Posts Tagged ‘company’

With further signs of an improving situation, the future is starting to look a little brighter. But what does 2010 promise for IT contractors? Are we really out of the woods or just going through a clearing before it all gets a little dense again?

The messages are decidedly mixed, although the majority vote seems to be towards the bright side. The general consensus, in fact, is that the IT contracting sector hasn’t suffered too badly through the downturn, unlike banking and construction that have been badly hit. In the case of the banking sector, most people will say ‘serve them right’ since they got us into this mess in the first place.

Many people believe the recovery is underway but will be very slow throughout 2010. This is partly due to a lack of confidence and also because bank lending is unlikely to get back where it was, so financing may not be available in the required amounts. There’s also a tendency, to give the banks a good kicking, especially in government circles, which probably won’t help matters.

Oddly, the lack of confidence may well work in the favour of IT contractors. Companies have put projects on hold and will want to get them going, but may be reluctant to commit to permanent staff. Indeed, if they’ve made people redundant, they can’t suddenly resurrect a job that was declared obsolete. These factors open the way for contractors, who are seen as more effective and flexible in uncertain times.

The reason that IT contracting hasn’t been as badly hit as other sectors also bodes well for the future. The fact is that computers are at the heart of most companies now — they enable businesses to operate efficiently and, without them, most things wouldn’t work at all. So companies can’t just shut down sections of IT and wait for better times. They need IT staff to increase their efficiency and it is a proven fact that IT spending gives a good return on investment. And although IT contractors may be more expensive than their permanent equivalents, they offer greater flexibility and good value for money.

While improvement may be slow, IT contractors are likely to be leading the way out of recession and 2010 looks brighter.

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The public sector doesn’t have the best of track records when it comes to managing large and complex IT projects. One of the most infamous cases is the National Health Service’s electronic patient record project, which is currently running over four years late and costing double the original budget, with no end in sight.

The blame for some of the disasters now seems as though it’s being shifted back to the private sector, with calls for companies to be blacklisted if they are deemed to have failed to deliver what they have promised. Austin Mitchell, MP for Grimsby, reckons that IT consultancies and suppliers have made excessive profits through overstating the capabilities of their products and gaining contracts by misrepresentation.

The MP does concede, however, that government departments are also often at fault, being guilty of over-specifying requirements and making systems needlessly complex. There’s also the suggestion that the departments don’t have the capability to understand and manage what is being proposed. The results are developments that go significantly over budget, run well past their target dates and don’t deliver what is required.

One solution is that departments get better advice so they are more able to control IT suppliers. How they gain this advice is unclear but may mean engaging yet more consultants. Another suggestion is that the Office of Government Commerce has an audit and control role over contracts. This will give it some influence over the firms that are selected for contracts as well as allowing it to impose penalties for misdemeanours, including blacklisting those that make untrue claims about their products or services. Whether this will lead to a more satisfactory outcome, only time will tell.

Anyone coming into contracting for the first time will soon discover that agencies prefer to deal with limited companies since this results in a reduction in their liability. Indeed, many agencies will only deal with limited companies.

Setting up a limited company isn’t a big deal because your accountant or a specialist company can handle most things for you. However, you will have to pick a name, sign some forms and pay the inevitable fee to complete the formalities.

Whether you’re a limited company or a sole trader, you will have to send out invoices for time and expenses, do your own bookkeeping and handle your tax affairs or pay an accountant to do this for you. If you do have a limited company, your accountant’s fees will be somewhat higher because there’s more work to do. Should your earnings go above a set limit, you or your company will also need to be VAT-registered, meaning you’ll be an unpaid collector for yet another of the government’s taxes.

Once you get into a routine, you might find that running your business affairs isn’t too much hassle. However, it is unpaid work that you do in your spare time and you might find it an inconvenience you’d like to avoid.

The one real alternative to setting up your own limited company is to use an umbrella company to handle your affairs. These have become more common since the government introduced IR35 legislation to determine the employment status of individuals.

An umbrella company effectively acts as your employer and the services provided by each one are broadly similar. They will receive your timesheets, raise invoices to agencies and pay you when each invoice is paid. Since you are treated as an employee of the umbrella company, tax and national insurance are deducted and you receive a net salary. Allowable expenses are also paid, with some companies having dispensation arrangements with HMRC. This allows them to pay expenses at set scale rates with no need for receipts, although you will have to retain receipts and be prepared to submit them to HMRC.

The arrangement will reduce the amount of bookkeeping and administration you need to undertake and may also lower your accountancy bills. Some companies will give tax and financial advice, negotiate with an agency on your behalf and provide insurance cover for public liability, employers’ liability and professional indemnity. There may also be other employee benefits such as a pension scheme, private medical cover and saving plans.

Using an umbrella company does reduce the level of work you need to do but there are downsides. There is, of course, a fee to be paid for the service. You also lose a degree of control and your pay is unavoidably delayed because it’s coming through a third party rather than directly to you.

If the arrangement seems attractive, you need to decide if it’s right for you and choose a company that offers the best deal. You should compare the services offered, deciding if they’re useful to you, and the fees charged. Establish if you have to pay whether working or not and if there are set up and termination fees. The fees you pay can be balanced against savings you might make, such as through the non-payment of insurance premiums.

If you’re planning to contract for only a short period, using an umbrella company might be a better option than setting up and then closing down a limited company. For longer-term contractors, the full cost and tax implications need to be investigated thoroughly before making a decision. In the end, it might come down to the hassle factor and how much you’re prepared to pay to avoid or reduce it.

Forming a limited company has often been seen as one of the best ways of operating for an IT contractor. It gives you limited liability protection as well as providing tax advantages, although the latter are somewhat reduced under current legislation.

When setting up a limited company, you have to conform to various regulations, including selecting a name that you’re allowed to use. You can’t, understandably, have one that’s in use already and there has long been a list of names that are totally banned. These include names that imply you’re associated with the government or royalty, are a bank, building society or professional association when you’re not and anything else that indicates that you’re somewhat bigger and more important than you really are. Added to this are names that you might be able to use if you get the necessary permission. In total, 70 names were on the list, which aims to prevent the public being misled or harmed.

A further 42 names have recently been added, preventing you from choosing a name that makes you sound too official without the necessary authority. If you want to use a name that includes ‘Mutual’, for example, you’ll need to get permission from the Financial Services Authority while ‘Olympic’ requires you to contact the London Organising Committee for the Olympic Games. ‘Co-operative’, ‘Data Protection’ and ‘Prince’ are also terms for which you’ll need to get the go-ahead before you use them.

These problems do, perhaps, illustrate the need to use a specialist service when setting up your limited company. However, even these service organisations are unlikely to have been able to overcome delays at Companies House recently when registering new company names. Problems caused by the installation of new software meant that a process that usually takes only a few hours was extending to two weeks and more. A helpline is available but, due to the problems, this had longer waiting times than normal.