well known, however, the Office of Tax Simplification (OTS) was set up by the incoming Coalition government last year to consider reform of all areas of tax pertaining to UK businesses. Reform of IR35 was, from the outset, one of its principal targets.

OTS Director John Whiting has just announced that his organisation will provide a report on its review of UK taxation ahead of the March 23^rd Budget. However, he warned that contractors seeking an immediate reform of IR35 will need to be patient – proposals for a successor to the widely disliked legislation will need “bottoming out” time after the budget to assess their implications.

The OTS final report is due in the summer, and Mr Whiting was clear that he wishes to come up with true improvements by then on what is broadly considered to be an excessively burdensome regime.

Contractors working for umbrella companies may be interested in the distinctly cool reception given to the recent jobs summit (10th January) by the Chartered Institute for Personnel and Development (CIPD). Prime Minister David Cameron met with business leaders from across the UK earlier this week to discuss the issue of job creation. But according to the CIPD, the policies on offer from Mr. Cameron’s government will have only a “marginal impact” on employment during 2011.

To be fair, the CIPD’s Chief Economic Adviser, John Philpot, welcomed the summit but urged the public policy debate about job creation to focus on an “economic assessment of the determinants of growth and employment.” He went on to say that the UK’s flexible workforce, which of course includes many PAYE Umbrella contractors, has a high level of job creation potential. This reputation was enhanced by the encouraging rate of job creation in the private sector seen last year, he added. However, he maintained that business pledges and policy initiatives are unlikely to have a significant positive impact on employment during 2011.

His comments coincide with the release of the latest “Report on Jobs” from the Recruitment and Employment Confederation (REC) and KPMG. Although the survey revealed that both permanent post temporary vacancies continued to rise during December, the two organisations agreed that the next few months are likely to be “very tough” vis-à-vis employment opportunities, not least because of the impact of the recent VAT rise and public sector cutbacks.

Over the past year fines for companies found to be employing illegal workers has doubled from £11.2m to £22.1m. In correlation to this the UK Border Agency also issued over a thousand more civil penalties in 2009 (2210) than they did in 2008 (1164).

The resulting advice which comes from these figures is that all employers and recruiters must conduct thorough checks of all potential employees. Crystal Umbrella believes that the most basic checks are often missed, for example checking someone’s nationality by asking to view their passport.

It is the view of Crystal Umbrella that if the necessary systems are not employed now to prevent the employment of illegal workers then recruiters and employers will find themselves subject to the tougher penalties under the present clampdown.

Back in 2008, a new system was introduced by the government with the aim of reducing the number of individuals employed illegally in the UK. Under this system, the UK Border Agency had the power to issue civil penalties of up to £10,000 in respect of every illegal worker employed by any recruiter or employer.

This system is now being used more and more frequently by the UK Border Agency which shows how serious this issue continues to be. The fines issued are so far not working as a deterrent to those that continue to employ illegal workers – either knowingly or by failing to carry out the necessary checks to confirm legal status.

Prior to the introduction of this system, back in 2007 only 38 employers were prosecuted for the employment of illegal immigrants. The increase in the number of prosecutions during 2008 alone equates to an increase of 2963%.

Crystal Umbrella’s Scott Illingsworth believes that non-compliance with identity checking is becoming an increasing risk for recruiters and employers. However, it is likely that the fines for non-compliance will continue to rise as the tackling of illegal workers is at the top of the agenda for the new government.

The requirement is on recruiters and employers to carry out checks on each individual’s legal status. However, many of the paper based checks which are conducted are not actually fit for purpose. It would also seems that many employers fail to meet this obligation altogether.

The UK Border Agency can still issue fines if it deems the checks that were carried out were insufficient. This means that even if an employee has had a face to face interview and their passport has been viewed they could still be liable for fines if the individual is found to be here illegally.

There has been a call for the introduction of an automated system which would check an individual’s identity across a number of different sources including biometric passport data. This means employers would be guaranteed accurate information as all too often an individual checking a passport may be unable to determine its authenticity but biometric data cannot be forged.

Of course, even with the introduction of such measures the onus would still be on each recruiter and employer to actually use the systems at their disposal.

The new coalition government comprised of Tory and Liberal Democrat MP s has now been formed and all eyes are on this new partnership. William Hague, Tory MP, has described the partnership as taking the best bits of the Liberal Democrat manifesto and combining them with the rest of the Conservative manifesto. The result is David Cameron as Prime Minister and Nick Clegg as Deputy Prime Minister.

Director General of the British Chambers of Commerce, David Frost, has urged the new government to withdraw the planned rise in NICs. He said: “They [the government] must follow through on their promise to roll back the planned employer National Insurance rise in any emergency Budget.”

He continued: “The next 90 days are crucial for recovery. We need concrete proposals to reduce red tape and tax burdens on business; action to move the economy away from consumption and the public sector and towards exports; and commitments to improve Britain’s key business infrastructure.”

Meanwhile, chairman of the Association of Recruitment Consultancies (ARC), Adrian Marlowe, commented: “Now that Liberal Democrat MP Vince Cable has been given the role of overseeing banking and business, it is important that he pushes forward his party’s manifesto commitment to reduce the burden of unnecessary red tape by properly assessing the cost and effectiveness of regulations before and after they are introduced.”