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.

It would be silly to suggest that things are not difficult for Contractors right now but at the same time it is not all doom and gloom. There are certainly mixed messages coming through but at the same time there are also new roles being advertised by Recruiters. Initial contracts are shorter but we are still seeing a good level of renewals. Projects that could save organisations money still need to be completed and those companies are turning to Contractors. At the same time, rates have dropped but not by the amounts many might imagine.

Bottom line... skilful Contractors across a number of industries and sectors are still busy and have stayed so by keeping those skill sets topped up and have no doubt taken the long term view.

As I stated before Christmas we have some great plans to help you and we are completely committed to Contractors and flexibility. You can count on Parasol being there.

Written by Dave Chaplin (himself an ex-contractor and owner of Contractor Calculator) it offers a pragmatic approach to both the basics and more advanced matters that Contractors face.  This 463 page book is a lot more detailed than the typical “newbie” guides and covers many of the business development matters in equal detail as the more usual tax concerns. I liked the design of the chapters in that it is very easy to get instant advice on a topic that is top of mind and also Dave’s “Been there, done that” tips give the book a human touch away from some of the technicalities of contracting.

I think this is a long overdue publication for Contractors and Freelancers and Dave is to be complimented on the level of detail, style and great advice that it delivers. This book should be part of every Contractors tool kit and is excellent value for money.

2008 has been a busy year for us all, we have once again appeared in the Fast Track 100 (think that is 3 times now) and that growth has been repeated in this current year. Thank you to everyone for supporting Parasol and we hope that 2009 is as good as it can be.

2009 will see us stepping up to the mark with further improvements and investment into our services and sensible progression by supporting our Contractors and Agencies will be the name of the game. Parasol is in excellent shape to support your own aspirations and our excellent financial strength, long terms relationships and ability to deliver will ensure you are in safe hands next year.

Have a great break and I look forward to working with you next year.

Rob

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.

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.

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.

The period of consultation that related to Travel and Subsistence expenses for Contractors completed on the 13th October. In that time Parasol had met with HM Treasury more than once and had worked with the Service Providers Association (SPA) to ensure that the "compliance" message was heard.

Working with SPA, Parasol recommended that HMT looked at the matters around how expenses are granted and of course policed. Rest assured we ensured that the feedback we received was fed back to HMT and our position was clear, police the system do not penalise Contractors doing things properly and working for a very compliant business.

We await the formal Pre Budget Report (PBR) with much interest and will continue to brief politicians on these implications. As we have always maintained, a good "Umbrella Company" will survive this threat and Contractors should not be forced into less compliant structures which are a riskier not only for the Contractor, but also provide a lower tax take for the Government.

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.  

Whilst there are many different challenges currently facing us all, it is important to take some time out to try and help others. I am really proud of our track record of supporting Childline and other charities and when you combine this with some real proper fun, it makes it so worthwhile.

Today was the last day in the Parasol Head Office Wii based Olympics and we have raised over £500 for charity in the process. The final events (Swimming and Cow Racing) saw Sweden (aka Sales) win overall with Belarus (IT) coming second. Turkey (Finance) came a respectable third in the medal table.

Here we see Andrew Hancock from the Sales Team competing in the Swimming, the mask was to try and slow him down honest!

Parasol and others are being asked to consult in relation to some of the issues around how expenses are paid. Key to this is the HMRC view that an over arching employment contract is not a guarantee of true employment and that “fairness” between workers is not being applied. There could be some union/EU pressure there but the gist is that an IT guy claiming expenses doing the same job as the “perm” has an unfair advantage over the permie. Don’t shoot the messenger! We all know that there are significant differences but HMRC take a “bigger picture” view it would seem.

If you are using or have used Parasol you will also know that we are stringent with our expense policy (and we have lost Contractors because we won’t bend the rules) but others are not. Some Agencies also allow an element of expense claiming via a PAYE solution and these factors combined have it seems, driven HMRC to take a look. Clearly there is also a tax take point here, and with deficits, some money will have to be found.

The paper presents a couple of options plus requests for other ideas. The first option (in general) looks at how HMRC can be stronger with policing expense dispensation issues, perhaps even going as far as reducing the amount of time expenses can be claimed for and on what basis – that’s the good news! The other option is for HMRC to try to remove travel and subsistence expenses for “temporary workers” completely! The latter also affects those some Agencies that use an amount of expenses with a PAYE scheme.

So, are we panicking at Parasol House?  No – I have long said that expenses should be better policed and that a level playing was better for all. Over claiming of expenses that are not actually incurred has never been good practice, seems HMRC have finally had enough. We of course believe that a properly compliant expense policy is what is needed, we can also demonstrate that we are more like an EDS or Logica than a simple trading entity. Will EDS be told to stop allowing expenses for their consultants?

So my message is that we will be keeping you updated and would want to hear your views too, Remember we are talking to HMRC about this and your support in explaining just how different you consider yourself against your permie colleagues could be vital. You will also hear and read about the end of the world for Umbrellas and as such; rest assured Parasol is very different to most. So I welcome an attempt to create a level playing field and we have an excellent track record of being ahead of the game in these matters.

Have a great August.

Rob

I have previously used the Opera Mini browser on my Blackberry which worked fine and I suspect many other mobile variants have also been used. We have got more mobile support in the pipeline and I will have to get an iPhone just to make sure they work too.

I came to Apple products late after I had started my own IT career on Texas Instruments (TI) mini computer systems, had a dabble with Apricot, worked for Olivetti and can include Data General, Altos, Pyramid and a couple even less well known manufacturers on my CV. Most of my real IT career was on Unix and Microsoft platforms, the latter of course becoming a dominant player in a number of ways. I guess my background in quirky systems meant that Apple had some appeal but buying an iPod meant they had hooked me, an iMac followed and then a Macbook. These are great for home, far less security/virus issues (smaller market share I know) and Office suites are compatible so that works too. My kids like them too – and with consoles becoming so advanced, the game play side of the PC seems to have diminished too. Don’t get me wrong I don’t think the Mac platform is suited for a majority of business implementations but I think the competition is good for Microsoft. We will continue to develop independent solutions and will happily take a Microsoft or Apple success (with all the twists and turns)!

I also had the “pleasure” of listening to the Chancellor at a CBI dinner last week. There is no doubt that politicians know about the challenges we are facing, but they do not seem to have the ability to make the break through. (Just to be clear, I do not think there is anything to choose from any of the main parties.) The CBI has it seems begrudgingly accepted that a deal between the TUC, the government and “business” had to be done around the Temporary Workers Directive. If not, the EU it seems would have imposed more draconian measures! As it stands and with no real details as yet, “temporary workers” will have some rights akin to employment after 12 weeks. I am very much on the side of protecting vulnerable workers but some Contracting groups will find these new measures anti competitive and not be asking for these rights. Our own Umbrella employment model already delivers a number of employment rights and benefits so we will be looking at the detail when it finally arrives. Yet more red tape for UK business, Contractors and Agencies can’t be helpful to ensure we overcome any slow down.

There is also a reminder about the May bank holidays. If you’re new to the UK, we get two days off in May and as a result this has an impact on bank processing timescales. For example, a Friday payment that would normally credit your account on the following Tuesday, will credit your account a day later due to the holiday. Switched On gives details of the specific dates plus deadlines for requesting an immediate payment.

The intrepid staff at Parasol are also undertaking a very challenging charity endeavour! We are aiming to raise £10,000 for ChildLine by completing the three peaks challenge. We would love your support.

I hope you will agree that Switched On is worth a read and of course we welcome your comments and contributions.

My flippancy aside (and I apologise if I have offended anyone) it does raise the issue of nationhood and the flip side in relation to the concept of the global economy. Here at Parasol we are represented in many countries by many nationalities of workers. We do have some multi-lingual staff, have worldwide insurance coverage and by continuing to work on our online solutions, are beginning to have more of a “global” presence. Increasingly work in the corporate environment is global and a career in Contracting could potentially see you travel the globe. Just remember that Parasol can support you but also remember to look up the various national days that exist. I’m a proud Yorkshire man, Englishman, happy to be part of the EU (most of the time unless we start talking about the Agency Directive) and don’t mind opening the Fiji Parasol office if we need it.