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by Rob Crossland

The murky world of Agency umbrellas

August 24, 2011 in Business Expenses, Contractor News, Industry comment, Recruiter News

It’s been a while since the last post and high time I wrote about the “grey market”. No, not some dodgy Apple kit, in this context it relates to a number of “Umbrella Companies” that are actually owned by recruitment businesses but pretend they aren’t.

Some are relatively overt about it and exist to perhaps serve their own contractor base and/or use group structures “imaginatively”. Others are far less so of course and also have a history of offering very high referral fees to build contractor volumes. Why would a recruitment business send it’s contractors to a potential competitor related business? I’m not saying that there any data protection breaches but is it best practice? I also believe that clearly masking the relationship tells you something, why hide something if it’s a genuine stand alone business? It is difficult to tell at times and any decent Agency would want to look at group structures and associated companies as part of preferred supplier due diligence.  I have seen Umbrella operations bring down related Agencies and vice versa. This happens as a result of one simple fact, it’s not a core focus for the Recruitment business and is a tad harder than you might imagine.

Here at good old Parasol we are quite proud of our independence and I really don’t mind competition, it keeps you sharp. I do mind a lack of transparency and practices in an industry that needs to remain friendly with our legislators. Surely we should all play to strengths and if you are an Agency boss thinking of entering this “easy” Umbrella life then give me a shout, happy to explain how and why you should to do it properly.

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by Rob Crossland

Racy tax schemes under more pressure

October 5, 2010 in Business Expenses, Contractor News, Freelancing, Industry comment, Recruiter News, Tax

Back in October 2008 I blogged on the changes to the Isle of Man disclosure rules and suggested it might make it more difficult for those solutions to prosper. Well I was partly right and partly wrong so let’s deal with the wrong first.

Since that time (and of course before) those “schemes” have happily continued and backed by fistfuls of “leading QC opinion” and “disclosure to HMRC” have happily carried on advertising 85% to 90% nett return on invoice value. They often are based around a two level solution, some income via a PAYE model and then other income via employee trusts and/or loan solutions. Sound complicated? It is. One of the odd parts is that by claiming to an “employment Umbrella” and state “employment taxation” they then go on to brazenly advertise 90% nett take home pay! Last time I checked you couldn’t work via PAYE and take home 90%. As the discarded Verve song goes, “The maths don’t work”. Of course there will be variants to this, more income put through PAYE to reduce the level of scrutiny the scheme might attract or more IR35 checks. For the contractor it can amount to hassle or a lot worse and for Recruitment Agencies, risk and pain. Let’s also not forget that the Government gave HMRC powers to go back in time to look at tax treaties in the past and Contractor forums are littered with tales of stress. There will always be some people who will take the riskier route and good luck to them but the heat is being turned up. I can categorically state that HMRC are aware of many of these schemes and only for a lack of resource it seems, have not yet got around to looking into all of them.

The BBC recently reported that a arrest was made in the Isle of Man in relation to an alleged offence with the BBC stating, “A spokesman from HMRC said: “The investigation centres around the suspicion that tax avoidance schemes have been implemented fraudulently”. Police suspect schemes could have been sold to more than 600 subscribers with an estimated tax loss in excess of £90m.” In the current climate do we think that HMRC can allow £90m or thereabouts to not be collected? I hope the 600 users of said scheme have got good investigation insurance.

Let me be clear though, I’m all for true entrepreneurial spirit and class myself in that category. There are some small company reliefs out there that are relevant and can help a business get started and thrive. Ir35 is not exactly a great solution and the UK Government does not fully understand the dynamics of the flexible workforce, that said if you push the envelop to the extent that some do, then you really cannot complain when the authorities then have to legislate. So if you’re a contractor thinking of signing up to a “scheme”, please think twice and understand the risks involved. Those risks could be at least hassle and at worse, truly painful.

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by Rob Crossland

The expense playing field continues to level

August 20, 2010 in Business Expenses, Contractor News, Freelancing, Industry comment, Recruiter News, Tax

You may have seen that Parasol are founder members of the Freelancer and Contractor Service Association, a trade organisation that seeks to improve the professionalism and transparency of service providers to Contractors and has what we think is the most rigorous and detailed code of conduct. The code of conduct has many parts to it and actually engages with HMRC on the results (we have nothing to hide) but one of the most important part for Contractors, is the standardisation across members of the payment illustration. I’ve previously written about expenses on my blog and other sites for a good few years now and umbrella expenses still remains a constant point of misunderstanding and abuse. So how does FCSA help in this regard? Well, the members have agreed to standardise on both the substance of the calculation and the presentation of the results, more importantly however is that HMRC have been engaged in the overall process. That does not mean it’s HMRC approved, that will never happen for anyone or anything but when you have businesses out there still selling on inflated levels of expenses it’s a step in the right direction. It also means that service and added value becomes the competitive landscape, surely that’s better for everyone in the longer term.

The FCSA membership will grow and the professional providers that adopt the standard will be protecting Contractors livelihoods – claims of 89% net return still exist but trust me, it is too good to be true.

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by Rob Crossland

June Budget 2010 – Contractor win?

June 22, 2010 in Business Expenses, Contractor News, Freelancing, Industry comment, Life, Recruiter News, Tax

So Mr. Osborne delivered his first (seemed short and snappy to me) budget and whilst the devil is in the detail (available here ) here is my take on how it might help (or hinder) Contractors, Agencies and those important end clients. Let’s have a look at the “big things” first:

  • In general terms it appears to be a relatively pro business budget so that for those of us working in this sector, we may feel somewhat optimistic rather than doomed. The counter of is that the “25% cut in department spending” over four years could have ramifications for those working on Government projects. However, as is always possible, that could be actually countered by a permanent headcount freeze and supplemented by Contractors. Let’s not forget that UK Gov is one of the biggest users of Contractors!
  • It appears that the NI incentives to set-up businesses (outside of the land known as the “South East”) will also be helpful and will be interesting to see how that affects single or two person businesses.
  • VAT increase to 20% – could have some cash flow implications for smaller recruiters but providing decent credit control is in place it should not be an issue.

Turning to the real impact on Contractors I think we can say that it is relatively good news at that level (in other aspects it depends on your view on alcohol taxation etc and some of the proposed welfare cuts). I think the general view is that Umbrella contractors will get some benefits and those operating through Limited Companies will also feel some improvements.

  • Umbrella contractors will benefit from an increase in personal allowances to the tune of £1000 and with an increase in the employers NI threshold, the nett position should be an improvement. But what about the rise in VAT I hear you cry! Well, if you claim valid business expenses (and perhaps even more a reason to do so now) then you should be better off. If you’re an higher rate tax payer it could also mean that if you claim expenses and with an increase in allowances, your tax position could be better. The caveat is of course that the expenses must be legitimate and as everyone knows, we do not promote the abuse of this.
  • The reduction in small companies taxation to 20% will also be well received by small business and this will be the case for those operating a Limited Company. Those same companies may also benefit from those changes in employers NI and the commitment to review small business taxation (which includes ir35) is to be welcomed.
  • For some contractors, the increases in capital gains could be a pain if you have an extensive property portfolio but for those that are building up say a consulting business, the entrepreneurs relief improvement is of course welcome.

So – a generally pro Contractor budget in my opinion. It won’t be perfect for everyone but for those of us trying to get on and create some opportunities for ourselves and others, it sounds ok.

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by Rob Crossland

Contractor expenses get another view by HMRC

August 7, 2009 in Business Expenses, Contractor News, Industry comment, Tax

HMRC issued a tax bulletin yesterday which included a further “warning” for expense led Contractor solutions.  Specifically it stated,

“Following responses to the July 2008 consultation ‘Tax relief for travel expenses: temporary workers and overarching employment contracts’, HMRC commenced compliance activity to identify and take action against those Employment Businesses and umbrella companies which are operating in contravention of tax, National Insurance or national minimum wage legislation.”

In the bulletin, HMRC state to have identified the following issues:

“Current compliance activity has identified a number of concerns that are the subject of more detailed, ongoing investigation. These include:

  • Potentially ineffective overarching employment contracts
  • Dispensations which are invalid, or which have been wrongly applied
  • Not complying with the terms of the dispensation
  • “Expense payments” made tax-free without that level of expense, or in many cases any expense, having been incurred
  • Potential illegal deductions from workers’ pay
  • Ineffective and sometimes unlawful management processes; and
  • Breaches of national minimum wage”

Once again it would seem that some providers are taking short cuts with Contractors livelihoods and damaging the effectiveness of the flexible workforce as HMRC/HMT will simply continue to legislate. This is obvious to me when the bulletin goes on to state;

“End user businesses which use temporary workers paid though Employment Businesses and/or umbrella companies which do not fully comply with their statutory obligations, clearly run a risk of damage to their reputation and their business if HMRC takes action.”

I would reiterate my previous comments that if it looks too good to be true then it probably is and in 2009 it is simply not possible to do the right thing by only charging a really low fee and promising expense led high percentage returns. HMRC will clamp down on those organisations and will also look at a Contractors expenses… buyer be aware.

HMRC Bulletin Link

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by Rob Crossland

HMRC Slip Expense changes in….

April 15, 2009 in Business Expenses, Contractor News, Industry comment, Tax

Easter saw HMRC publish a paper which attempts to deal with standard expense levels for food & drink (subsistence) when working on temporary assignments (contracting).  This “quiet” release has not made the headlines as yet as a) it is not exactly draconian (and therefore anti economy) and b) does not entirely effect people from day one.

It does however mean that an employer (umbrella company) without a dispensation can choose to use a set rate of expenses for “subsistence”.  It also probably means that a new umbrella company might have a harder time applying for a dispensation.  To gain a dispensation the employer should carry out detailed sampling of expenses to prove to HMRC that expense levels are accurate and genuine (in simple terms). The new benchmark rates published mean that this does not need to be carried out and a standard fixed rate can be used (but with some tougher caveats).

  1. the travel must be in the performance of an employee’s duties or to a temporary place of work
  2. the employee should be absent from his normal place of work or home for a continuous period in excess of five hours or ten hours
  3. the employee should have incurred a cost on a meal (food and drink) after starting the journey

I also interpret the above as a way of HMRC being able to check for patterns in employees claiming of expenses, will someone claiming lunch every day of the week for three months relate to point 1? Is the travel necessary (and therefore the expense) or is it simply commuting as any employee would do?

A welcome change is the removal of “Friends & Family” Allowance in new dispensations and is also not included in these new rates. Being able to claim for staying at a friends or family whilst contracting has in my opinion, been widely abused and therefore HMRC have acted to remove it, “HMRC has reviewed this policy and concluded that there is no legal basis for giving tax relief because it is not linked to any specific underlying expense.”

Umbrella Companies with existing dispensations will be affected by these changes but only at the point in which they are reviewed. This therefore relates to my earlier point in that not everyone will be affected from day one (which by the way was 6th April 2009) as dispensations are usually reviewed on a 3 – 5 year cycle.  Parasol contractors for instance won’t be affected and even when our own dispensation is up for review, we are still able to apply for a renewal. We have a near 10 year track record of being an employer with a true employment model and exacting expense management/audit processes.

So… who wins? HMRC I guess will be able to suggest this route rather than allowing dispensations and less expense abuse should occur.  Some genuine Contractors will lose out in terms of take home pay if they use a “cheap” solution that adopts this scale rate approach.  It’s not yet creating a level playing field (you still see expense dispensations promoted as sales tools) but probably is a start on the groundwork.

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by Rob Crossland

Yet Another Expenses Blog

April 1, 2009 in Business Expenses, Contractor News, Industry comment, Tax

April 22nd 2009 could be another milestone in Contracting / Freelancers as Mr. Darling announces the 2009 Budget.

Potentially buried in the detail will be some further changes to expenses whereby HMRC may get around to introducing UK wide fixed “scale rates“.  As part of this new approach, “in response to concerns from some employers and professional advisers about consistency between what is agreed for different employers, HMRC also proposes to standardise the different scale rates that it will agree with employers.”

It could therefore mean the end of some dubious practices by some Umbrella Companies that claim very high % returns to Contractors on a basis of claiming expense levels that in some cases are not incurred and in others as a result of “good” negotiation with a local inspector.  I blogged on this in 2007 and many times since and this aggressive stance (abuse of expenses imo) may have come home to roost. It should create a level playing field whereby service and value for money are what Contractors focus on and not risky expense policies. I live in hope!

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by Rob Crossland

The taxman’s getting tougher

February 27, 2009 in Business Expenses, Contractor News, Industry comment, Tax

No changes to the rules surrounding expense claims by contractors! After this good news for contractors in November’s pre-budget report, what next? I’m wondering what HMRC has in store and how it will affect  Contractors and Agencies.

With HMRC eager to pursue what it clearly believes is tax avoidance, Contractors need to be very aware of offshore solutions. And of ‘rogue’ umbrella companies persisting with practices that cannot be good for the recruitment industry.

It was great news to see no changes to the rules surrounding expense claims by contractors in Alastair Darling’s pre-budget report. But now we’re all wondering what the HMRC plans to do next and how this will affect both contractors and agencies.

HMRC has published concerns over the continuing use of offshore ‘schemes’ and also announced new powers to investigate them via tax treaties – with Isle of Man, for example. The 2008 budget included retrospective powers for HMRC to pursue what it clearly believes is avoidance. What does this mean? First, you must be very wary of offshore solutions, as they are in danger of invoking MSC legislation. Even if legal advice states the solution is legitimate, it’s important to establish that the company treats all their workers’ income as employment income.

Disappointingly, some ‘rogue’ umbrella companies continue to advertise material gains via the use of expense policies. This practice cannot be good for any parts of the recruitment industry and we continue to lobby against it.

Parasol continues to work with the Service Providers Association (SPA) on improving standards. I believe agencies should be able to make the distinction between the previously mentioned ‘rogues’ and the true professionals.

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by Rob Crossland

Risk & Reward – Would You Bet the Mortgage?

December 8, 2008 in Business Expenses, Industry comment, Tax

Last Wednesday, we saw HMRC issue some updates in relation to Managed Service Company (MSC) legislation. Since the MSC legislation came into force (April 2007) we had seen a wealth of “tax efficient” solutions spring up – many claimed very high returns for Contractors and the amount of money that was pumped into legal advice and Google advertising meant that they will have been attractive to many.

Seems HMRC took some legal advice of their own and have said, “HMRC will now look for suitable cases to investigate and, where appropriate, challenge and litigate. HMRC is aware that some Service Providers claim to be in receipt of counsel’s opinion that their particular intermediary does not fall within the Managed Service Company legislation. Such opinions do not alter HMRC’s view regarding whether or not the Managed Service Company legislation applies.”

They also go on to address how some of the offshore schemes could be at serious risk, “It should be noted that simply because an intermediary is based outside the UK does not mean the Managed Service Company legislation does not apply. Those providing their services though companies based outside the UK should not assume that this fact alone exempts their company from the legislation and them from the consequences of non-compliance. If the provider and their associates are based outside of the UK tax jurisdiction, then the persons most at risk are individual workers based in the UK.” So if you are thinking of or have joined a “sexy” tax solution then be aware that HMRC are looking at Contractors and all the QC opinion in the world won’t keep you out of court.

I guess it comes down to your attitude to risk; do you put your savings and property on the line for a better return today and worry about the consequences tomorrow? In these tough times that answer is even harder to address I suppose but HMRC are on the prowl, do you want the hassle (at best) or the costs (at worse)?

I know it’s dull and repetitive but we have never put Contractors livelihoods at risk and will continue to promote sensible and compliant solutions. I do not think it is in any of our interests to force HMRC to continue to clamp down, a too good to be true solution is nearly always built on some rocky promises.

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by Rob Crossland

Pre budget delivers a sensible result for umbrella contractors

November 24, 2008 in Business Expenses, Industry comment

Buried amongst the headlines of today’s Pre Budget Report (PBR) came the news that the Government had listened to contractors, compliant umbrella companies, agencies and trade bodies. Under the heading “Helping People Fairly” the Treasury has “…decided to leave the current rules (Tax relief for travel expenses; temporary workers and overarching employment contracts) unchanged.”  This is great news for contractors who work for Parasol and means that the risks that contractors take in finding work, travelling and working hard have been recognised.  Treasury goes on to suggest that HMRC will refocus its efforts on ensuring poor levels of compliance are addressed. A measure Parasol wholeheartedly agrees with and promoted as the correct solution through lobbying and consultation directly and via the Service Providers Association (SPA).

Parasol has always promoted the accurate and ethical claiming of expenses and has never put contractors’ livelihoods at risk. In some ways, the news in today’s PBR vindicates that stance.

We will continue to work with HM Treasury and HMRC to ensure contractors’ and freelancers’ unique place in the UK economy is recognised and understood. We welcome this sensible approach by the Government in times which are already challenging enough.

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