Archive for the ‘Political’ Category

There have long been debates and doubts about the role and responsibilities of a professional contractor, particularly in the eyes of HMRC. Now, independent professional membership association Professional Passport has announced plans to produce a formal definition of a professional contractor. This will concentrate on career professionals as opposed to those who come into contracting on a short-term basis, possibly only until they find a permanent post.

The organisation believes such a definition will benefit all involved parties. Contractors could be removed from tax and employment legislation such as IR35, the Agency Workers Directive and income shifting rules. It will enable the government to simplify existing legislation and reduce the need for future legislation while presenting no threat to tax revenue. Agencies and employers should also benefit from reduced bureaucracy and the removal of threats of employment rights actions or tribunals.

The Service Providers Association welcomed the proposals, having previously launched its own code of conduct for businesses in the service providers’ sector. This is designed to encourage best practice in the industry and to demonstrate ethical operating practices so that contractors will know they are dealing with professional organisations.

The proposed definition may clarify contractors’ employment status, which has been called into question by the case of Tilson versus Alstom Transport. The original outcome of this case was that the contractor who brought a case for unfair dismissal was awarded employment rights on the grounds that the contract between the parties was invalid. This decision was subsequently overturned on appeal and the claimant was adjudged to be a contractor rather than an employee.

This case yet again illustrates the sometimes complex relationship between contractors, agencies and employers, emphasising the need to have a proper working structure. Contact UKContracting.net to get your affairs in order.

There have been growing concerns that the Intra-Company Transfers system is being routinely abused. Now the Conservatives, in a policy announcement in the run up to the forthcoming general election, say they will impose a cap on the number of visas if they come into power.

Intra-company transfers were introduced as a means for overseas companies to fill requirements in the UK for high-level skills or company-specific knowledge. It allowed them to bring people in from other countries to meet those needs. However, some overseas companies are reportedly setting up subsidiary companies here simply to take advantage of the UK’s outsourcing market and are bringing in people to fill entry-level and mid-level roles. Around 43% of the near 30,000 intra-company transfer visas allocated last year went to just seven Indian companies and the belief is that they get them just to save on salary costs.

The major gripe is that the Home Office seems unable or unwilling to get a control of the situation. However, the Conservatives say they plan to place a cap on the numbers allowed in although, in typical political style, they won’t commit to a number. It is a policy that is used in America and tends to lead to a stampede for available visas, which are usually snapped up pretty quickly.

This does raise some doubts as to if the proposal will actually turn into anything and, if it does, how it will work. Nevertheless, if some control is imposed on the availability of intra-company transfers, this may open up further opportunities for UK contactors.

There were no signs of dancing in the streets last week or of any other outpourings of joy to greet the UK’s long awaited move out of recession. This is hardly surprising given that the country rather limped into positive territory. Indeed, there is speculation that the 0.1% reported growth in the last quarter of 2009 could be wiped out by later corrections to the figures, meaning we might actually still be firmly in the mire.

With UK output having fallen by around 6% overall, the recession was not as bad as some had forecast but was nevertheless worse than the previous two the country has experienced. However, the 0.1% pick up was far less than the 0.4% growth that was widely expected. This means that there is now only one more set of quarterly output figures due to be published before the latest date for a general election. The government, therefore, will be hoping for a better result then in the expectation that this might give its flagging poll showing a boost.

The Chartered Institute of Personnel and Development, however, doesn’t altogether believe the official figures and reckons the recession was much worse than has been reported. It estimates that 1.1 million people lost their jobs and around two thirds of them got other employment paying over one quarter less. The Confederation for British Industry believes that significant growth is needed before there will be any real improvement in the employment figures. The private sector will have to create many job opportunities simply to offset the expected cuts in public sector jobs.

Reassuringly, while public sector IT spend is certain to fall, demand for IT staff is continuing to grow in the private sector, with finance leading the way. Contractors can therefore look forward with some confidence to better times in the market, with the next recession hopefully many years away.

Make sure you’re ready for increased activity by getting your business affairs in order. Contact UKContracting.net for the best advice.

IT contractors, like many professionals, understandably seek to limit the amount of tax and national insurance they pay. One popular way has been to channel income into a trust fund based in a low tax country, with the income earner retaining ownership of the money through their position as a trust beneficiary.

This type of scheme has continued for several years with no intervention from HMRC. However, in March 2008, it sought to close a loophole in the UK’s double taxation treaty with the Isle of Man. The main shock that came out from the announcement was the controversial decision to backdate this clampdown to 1987, the year when the treaty came into force.

The decision caused near panic amongst those affected in the knowledge they could be forced to pay large sums in backdated tax and national insurance contributions plus interest charges on those amounts. There were, understandably, fears of bankruptcy, repossession and relationship problems resulting from the decision. It led to the Parliamentary Joint Committee on Human Rights criticising the retrospective legislation.

Representation was made to the Royal Courts of Justice, which undertook a judicial review into whether HMRC acted lawfully in backdating the legislation. Whichever way the ruling goes, it is likely to be appealed to the Supreme Court by the losing party. After all, it is not something that can be ignored, with IT contractors set to lose large amounts of money if the decision goes against them. More worryingly, it can open the way for HMRC to apply for more retrospective legislation in future.

This case emphasises the need to make sure you’ve got your business affairs sorted out correctly. Contact UKContracting.net for the best advice.

After several months of consultation with industry representatives, the government finally laid before parliament the regulations to implement in the UK the EU Agency Workers Directive. The timing is to make good the government’s pledge to get the regulations on the statute books during the current session of parliament. However, they do not come into force until October 2011, which will supposedly give all those affected the time to make preparations.

The Agency Workers Directive aims to protect temporary workers, who are deemed to be ‘vulnerable’, by granting them the same rights as full-time employees after they have worked for a company for twelve weeks. The consultation period has predictably seen the trades unions push for full protection while industry representatives have been arguing for light regulations. Although the latter generally welcome the delay in implementation, they are concerned that they have been unable to comment on the final regulations, which are considered to have many inconsistencies.

In particular, those who are classed as ‘genuinely self-employed’ are to be excluded from the regulations. This applies to those with limited companies but not contractors who operate through an umbrella company. Agencies do, understandably, welcome the decision not to impose restrictions on agency fees that are thought to be unreasonable. There is also the question of who will stand the £1 billion a year estimated cost of the regulations, with the suspicion that it is the contractors themselves who will ultimately be hit.

Industry representatives now seem prepared to wait and see the detail of the regulations before coming to any firm conclusions. They also appear intent on seeking clarification of points that concern them and working with the government on the guidance documents that determine how the requirements will be interpreted. However, these things tend to be difficult to stop or divert once they’re set in motion and even a change of government may make no difference.

Contact UKContracting.net to make sure you’ve got the most suitable working arrangement and limit any harmful effect of the Directive.

HMRC has long been trying to clamp down on schemes that are set up simply to avoid paying tax. However, the average law-abiding citizen is generally a bit in the dark when it comes to distinguishing between sensible tax planning and artificial tax avoidance schemes that are frowned on. So HMRC, being the helpful organisation that it is, has a ‘Spotlight’ section on its website that sets out to highlight the latter.

HMRC’s view is that schemes that are set up simply or largely for tax avoidance purposes will normally have certain characteristics. The more of these characteristics a scheme has, the more likely it is to come under investigation.

The old adage that ‘if something sounds to be too good to be true, it probably is’ applies equally to tax saving schemes as to anything else. Additionally, anything that seems to be artificial, overly complex or which involves secretive agreements should be viewed with suspicion. You should also avoid any scheme where upfront fees are payable, that runs on a ‘no win, no fee’ basis or that has guaranteed returns with little risk.

Be wary of schemes that are supposedly approved by top lawyers, accountants or HMRC but with no evidence of this. Schemes should, generally, be run for commercial reasons rather than have their aims as simply to delay or reduce tax. In general, each scheme needs to be looked at on merit. However, taking on one that has many of the factors that HMRC views with suspicion is more likely to lead to an investigation at some point.

HMRC has particular suspicions about Gift Aid schemes where charitable donations are rewarded with shares that are supposedly worth many times more. It also doubts the effectiveness of schemes that reduce Corporation Tax through contributions to an employer financed retirement benefit scheme as well as those making payments to employee trusts to avoid PAYE and NI contributions. These and others are likely to be challenged by HMRC, resulting in not only the tax being recouped but also much time and expense being wasted.

Whilst we all want to pay as little tax as possible, the message is clear that everything needs to be done properly in order to avoid getting in trouble with HMRC. Contact UKContracting.net to get the best advice on setting up a business arrangement that is best for you, minimises your tax bill and won’t upset the authorities.

One of the big stories that came out of the recent Pre Budget Report was the cutting back on government IT projects in general and the NHS development in particular. This may have a significant impact on IT contractors who rely on this type of work.

This has now been taken a step further with a report in the Sunday Times that the government has plans to privatise up to a quarter of the public sector. In terms of IT, the intention appears to be to centralise the outsourcing of departmental services and, looking further ahead, to sell off these services to the private sector.

At present, each government department handles its own IT contracting, which is seen to be a very inefficient process. The aim is therefore to provide this as a combined function for various departments, quangos and other state bodies. This arrangement is likely to offer economies of scale as well as bringing the required experience together.

Current thoughts appear to be that two outsourcing bodies will be set up and will be modelled on private firms such as Capita and Serco. All government IT contracts will then go through these bodies rather than each of the various departments as at present. Over time, their structure as companies will be established, probably with a board of directors that will oversee the publication of annual accounts. This then gives the distinct possibility of selling off the businesses into the private sector.

The creation of efficient outsourcing bodies is seen as a real alternative to making substantial cuts in government IT projects. And, with the public finances being in a parlous state, the prospect of generating a forecast £16 billion by putting them on the open market is probably too tempting to resist.

Given the state of public finances, the recent Pre-Budget Report was never going to be particularly good news. However, IT contractors should generally be breathing a sigh of relief as their worst fears weren’t realised and they were let off rather lightly.

Some of the changes were already known or predictable, with the standard rate of VAT reverting to 17.5% from 1st January 2010 and the new 50% income tax rate due in April. However, contractors who operate through a limited company will be pleased that the planned 1% increase in the corporation tax rate has been deferred one year until April 2011. In addition, anyone involved in innovation will pay a new corporation tax rate from April 2013 on income derived from UK patents.

Contractors operating as sole traders or though an umbrella company haven’t fared as well, with employees’ and employers’ NI contributions going up by an additional 0.5% from April 2011 on top of the 0.5% already planned. This may cause some contractors to think again about their employment status.

For those putting money into a pension fund, higher rate tax relief is to be capped at £130,000, down £20,000 from the previous earnings limit, which will hardly encourage savings. Of less importance to most contractors is the freezing of the level of the inheritance tax nil rate band, although the restoration of stamp duty to the previous lower property value may be more of a blow.

Given the economic situation, any thoughts that IR35 might be abolished or other restraints on freelancing could be removed were no more than fanciful. Indeed, there were several mentions in the PBR of clampdowns on various practices. A reference to ‘false self-employment’ was directed at the construction industry but can equally apply to IT contracting and it is an area where HMRC has expressed concern. The PBR also covered the on-going measures being taken against offshore accounts while the ‘Spotlight’ section of the HMRC website will highlight schemes that are under scrutiny and may result in future action against them. April 2011 will see a restriction on the tax exemption of free or subsidised meals and employers’ travel schemes to temporary workplaces will also be looked at.

There was confirmation that there are to be cuts in the NHS IT programme, part of an overall reduction in IT spending that is intended to save £500 million. This will have an impact on contractors who are involved in this type of work and will need to be made up by increased activity in the private sector. However, a web portal is to be available from the end of 2010 that will show all public sector contract opportunities with values of more than £20,000.

Some people view the IT contractors’ escape from a worse outcome in the PBR as due to politics rather than anything else. With a general election due in the first half of 2010, many actions have been deferred until after it and so there will certainly be further changes to come. What they are will depend on the party that forms the next government and the state of the economy at the time. The latter is hardly going to be much improved and so it is unlikely that any planned tax and NI changes will be cancelled.

Whatever the outcome, contractors need to be aware of what is happening and plan accordingly. One inevitability, announced in the April 2009 Budget, is that the new 50% income tax rate for those earning over £150,000 comes into effect on 6th April 2010. At the same time, anyone earning over £100,000 will lose £1 from their personal allowance for every £2 of income above that level. The loss of allowance combined with a tax rate of 40% means a marginal rate of 60% in an earnings band immediately above the limit.

If you’re an IT contractor, and particularly one with high earnings, you need to be sure you have the correct operating structure so that you minimise tax and maximise earnings by legitimate and efficient means. And you need to do it quickly because every day lost is potentially money wasted. Contact UKContracting.net if you want to be sure you’re not paying more tax than you need to do.

Whatever your view of the effects of the economic downturn on the IT contracting market, it does seem that many government-sponsored contracts have soldiered on regardless of the situation. This all now seems about to change, with pressure finally being brought to bear on public sector spending. What might turn out to be only the tip of the iceberg is the recent announcement by Chancellor of the Exchequer Alistair Darling that the government is planning to shelve parts of the NHS IT programme.

The Electronic Patient Record System, which originated in 2002 and was supposed to be finished next year, has so far cost around £12 billion. With an estimated £3-4 billion still to be spent on the system, it seems parts of it are to be scrapped or at least delayed. This is likely to be only the start because government spending seems largely out of control at a time when tax revenues are severely reduced. The Chancellor has expressed a wish to halve Britain’s deficit over the next four years and so other cuts, including more IT projects, are inevitable.

A general election is due in the first half of 2010 and opinion polls suggest a change of government is highly probable. However, this is unlikely to improve the situation regarding government IT contracts, with the reverse being a better bet. Both the Conservatives and the Liberal Democrats have said they will scrap the NHS system altogether, the Tories suggesting hospitals should use open source systems.

A reduction in government contracts seems inevitable and may have serious implications for IT contractors. Work is picking up in the private sector but only time will tell of this occurs quickly enough to fill the gap.

If you’re a UKContracting.net client, at least you’ll benefit from sound advice and be well placed to take advantage of whatever is around.

Intra-company transfers were designed so that overseas companies that needed high-level skills or company specific knowledge could bring workers into the UK to fill the requirement. However, recent figures obtained by the Association of Professional Staffing Companies (APSCo) under freedom of information rules suggest that the system is being abused on a large scale.

Figures provided by the Home Office showed that 29,240 non-European IT workers entered the UK in 2008. Of these, 12,573 or 43% were sponsored by seven firms from India. The majority of these people were brought in to fill entry-level or mid-level roles, which rather conflicts with the aims of the intra-company transfer system. Indeed, the National Shortage Occupation list currently contains no IT posts, reinforcing the view that the positions could have been filled by UK-based workers.

The situation is particularly galling given that the majority of these companies have achieved their success largely through the off-shoring of UK IT jobs to India. What they now seem to be doing is setting up subsidiary companies here so that thy can take advantage of the outsourcing market in this country.

This state of affairs might be acceptable if these companies were operating on a level playing field. However, as Ann Swain, Chief Executive of APSCo points out, they seem to be exploiting a lack of enforcement of the rules: “Foreign companies are supposed to pay workers brought in on intra-company transfers UK market rates but you have to wonder whether there is some economic benefit to transferring Indian workers from a low wage economy to the UK. If there is no cost saving, then why do they do it? How exactly is the Home Office policing this?”

The answer seems to be that the Home Office isn’t policing the situation at all. No matter how clear the rules, they’re not much good if they’re not enforced.