Crystal Umbrella

Contractors are divided between optimists, pessimists and stoics vis-à-vis business prospects for 2012, according to a recent PCG poll amongst its members.

23% of respondents appeared quite bullish about business in 2012, declaring that they expected prospects to improve. However, the confirmed optimists were a relative minority: the rest were split right down the middle. 38% believe that things would be much the same as in 2011 (the stoics) and 39% believe that things can only get worse. It remains to be seen, of course, which of these three turns out to be the realists.

The PCG claims that 2011 was a “tumultuous year” for PAYE umbrella contactors and other freelancers. They have had to contend with the implementation of the Agency Workers Regulations, which generated a good deal of uncertainty amongst many industry commentators who feared that it may have unintended, destructive effects on skilled temporary contractors. It was designed to protect vulnerable, low-skilled workers from exploitation, but some feared it would deter employers from using the services of high-end temporary professionals as well.

Not only that, but for contractors working through limited companies particularly, there has been ongoing uncertainty about the effects of IR35, which the Chancellor decided to retain with improved administration by HMRC earlier in the year. The reform process is underway, but the decision to keep the controversial rules means that uncertainties continue for those affected by them.

However, a number of recent polls (including the REC/KPMG’s latest Report on Jobs) suggest that demand for experts in IT contracting is rising healthily, a trend that is expected to continue into 2012.

Although news has been circulating over the last couple of weeks that a number of big financial institutions have cut their pay rates for contractors in the IT skills market, the ranks of highly skilled professionals making a living out of IT contracting remain at a very healthy level, according to recent research by the PCG.

The PCG’s survey of the UK’s freelance workforce found that 574,000 of the country’s 1.4 million freelancers were IT contractors. 200,000 of them work through umbrella companies, with the remainder made up of those who work through their own limited companies, those on agency payroll and those who work as sole traders.

The figures will come as a reassurance to IT pros considering contracting as a career; compared to ten years ago, many companies, especially in the financial sector, are relying more heavily on IT contractors than at any time previously. Even though high-profile financial institutions like Lloyds, RBS and Nomura have announced cuts in their hourly rates for IT contractors of around 10%, it is clear that the IT skills market is much bigger than finance alone. Topping the corporate agenda for many companies are the twin issues of developing cloud computing technologies and improving information security – bread and butter issues for IT freelancers.

Not only that, but with the burgeoning rise of mobile technologies amongst the general workforce, those IT professionals with expert knowledge in devising tailor-made mobile applications will remain in high demand, as will those with .Net and SAP skills.

Despite the finance sector’s penny-pinching, lucrative contracts for IT specialists still abound in other sectors. Nil desperandum!

PAYE umbrella contractors seeking security-cleared Government roles are unfairly disadvantaged by a major market failure in recruitment procedures, a new study has declared.

The research was conducted jointly by the professional freelancers’ association PCG and the University of Buckingham Centre for Security and Intelligence Studies, and it highlights a serious security flaw in recruitment. As PCG Managing Director John Brazier put it, “Security Clearance should not only keep the wrong people out but get the right people in and we are not seeing this basic premise functioning currently. This is a catch 22 for some of the UK’s most qualified contractors who cannot get a post without clearance or get clearance without a post!”

The research chronicles a number of high profile failures in security clearance. According to its author, Professor Anthony Glees, it is evident that the National Security system isn’t working. The right people are excluded and the wrong people are let in; there is no consistency and checks are not being made.

The result is that amply qualified candidates, including highly skilled contractors working through umbrella companies, aren’t getting a look-in, while those with pre-existing security clearance are unfairly favoured.

Cabinet Office guidelines are being routinely ignored, the report reveals, in order to accelerate the speed of the recruitment process for Government. Mr Brazier has called on policymakers to follow their guidelines more assiduously and enforce “a fair competitive market that ensures the country is paying for and benefiting from the best talent available.”

A new poll conducted by the PCG (previously the Professional Contractor’s Group) has found that a majority of freelancers working through umbrella companies and limited companies are robustly confident about the future, even in the context of continued economic gloom.

2,000 contractors working in a variety of sectors were polled. Three quarters had maintained themselves in contract duties for at least eleven of the last twelve months, and a thundering 84% believe that regular opportunities for contract work will continue or rise in the coming year.

Contractors may well be better equipped to manage the uncertainties of turbulent economic conditions, as a degree of unpredictability vis-à-vis placements is intrinsic to freelancing. Most positively favour the fact that they are not tied down to the routines of a permanent role.

The impact of public sector cuts has been felt by some – 13% had ‘switched sides’ from public to private since 2010 in the wake of the government’s austerities. Over half do not anticipate any reduction in pay rates for their services – 33% had actually seen their rates increase over the last twelve months, while 51% saw no change.

The PCG’s Managing Director, John Brazier, said “We are not at all surprised freelancers are in demand, they are the natural accelerants of the economy as UK Plc gets back on its feet. However, our members report it’s been a tough road particularly those who saw local public sector work dry up and had to revise their business plans, but our members have demonstrated their adaptability by securing contracts in the private sector.”

He urged the government to help freelancing flourish by cutting unnecessary red tape.

The ranks of the UK’s PAYE umbrella contractors could swell significantly if the government takes heed of a new poll jointly commissioned by the PCG and REC.

The ComRes survey took responses from over 2,000 adults and 158 MPs, and revealed that, overwhelmingly, the majority of people believe that the era of ‘jobs for life’ is over. Just over three quarters of the public (76%) and 89% of MPs expressed this view.

Moreover, a thundering majority of those polled believe that flexible working is crucial for promoting economic growth. The government, they believe, should be making it easier for the UK’s employers to take up the flexible workforce approach, a development that would see more people opting for contracting via umbrella companies rather than sticking to permanent posts.

The PCG’s Head of Public Affairs, Simon McVicker, believes the poll shows that policy on flexible working is lagging behind public opinion. He said “We are now calling for a clear and positive response from the Government delivering definitive policy action that will not only allow freelancing to reach its full potential but will be a real help to the UK economy at this time.”

Tom Hadley, the Director of Policy and Professional Services at the REC, agrees. He said “The assumption that all of those working in a part-time or temporary capacity are only doing so because they can’t find full-time work doesn’t reflect reality.” He went to add that individuals embrace flexible working for various reasons and that decision-makers must support and recognise this important tool “to promote much-needed economic growth.”

Umbrella companies are increasingly in demand as more business managers opt for payroll outsourcing as a key means of keeping costs down, according to the PCG.

In the aftermath of the recession, while most sectors are struggling to keep going, freelancing is thriving, the organisation claims. The PCG’s research suggests that the consultancy market is flourishing with both the demand for and supply of contractors soaring. Companies are now driving costs down wherever they can, and many managers are turning to agency payroll solutions as “an ideal method of achieving this goal,” the PCG asserts.

Bosses see PAYE umbrella professionals offering the same expertise as permanent employees – but with none of the long-term financial commitments that permanent contracts involve. The PCG (formerly known as the Professional Contractors Group) continues:

“Senior officials recognise the fact that they can’t allow the standard of their output to slip – as this would result in the loss of customers – but they need to achieve this while spending less money than before, meaning freelancers are now often seen as the perfect solution.”

“Meanwhile, an increasing number of professionals seemingly feel that now is the perfect time for them to ditch their traditional office-based roles in favour of becoming a consultant as many firms are continuing to impose redundancies and wage cuts.”

The PCG’s claims are supported by new research from the technology analysis company Ovum, which reveals that IT contracting is a growing trend in the IT sector. Cash-strapped businesses in the utilities industry in both North America and Europe will, the research suggests, award significantly more contracts to consultants in the coming year because they regard hiring freelancers as the most cost-effective option.

Contractors across the UK may be interested to hear that the Chancellor’s decision to retain IR35 has come under heavy shelling from a leading contributor to the OTS review of small business taxation.

The PCG, which played an active role in the review, has published an open letter on its website expressing profound disappointment that Chancellor George Osborne failed to suspend IR35 legislation in his recent Budget. Signed by the organisation’s Chairman, Chris Bryce (who describes himself as “an ordinary contractor), the letter likens contractors under IR35 rules to dolphins caught in a tuna net. Mr Bryce said that he believed HMG, a majority of MPs and the Coalition Treasury team recognise that ‘catching’ most dolphin-like contractors in their tuna nets is inherently wrong. He added that he thought some HMRC agents would agree. How, he asked, can the tuna nets be shaped to catch only tuna and not dolphin?

Announcing PCG’s intention to participate fully in the proposed new IR35 Forum, Mr Bryce also said that, in preparation, his organisation’s website would be publishing suggestions for “lines in the sand” and “rules of engagement” for consultation with PCG members over the next few days.

Urging pragmatism, he warned that the Government was under no obligation to accept PCG and that drastic demands for outright abolition at this stage would merely make the organisation look foolish. It will, however, “always be PCG’s aim that IR35 is abolished” but while it is in place, “we must fight to ensure that our members and all genuine freelancers are free to do business without the burden of IR35 hanging over them.”

Contractors working through umbrella companies and limited companies alike may support the PCG’s ringing endorsement of the recent budget.

Acknowledging that the retention of IR35 had disappointed many contractors, PCG’s Managing Director John Brazier was nonetheless upbeat about the Chancellor’s other measures. The PCG has produced a detailed guide identifying those measures which affect contractors in particular. Written by tax expert Ann Redston, Visiting Law Professor at King’s College, the document pinpoints the benefits for contractors contained in the Budget.

These include the 1 per cent reduction in the small profits rate of Corporation Tax, which is likely to help “nanobusinesses” such as freelance contractors to re-invest and expand their capabilities, as well as the increase in mileage allowance by 5p per mile and the cut in fuel duty, which comes with a new stabilizer. Freelancers who work for multiple clients across several locations will experience these reforms as a significant boost, the PCG maintains.

Moreover, the PCG applauds the identification of 10 “Enterprise Zones” across Northern and central England, offering simpler planning rules, superfast broadband and, most significantly, 100 per cent rate reliefs. These are designed to attract freelancers away from the traditional heartlands in London and the South East, encouraging to bring their talents further afield.

The £1,000 increase in Personal Income Tax Allowances also came in for praise, especially as a further £630 rise is scheduled for April next year. The measure, the PCG insists, will lessen the tax burden for many freelancers.

Summing up the report, Mr Brazier said that the budget will “make the business climate more favourable for the UK’s 1.4 million freelancers, whose flexible expertise UK plc relies on for its future growth.”

Today marks the arrival of the much anticipated National Freelancers Day, an event organised by the Professional Contractors Group (PCG).  It is sure to be of much interest to the UK’s freelancing community, whether they work through umbrella companies or have their own limited companies.  PCG has devised the day as a way of showcasing the vital role of freelancers in the UK’s economy.  And it’s a contribution which hasn’t been missed by Prime Minister David Cameron, who has written to the organisation expressing his deep admiration for, “people who leave the comfort of a regular wage to strike out on their own.  It takes a lot of courage and without that courage this country would be a much poorer place.”

One of the main speakers at the event will be Dr James Bellini, a leading futurologist, who will be exploring the role of the freelance contracting community in the UK’s economic future.  The PCG also intends the event to address the issue of how contractors can survive in the midst of the current economic uncertainty.  PCG Manager Director, John Brazier, and the Telegraph Media Group’s Head of Business, Damian Reece, will be joining Dr Bellini on the day’s lecture circuit, along with a host of other prominent media, business and political figures.

Simon McVicker, Head of Public Affairs at PCG, hailed the day as an “exciting and exhilarating event” and expressed his admiration for the stature and quality of the panellists taking part.

Previous expectations that IR35 would be scrapped under a Conservative Government were called into question last week when a spokesperson for the party confirmed that this may not be a viable option. Alongside this revelation, PCG who have long been one of the fiercest critics of this tax rule, appear to be softening their position.

PCG have always been clear that they wish IR35 to be repealed and have strenuously campaigned to this effect. However, just last week they said that they want the rule to be scrapped or “radically simplified”. There have also been media reports to suggest that PCG are actually working on IR35 related proposals for the Conservative Government.

Questioned about this by Contractor UK, a PCG spokesperson said: “”On the issue of IR35, PCG continues its long-standing quest to find a way to correct the unfairness inherent in this piece of legislation. As part of that process we continue to engage with all the main parties at Westminster. Obviously, this means discussions with the Conservatives as well as the Government and the Liberal Democrats”.

The Conservative official who spoke about IR35 in an email response to an enquiry on the issue, stated: “Our aim would be to create a clearer, stable and lasting tax regime for the self-employed and small businesses. The IR35 tax rules are part of a wider problem surrounding the taxation of small businesses by this government. Since 1997, Gordon Brown has constantly tinkered with the tax treatment of the self-employed, husband and wife businesses and other similar small enterprises.

She concluded: “The result is the worst of worlds for the self employed: uncertainty, unnecessary risk and unfairness.”