Lib Dems helping Contractors?
June 6, 2009 in Contractor News, Industry comment, Tax
We reported on the Parasol site that Lib Dems seem to putting some effort into working for Contractors, no bad thing. There are even some Labour MP’s signing up!
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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).
- the travel must be in the performance of an employee’s duties or to a temporary place of work
- 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
- 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.
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!
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.
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.
Make your voice heard at HM Treasury
November 7, 2008 in Tax
As the Pre Budget Report approaches, Parasol are continuing to lobby key figures at HM Treasury as they prepare their response to the consultation on tax relief on travel expenses. If you haven’t already heard about the consultation, the Government is considering the abolition of tax relief on travel and subsistence expenses for umbrella contractors, or enforcing existing arrangements more rigorously through changes to legislation.
If you’re a regular reader of my blog, you’ll already know that my views are very clear. We would welcome proper policing of the existing system but feel very strongly that contractors shouldn’t be penalised for operating legally with compliant companies such as ours.
Now SPA (Service Providers Association), of which we are founding members, want to know your views. The information you provide will add weight to the argument we’re putting forward and will allow us to represent your views at the highest levels.
I’m sure you’re in the middle of a busy day, but please take a moment to complete the short survey below. Remember, it’s your chance to have your say about your career.
http://FreeOnlineSurveys.com/rendersurvey.asp?sid=nidgivvg1uj05jn491875
We’re expecting the Pre Budget Report before the end of November so will be sure to let you know the outcome of our efforts.
UK Taxman gets powers to go offshore…
October 1, 2008 in Tax
The beginning of the end for offshore arrangements?
As the founder and Managing Director of probably the UK’s largest Umbrella company, I have been frustrated at the apparent inability of the UK tax authorities to prevent offshore Umbrella companies from setting up aggressive structures. These structures rely on the secrecy afforded to them from operating from bases outside of the UK rather than by implementing compliant structures which meet both the spirit as well as letter of the UK tax system.
Many of these structures claim to return at least 85% of a contractor’s income to them, and are supported by so called leading tax expert opinion. These “solutions” are of course attractive to certain Contractors but it does none of us any good in the long run as it forces HMRC to look at Contractors, Agencies and we are all tarnished by the apparent lack of compliance or extra work needed to police it.
However, there does appear to be a significant light at the end of the tunnel. On 29 September 2008, the UK and Isle of Man Governments signed an agreement which may lead to the end of these so called “compliant” arrangements.
The agreement, which will require ratification by the House of Commons, will for the first time allow the UK tax authorities to obtain information about these offshore companies. The financial secretary to the Treasury is reported as saying “This new tax information exchange agreement represents a significant step in our efforts to counter and prevent tax evasion and avoidance. “
The agreement will also allow officials from the UK to enter the Isle of Man and conduct interviews with, and inspect the records of, those individuals who they suspect are involved in the promotion of these arrangements.
So for the first time HMRC will have some significant “teeth” to combat the growing offshore market and enforce the MSC and debt transfer rules that were introduced in 2007. We may, at long last, see the end of non-compliant structures with those responsible for their creation being held personally accountable for any unpaid UK tax or NIC.
Expensive Budget?
March 13, 2008 in Tax
Aside from the usual Budget details what was the important stuff for Contractors and Agencies?
Chancellor Darling at least deferred the income shifting plan until 2009 but it still means for some Contractors that run Limited Companies that some of the benefits of being able to have for example husband and wife shareholders, will be under threat. As we have seen with other legislation it may allow the Government to fine tune the law or perhaps see the proposals shelved? I would not put a big bet on the latter.
Under the excitingly entitled “anti avoidance measures” there was much less good news for Contractors using certain trading models. Sole Trader, Isle of Man partnership and trust schemes have all been identified and loop holes closed. Whilst the owners running those types of businesses will be reassuring clients and Agencies, it has always been an aim of HMRC to stop the practice.
Umbrella Companies also got a mention! Within the avoidance measures came a comment around ensuring that Expenses are not abused. I welcome this attention as in reality some sharp practices have harmed the Recruitment industry and Contractors. Parasol Contractor employees and Agency partners have nothing to fear, we have always run our business on very ethical and compliant terms. We have spent over 8 years developing a focused professional employment model and will continue that process into the future.
Taxing Times
February 14, 2008 in Industry comment, Tax
A couple of key things coming up on the horizon for contractors
The tax year end is not far off and so it’s a last chance to ensure you get maximum tax benefit on certain planning activities in this tax year. Of probably more importance but with less certainty, is the state of the economy. You can probably imagine that I get lots of publications and predictions from a wide variety of sources. Personally I have been through recessions before and I found it to be decent times for Contractors. Quite often some of the big companies lose jobs but then find they need to complete or start projects, where do they go…. Contractors. Rates can sometimes suffer but if you have kept skills up to date and can add value, then a reduction is not always the case.
I don’t think we are heading for a late 80’s, early 00’s type collapse, a sustained period of growth probably means slowing and more caution rather than boom and bust. There are also still significant skills gaps in a number of sectors and good Contractors will always find plenty of work. Here at Parasol House we remain optimistic for 2008 and will continue to be adding new services and solutions to make conditions as best they can be for Contractors.
by Rob Crossland
The dark art of notice periods in a downturn
June 17, 2009 in Contractor News, Industry comment, Life, Recruiter News, Tax
I have noticed on several forums and noted through our own data, an increase in “claims” from Contractors relating to early terminations by Agencies and/or End-clients. In these difficult conditions it is far more prevalent that an end-client would terminate a contract early and this of course can have a huge knock on effect.
But, what does it mean in the context of working through an Umbrella Company and what can you do if it happens to you?
The first place to start is to try to understand the contractual relationship you are engaged in and what this means both in terms of law and practicalities. If you are working through an Umbrella company then the food chain works like this:
If the above is not clear or not understood then there is a tendency when the worse happens (early termination) to raise some form of claim/challenge against anyone that will listen. I should also add that some Agencies don’t always understand the relationship piece and/or sometimes link in the individual.
You must also consider the implications of you “breaking the contract” for a rate increase by going direct or changing Agency/End-client for similar reasons. Don’t be surprised if your Umbrella then has a case to answer to from an Agency/Client and where do they then come to for compensation? (Those Agency to Umbrella notice periods are the issue here) You should also expect to have to change employers as it is probably not a great reflection on that Umbrella and it’s relationship with the customer if they “allow” the practice to be seen as OK.
So what can you realistically expect if you are being professional yet find yourself on the end of an early termination?
It can be very disheartening if an early termination happens and many of the Agency contracts (with the Umbrella) have no notice periods stated so it can be a no win situation. Make sure you keep your Brolly in the loop, work with them for resolution and as an employee of same, you do have rights. Equally, if you are deemed to be responsible for breaking a contract then don’t be surprised if your employer starts to question the motives.
Times remain challenging and the inevitable can and does happen. It need not be the end of the world and their are some good businesses out there that can help you through it. It’s a tough one when it feels one sided but Agencies (and clients) can also be tomorrows project after the dust has settled.
Tags: contracting, contractor services, contractors, employment law, expenses, human resources, umbrella company news 2 Comments »