Crystal Umbrella

A new study suggests that contractors working through umbrella companies are being increasingly sought by the UK’s SMEs, even though economic conditions remain uncertain.

The report by the international office space supplier Regus indicates that SMEs are turning to skilled PAYE umbrella contractors in an effort to remain rapidly scalable in precarious times while simultaneously hiring the staff they need to complete essential business projects.

Moreover, SMEs trading internationally are taking the lead in capitalising on flexible workers – 49% of them plan to hire freelancers, while 39% intend to hire remote workers.

Paradoxically, it seems to be the very grimness of the prevailing economic winds that has prompted the uptake of contractors and other freelancers; business confidence amongst SMEs has actually fallen by 20% since April, the report reveals, and profit and revenue growth has also been tumbling. However, SMEs trading with oversees markets show a markedly better profile than their domestic counterparts, with business confidence reaching 88% (compared to 79% for domestic firms). They’re also more likely to be reporting increasing profitability (30% compared to 20%)

Regus’ Regional Director, Celia Donne, explained, “SMEs realise that they must continue investing in growth, so freelance and remote working are becoming increasingly popular solutions to increase headcount while remaining flexible and rapidly scalable. 27% of the employed population in the UK are now deemed to be flexible workers, which illustrates the significant shift that has already taken place in the employment market.”

The UK’s umbrella companies and limited companies may be amongst the many small enterprises suffering from discriminatory and unfair banking practises, according to former Liberal Democrat Treasury spokesman Lord Oakeshott.

Lord Oakeshott was speaking after data from the Bank of England revealed massive discrepancies between interest rates paid by small companies and big firms. The figures show that a large company borrowing £20 million will generally be required to pay an interest rate of around 1.78 per cent, whereas SMEs are generally required to pay a stinging 3.69 per cent on a far smaller amount (£1 million).

These discrepancies make a mockery of attempts to solve the UK’s lending crisis, Lord Oakeshott believes, and suggest that the banks are choking the prospects for economic recovery rather than enhancing them. He urged the coalition to put immediate pressure on the banks if it truly wants to help small firms lead the recovery – many, he fears, will seize up entirely unless the government acts.

Net lending to UK firms has actually been falling significantly in recent months, according to the British Banking Association, which recently produced figures showing that it fell by £4.6 million in February and by £4.7 million in March. In response to these trends, some expert commentators, such as business strategist John de Groot, have advised small firms to explore other ways of obtaining finance, including approaching friends and family.

Lord Oakeshott’s comments will strike a chord with many SMEs; whether the government has the influence to make any impact on banking practises, however, remains open to question.

Contractors working for umbrella companies may capitalize on what one expert has a called a “transitional jobs market” in the UK, as two new surveys present a mixed picture of the prospects for economic recovery.

The Federation of Small Business’s regular “Voice of Small Business” recently revealed that confidence amongst small business owners has increased. However, it also showed that a majority of them are refraining from taking on new staff and a small proportion of them actually plan to cut staffing levels.

The survey hardly makes happy reading for Government ministers, who are relying on the private sector – and especially SMEs – to drive the economy forward and create more jobs. The FSB believes that more must be done to encourage and strengthen small businesses, including the extension of the National Insurance Contributions holiday to micro-businesses. Many individual contractors working through their own limited companies would also welcome such a move.

Meanwhile, the Recruitment and Employment Confederation’s latest “JobsOutlook” indicates that less than a quarter of employers (23 per cent) plan to take on any additional permanent staff in the coming quarter, although 64 per cent do not envisage having to cut their existing permanent workforce any further. Intriguingly for the jobbing PAYE umbrella contractor, 93 per cent plan to maintain or actually increase their present use of temporary workers, including contractors, in the near term. Moreover, 81 per cent of those polled said they would do so on a long-term basis.

The REC’s Director of Research, Roger Tweedy said that the UK’s jobs market was in transition, with more businesses relying on temps and contractors than previously.

PAYE umbrella contractors on the lookout for new placements have mixed news to take on board with the release of the Federation of Small Businesses’ latest Small Business Index. The survey covered 1700 firms across the UK and found a modest but healthy climb in confidence amongst those polled. Between January and March 2011, small business confidence rose by 6.7 per cent. This is in marked contrast to the whole of 2010, during which confidence declined in every quarter.

However, the survey also suggests that it’s not quite time to break open the champagne – job creation, including posts sought by contractors working through umbrella companies, was proving considerably tougher to achieve. During the first quarter of 2011, small firms found that they were continuing to lay off staff, although fewer anticipate cutting back on personnel in the months ahead. More than a third – 36 per cent – expect business performance to improve during the next quarter.

FSB National Chairman John Walker acknowledged that the cutbacks in personnel during Q1 were a worry, especially in a context where youth and female unemployment are both nearing 1 million. If the Government really wants the private sector to compensate for its public sector austerity measures, he said, “small businesses need a helping hand.”

Although small businesses appear to be bouncing back from the VAT rise, the harsh winter and the negative effects on consumer spending caused by rises in fuel costs, Mr Walker added that “questions still remain about the strength of the recovery.” Let’s hope Mr Cameron is taking heed.

Many PAYE umbrella contractors are likely to endorse the Federation of Small Businesses’ call for the government to prioritise economic stability in the forthcoming budget.

The UK’s five million-strong small businesses, which include freelancers working for umbrella companies and limited companies, are in an excellent position to help the economy expand, according to the FSB. Many will pick up the casualties of public sector cuts this year but can only do so against a background of economic stability and consistency.

During the last quarter of 2010, employment plans and confidence both declined amongst small businesses. Amongst the measures the FSB would like to see the government implementing to boost SMEs is an extension of the National Insurance holiday to one year. This would apply to small firms employing fewer than four staff if they were to take on an additional three new employees. Such a move could generate a huge surge in job opportunities.

In its submission to the Chancellor, the FSB also called on the government to reverse the rise in fuel duty scheduled for April 1^st 2011. To control inflation, a fuel duty stabiliser should also be introduced. Additionally, finance should be provided to micro-businesses to fund apprenticeship places, tackling youth unemployment in the process. In similar vein, the FSB also wishes the government to extend the Graduate Internship Scheme beyond its present deadline of March 2011.

Finally, a moratorium on one year should be declared on all new employment legislation after the budget to provide a stable regulatory environment for firms to recruit new personnel.

Several police forces across the UK have come under fire over the past week. Reports released under the Freedom of Information Act show many constabularies to be late invoice payers.

The government have repeatedly issued directives which detail best practice in settling invoices. They state that all payment should be made promptly. However, many businesses who are direct suppliers to police forces across the UK have been kept waiting more than two months for their invoices to be settled.

Of course, this is not to say that all police forces keep their suppliers waiting. On the contrary, many police forces are actually very prompt payers, settling invoices within a matter of days. Information gained from the Forum of Private Businesses actually suggests that some of the UK’s police forces settle more than three quarters of their invoices within 10 days with the remainder paid within 30 days. However, if you look at the flip side of the coin there are also forces that settle just 1% of their invoices within ten days of receipt, with over half still outstanding within a thirty day time-scale.

Alongside this staggering data is another research survey, which has found that SMEs usually accept late payment rather than placing demands on their customers. There is a fear amongst 17% of those surveyed that legal action would be too expensive, while 10% do not want to miss out on the possibility of repeat business. Of course, the knock on effect of non-payment for SMEs is huge. The worst-case scenario is that a small business could effectively be forced to close as a result of the disruption to its cash flow.

The Law Society has warned that small and medium sized enterprises (SMEs) could do more to avoid cash problems caused by late payment from customers. It is expected that the forthcoming increase in VAT will cause further problems for cash strapped businesses.

The Society have said that there are safeguards available to protect against blocks in cash flow but they are currently being overlooked.

Robert Heslett, president, advised: “Average commercial debts caused by late payments are high in the UK, and for SMEs a lack of cash flow can be crippling. With credit less available to those businesses from banks, late payments have a far more serious consequence for SMEs. Considering the amount of red tape SMEs and start-ups are faced with, it is no surprise that seeking protection against late payment from customers does not come top of the to-do list. However, it could be the difference between the business surviving or not, especially in the uncertain economic climate.

He continued: “A carefully worded contract drawn up by a solicitor between a business and their commercial customers can include clear terms on late payments, including penalty clauses and strict time frames for payment. Such terms can act as an effective deterrent for late payment and encourage timely payment for services, thus avoiding these terms coming into play.”

Mr Heslett concluded by advising SMEs they have options other than court when customers fail to pay up. He said: There is a presumption that going to court is the only course of action when late payments cannot be resolved. However, many solicitors specialise in ADR and mediation, which can prove an effective way of solving the problems for SMEs and other businesses. ADR and well-drafted contracts can be effective in avoiding the last option, going court.”

New research suggests that SMEs in the UK are being kept waiting an average 41 days over agreed payment terms for invoices to be reconciled. The research was conducted by Bacs Payment Schemes Limited. Their findings show an increase on last year when waiting times were an average of 31.5 days longer than agreed.

Managing director of Bacs, Michael Chambers, said:  “Small businesses rely on receiving payments on time so that they can maintain cash flow and ensure the business can run on a day-to-day basis. Our research highlights the continued widespread nature and real impact of the late payment problem, which was affecting 961,000 SMEs in December last year – that’s a massive 57 per cent of all British SMEs.”

The data gathered points to larger companies as the worst culprits, according to 37% of SME’s who took part in the research. 17% laid the blame with other SMEs and the same proportion of respondents pointed the finger at sole traders. Only 6% of respondents fingered charities and government departments as bad payers. Of course, Alistair Darling pledged in the 2010 budget to cut government payment terms from 30 days to 5 days.

Mr Chambers concluded:“SMEs need to be proactive in improving their payment collection processes. Accurate, efficient and prompt invoicing, which clearly states the agreed payment terms, is a must. Nearly 90 per cent of SMEs receive cheques as payment and a similar number of SMEs make payments by cheque, and with cheques soon to be a thing of the past, businesses should be encouraging payment direct into bank accounts, using payment mechanisms such as Bacs Direct Credit.”

The Association of Chartered Certified Accountants has carried out research about small businesses. They spoke to 2,000 adults about a variety of issues. Despite the current economic climate and the negative press surrounding the influx of workers from overseas, 96% of people surveyed felt that small businesses play a vital role in society. In fact, the recession is not putting people off starting their own business, as 60% of respondents expressed a desire to be their own boss. This entrepreneurial spirit was even stronger amongst the younger generation, with 75% of 25-34 dreaming of running their own company.

Head of business advisory services for ACCA, Glenn Collins, said: “Small businesses are the lifeblood of the UK economy and it is wonderful to see that people have such a high regard for the role SMEs play within the community. Running a business is seriously hard work and requires skill, dedication and drive. It is hugely encouraging that so many respondents – especially so many young people – aspire to be their own boss. This entrepreneurial attitude bodes extremely well for the next generation of business leaders.”

The survey also asked what businesses people would choose to start up. Around a fifth expressed a desire to open a shop but there were many more original ideas.

Speaking about this business flair, Glenn Collins said: “Creativity is imperative in business and people have certainly been creative in some of their business suggestions. I’m not convinced there is a huge market for stationery for dogs, but space tourism could really fly!”

HM Revenue & Customs (HMRC) is set to hold a number of Business Advice Open Days across the next few months. These new dates, organised by the Business Liaison Team come off the back of the successful Business Advice Open Days which were attended by over 10,000 in 2008. At these events, contractors, self-employed workers and small-to-medium enterprises (SMEs) can gain invaluable advice and technical support. HMRC have advertised these free events as an opportunity for experts to provide advice and information on government regulations, tax and cash flow issues. Seminars on pertinent topics are also held at these events. It is advisable to book your place if you wish to attend one of these seminars as numbers are limited.

Advice will be offered on the Business Payment Support Service through which businesses may be able to delay paying their tax bill. Advisors will also be on hand to discuss issues specific to the self-employed.

These events are due to take place in Birmingham on 16^th September, Bournemouth on 1^st October, London on 6^th October, Londonderry on 5^th November and Barnsley on 12^th November. There are also a number of events scheduled for 2010.

HMRC business liaison team manager, Roger Lovell, commented: “HMRC runs a number of schemes to make tax as hassle free as possible, and engages with our customers. And our attitude has always been to assist businesses in short term difficulty so that we can help keep viable businesses afloat. Our partner organisations will also be on hand to explain their services and how they can help SMEs.”