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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

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

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

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:

  1. You are employed as an employee by the Umbrella company;
  2. The umbrella company (not you) has a contract with the recruitment agency or end client;
  3. The notice period often quoted in contracts and assignments relates to the notice that the agency/client give to the umbrella. (For peace of mind make sure you know what the specific assignment states in relation to notice on the Umbrella);
  4. You have an employment contract with the Umbrella which will have it’s own employment notice conditions.

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?

  • Don’t panic! A quality Umbrella will have an HR function to support and advise.
  • You should be employed on a guaranteed hours contract (with a qualifying period) and you may be entitled to some wages.
  • You are still employed by the Umbrella and you should work with them to help resolve the issue – it can only help your prospects with that Agency (who are often at the end of the client decision).

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.

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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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