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by Rob Crossland

EBT and racy tax models fail us again

March 16, 2011 in Contractor News, Freelancing, Industry comment, Recruiter News, Tax

The hills are alive with the sound of another Employee Benefit Trust (EBT) scheme failure. Contractors unpaid, agencies paying twice and end clients wondering what the heck it has to do with them!

I have written, spoken and moaned about the risks of using these solutions but the damage has once again been done. I will say once again that Contractors can’t be surprised when the authorities end up mass legislating to prevent what is seen as cowboy behaviour.

I even saw a scheme advertised yesterday (with the usual QC opinion point to support it) suggesting a 100% return eg no tax! How can that be morally correct let alone sensible?

Agencies must look very carefully at who helps them manage contractors and Contractors need to be aware that when an Agency prefers a supplier, it should be for all parties benefit in terms of risk reduction.

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by Rob Crossland

How was 2010 for you?

January 4, 2011 in Contractor News, Freelancing, Industry comment, Life, Recruiter News, Tax

Welcome to 2011 and very best wishes to everyone for the year ahead. Let’s hope it’s happy, healthy and of course prosperous. Here at Parasol and Clearsky we are looking forward to another busy year and as we approach our 11th year of trading, there is much to be done.

2010 was an interesting year in many respects, January 2010 saw the high profile collapse of an “Umbrella” company and I use the quotes as the reality of the model was once again exposed and the spectre of offshore activities discovered. The noise around the Agency Workers Regulations (AWR) intensified as the reality began to sink in and this was followed by National Minimum Wage consultations and HMRC consultations on the overall operation of PAYE. The new Government then instigated the office of tax simplification and ir35 once again regained top spot in Contractor related news and debate. More offshore solutions came under pressure through some high profile collapses and alleged financial irregularities. So on the political landscape it was pretty full on and our founding membership of FCSA helped us contribute and educate on many of these issues for the (usually unseen) benefit of Contractors and Agencies alike.

The actual business of contracting was tough with roles and rates remaining a challenge. I am not sure 2011 will be hugely different but I think steady progression is better than boom and bust. As we progress through the year  I also expect the noise around AWR to intensify, remember that the true employment based solution is already doing much of what AWR requires and this compliant solution will remain after October!

I therefore look forward to 2011 with sensible optimism and confidence that Contracting will remain a crucial part of the UK economy. We will be doing our very best to support this and have always been about the long term, here’s to the next ten years!!

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by Rob Crossland

Finance Act should be welcomed by umbrella companies

December 15, 2010 in Contractor News, Freelancing, Industry comment, Life, Recruiter News, Tax

Publishing the contents of the act early was a positive move by the government as it allows businesses to fully digest the act, understand its implications and make sure their business models are fully prepared for its introduction.

It was no surprise that the government has taken a hard-line with EBTs and other forms of tax avoidance as this has been discussed for some time, however, some providers of services to contractors have taken the announcement as an opportunity to release misleading information and confuse the market. This is inaccurate, irresponsible and fundamentally wrong.

There must be a distinction made between umbrella companies who work closely and openly with HMRC in order to protect contractors, and companies that exploit loopholes and make bold or unrealistic claims about take home pay. Correctly structured and compliant umbrella companies have nothing to fear from the Finance Act, and the reality is that this provides an opportunity to demonstrate that compliance and transparency to government, contractors and the agencies that place them.

In the past, this industry has been tarnished by unscrupulous providers making unrealistic claims about the amount of take home pay a contractor can expect, by offshore providers not fully explaining the risks involved in using an EBT scheme or operating with a lack of transparency to a level that even the contractors involved in the schemes cannot fully explain how they work. Thousands of contractors have also been persuaded to join these schemes without being informed of HMRC investigations into them.

This had to stop and therefore the Finance Act 2011 should be welcomed by umbrella companies. It now remains the duty of leading umbrella companies like Parasol, and organisations such as the FCSA, to support and educate contractors and the agencies that place them, encourage further transparency, open discussion and compliance throughout the industry, and ensure that the bad practice of a few does not bring down the industry and prevent professional contractors from running their business and making a valuable contribution to the UK economy.

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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

Budget – what’s in it for Contractors?

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

You can get live updates via twitter by following http://www.twitter.com/robborover as we discuss the impacts for Umbrella and Limited Company contractors from 12-30PM onwards today.

Will ir35 be mentioned? Will changes in corporation tax be too harsh?

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by Rob Crossland

The Mud Slingers are ready…

September 18, 2009 in Contractor News, Industry comment, Recruiter News, Tax

Gordon Brown unsurprisingly appealed to the TUC this week when part of his speech included a loose promise on the Agencies Workers Directive (AWD) coming into power within this government’s tenure. This was then followed by more comment from BIS (used to be BERR and was DTI before that!) that suggested a “2010 or 2011″ implementation – so a perhaps a little bit contradictory to the PM’s position.

Any new contractors/freelancers may be confused by all this as in many ways it is a bit too far off when you are focused on a role and earning some money. For those that are interested (and at a very high level view), it’s EU legislation that grants “temporary workers” the same “rights” as their fully employed counterparts after 12 weeks. I put the terms and values in quotes as the EU seem to think that Contractors need protecting and don’t get any employment rights.  Clearly this is not the case as the Umbrella employee gets FULL employment rights (or should)!

Anyway, like IR35 and MSC before, AWD is starting to create some turmoil and noise. “Umbrellas are dead” and “everyone move to Ltd” is starting to be shouted. In my opinion it does the industry no good to create disquiet in a time when there is equal focus to be placed on helping people get work and start contracting. “Well you would say that Crossland ” I hear you cry – maybe, but don’t forget we also have a true Accountancy Practice (Clearsky) and try to offer the right choice to Contractors based on best advice and not solely on % return (often advertised by the more unscrupulous providers before an individuals position is known!).

Surely if the “industry” (Umbrella Co’s, Specialist Accountants etc) is to have a better image with the authorities then at least some sense of the bigger picture should be thought of? Maybe I am being naive and self interest will always ultimately be the driver for many. The industry needs to wake up and smarten its act up. We and a few others have tried to do it with an emphasis on doing the right thing but that’s not the easy option nor the cheap option.

AWD like its previous legislative policies before it will come in, it is not the end of all current business models, it will simply create new models, some good and some bad. Here at Parasol we are very happy with our plans and confident that a new generation of solid prosperity for Contractors will be created and protected.

So if you read any “the end is nigh” articles that seem to suggest changing how you operate, just take a second to think why that might be.

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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

Another week, another consultation

July 24, 2009 in Contractor News, Industry comment, Recruiter News, Tax

HM Treasury announced yet another consultation this week, “False self-employment in construction: taxation of workers”. No doubt that reams of technical analysis will be produced but the bottom line seems to be that HMT think people are getting tax advantages by claiming to be self-employed when (in their view) it is clear the worker is employed (in terms of what actually happens).

So it’s the turn of the already beleagured Construction Industry to cope with this and interestingly the consultation period ends in October. I suspect consultation had to be published but that ministers know it won’t be a popular change.

So the recently revised Construction Industry Scheme (CIS) looks under further scrutiny and the estimated (by HMT) 300,000 workers will be under the microscope via the providers of payroll/tax “solutions” to this industry. Doesn’t effect Parasol at all but could have implication for providers that provide CIS or sole trader solutions.

Is it right? Until UK Gov creates a true definition of the class of workers in the whole of the temporary space (and get’s EU on side) then “abuse” and short cuts will always happen. Level playing fields need to be created but with one of the oldest and most complex tax systems in place, it won’t happen anytime soon. Is it also a product of the need to increase tax take given our recent economic issues? Probably all three.

Shout if you’re in the Construction Industry and have a view.

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