I’m coming rapidly to the end of my current engagement and have been reflecting on what I’ve been doing. Not out of any great sense of sadness or nostalgia but because I have to hand over to the permanent guys that I’ve been covering for while they were off doing more interesting stuff. Which means doing the Great Chinese Examination and writing down everything you know for them to pick up and carry on doing.

Then, while pondering how best to describe one less than dynamic project without embarrassing the Project Manager too badly, it occurred to me that my job is actually pretty varied in one way and very consistent in the other.

Don’t believe all that rubbish about monster pay packets, most contractors actually do it for the chance to work in different places with different people learning different things.

Although, to be fair, the monster pay packets might also have a certain appeal…

Anyway, my usual contract is to parachute into an existing team where I’m either filling the seat of someone off doing something else for a while, or adding some resource because the guys haven’t got enough hours in the day. It’s a case of turn up, get introduced, sometimes in detail, sometime very sketchily (although with my appalling memory for names and faces, it matters not a lot which!), work out the key players, the quick way to get to work and the coffee supply and get on with it. With a bit of luck I’ll also be asked to make things work better or even work completely differently, which is the bit I quite enjoy. But the real challenge is that steep learning curve where you have to fit into the team like you’ve been there for years. Then the real guy comes back and you’re out of a job again. Rinse and repeat.

So as I say, interesting work in a boring sequence. And I wouldn’t have it any other way, to be honest.

But there’s another thing I keep seeing, everywhere I go. Basically I work in and around Service Management, which is the bit that turns the technical wizardry of the data centre into the mundane consistency of the user’s desktop environment. All that stuff that ITIL used to be about before V3 came along and made it incomprehensible and expensive in equal measure. But ITIL has been around for a long time now, and certainly predates the working lives of a lot of the people I work with. So why does nobody know how to use it properly?

Everywhere I go, they have a Service Desk. The usually have a Change Manager. They may have got really enthusiastic and have a CMDB that works. Usually they’re just an asset register with aspirations; the test is to see if it can tell you who will shout if you turn something off. Which is all well and good, if you like your cappuccinos without milk.

Where is the Service Catalogue? I’ve yet to work somewhere that has even a pale shadow of the ITIL ideal. It’s not like it’s all that complex either, the broad brush approach will work perfectly well – email , internet, Office, Security, User Management, assorted approved applications, that kind of thing. Not the tin and wires, that’s for the propeller heads in the back office. The Service Catalogue is the glue that holds it all together, the steamed milk that makes your breakfast coffee sing and stops the cinnamon sinking. Without the Service Catalogue, how do you know what you’re providing, what your Change Manager is changing and what your Service Desk is servicing?

Perhaps I should get out more, but one day in my serial existence I’ll come across a site that uses the basic ITIL structure properly. And that would be really very interesting.

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For some reason I’ve seen a whole raft of questions and complaints about that most retiring of professionals, our friend the humble accountant. What is more, the questions and complaints being raised tend to demonstrate why they need an accountant in the first place.

There are two basic themes, best summarised as “How much?!” and “My accountant won’t let me…”.

The “How much” brigade really amuse me. They usually ask for recommendations for a good accountant who only charges £50 a month. Well look, I used one of them when I started out in contracting, on the recommendation of someone who knows about these things and I was young (ok, youngish) and naïve. After a couple of years, when I’d learned what I was doing, I worked out he’d cost me a few thousand in unnecessary taxes, late filing penalties and generally weak advice. Rather more than I‘d paid him for his services, in fact. So I switched to one of the contractor specialist accountants who recovered that money over the next year or two by giving rather more appropriate advice and stayed with them ever since.

I’ve always said that a good accountant is free anyway. Let’s face it; I do two kinds of stuff. Some stuff is for clients and I get paid for doing it, at an hourly rate well above what my accountant charges. The other is stuff I want to do – well, OK, more usually stuff that She Who Must Be Obeyed wants me to do – and I don’t get paid for it (usually quite the opposite, in fact!). And doing accountancy beyond the bare minimum of logging what money went where does not fit into that category. So as far as I’m concerned the accountant is doing stuff I don’t want to do that has to be done, more accurately and far more cheaply than I could do it. So something of a no-brainer.

On the other hand, the members of the “Won’t let me” brigade are seriously deranged. In the last couple of days I’ve seen someone trying to claim spending £5500 on a single PC (including £2400 on two monitors) as a business expense, someone asking about charging his MBA course as a necessary business cost and someone asking about making his three year old a shareholder to save tax, then having a go at their accountant for asking questions. There are others – just wait a day or two and another one will be along…

OK, the first guy might have a point (he’s certainly got one hell of a home entertainment system …) but the other two not only don’t know the relevant laws, they’re actually complaining that their qualified, expert, paid advisor is telling them why it won’t work. Totally barking.

And just going back to costs again, I was challenged today on why I need to spend any more than £50 a month for a simple business model and can’t I see I’m being ripped off when his high street guy does all he needs doing. Fine, I replied, just ask him about a few contractor-related basics, such as what is the definition of a PSC, what’s IR35 and how it is assessed, what is the tax treatment of training to expand your skill set, how to correctly answer the questions on the P35 and why, and why he isn’t an MSC. He may well know all the answers, in which case well done him, but I know more than a few ACCAs who don’t.

As Red Adair said, “If you think a professional is expensive, wait till you hire an amateur”.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

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I’ve been having a funny old week at work. For once I’ve got up to date on my deliverables and am waiting on assorted worthies to review and respond to the results. Meanwhile the technical team next door are working all hours God sent to keep up, while my in tray is almost empty. Well, it makes for a quiet, if rather boring life.

So I find myself taking a look around the world of contracting to fill in the time. And it seems there are some odd things going on out there in Reality.

My old mucker St Vince of Cable is at it again. So busy earning money he failed to notice he was over the VAT threshold. Luckily his accountants did notice – months late, but hey – and he sorted it out, paid the tax and the (very) small fine, job done. Silly mistake by someone with his vast experience of real business (two whole years as an Economics Advisor, wasn’t it?) and no real harm done. But on that subject, could I ignore a hard and fast taxation rule, forget to declare some taxable income for a few months, then discover my mistake and pay it back with a tiny penalty and a smack on the wrist? Don’t think so, somehow.

HMRC are apparently cheering about improving their take from IR35. Say what? It seems they are getting more money back from the pitifully few cases they manage to pursue to completion. What is more, this has been seized on by some who should know better as an example of the deterrent effect of IR35. Their argument is that people are paying taxes via umbrella companies rather than risk an IR35 investigation. So that’s OK then. After all, what could possibly be wrong about scaring people into paying taxes they don’t actually owe by threatening them with a piece of legislation so badly drafted it needs a three year investigation and court case to determine if it actually applies to this single set of circumstances?

AWR is continuing to cause hilarity among those who understand it. Not only are some agencies sending out letters asking contractors to declare themselves outside its scope – something you can’t actually do in any meaningful sense, of course – but they are persuading assorted Human Remains teams that using agencies protects them from the AWR. Say what (again)? Take someone on directly with no intermediate agency and the AWR is dead and buried. Using an agency increases the risk, not reduces it. Doublethink at its best, and a good illustration of why contractors don’t want anything to do with HR if they can possibly avoid them. Or agencies, come to that.

And finally, credit rating agencies. Not the big ones who are randomly downgrading assorted banks and even whole countries, although they’re bad enough, but the ones being used to credit check job applicants in line with FSA regulations and failing them, often on some pretty flimsy histories. Which means no job offer. Fair enough?

Well no, really. For one thing the FSA rule being quoted applies to people in a limited number of roles within financial services; directors and those who advise customers on fiscal matters, for example. It’s not actually meant to apply to the third DBA from the left in the support team. But hey, it’s an income stream for someone, so who cares that it’s both utterly irrelevant and genuinely damaging; I know someone who regularly has to turn down good people because of this nonsense.

Modern Britain in a nutshell. Never mind the outcomes, follow the rules no matter how idiotic and irrelevant those rules are. Truly we are a nation of jobsworths; after all, there’s no money in being a shopkeeper any more.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

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It’s happening on Saturday and no, I don’t mean Scotland beating England by eight points. Although that would be fun for us Welsh…

No, Saturday is the day the eagerly anticipated Agency Workers Regulations come into force. And for such a significant event – and not just significant in our little world of contracting but in its potential impact on the UK economy and businesses – it all seems remarkably low key. And I find that both surprising and just a shade encouraging.

Of course it could be because everyone understands the new world and have prepared accordingly. Well not us Limited Company contractors of course, since we are out of scope so don’t have to do anything. This didn’t stop one poor soul asking questions about how he could persuade his agency that he was actually in scope. God knows why he thought that might be a good idea. Of course, he may simply be winding us all up – very occasionally that seems to happen on the internet, you know – and for his sake I hope that’s the case.

And, needless to say, there have been questions about does it really, really apply because of the ominous “genuinely in business” caveat the BIS or DBERR or whoever they are decided to add in for the fun of it. To which the answer is who knows, until it goes to court. Which I suspect it won’t, but you never know.

That reminds me of one of the better ideas I heard over the weekend. A group of us were pondering the work of the OTS (remember them? They’re still going you know) and how they could better focus their efforts. OK, so perhaps some of us should get out more, or perhaps drink less, but we found it worthy of discussion. The suggestion was made that the OTS could very usefully start with the various tax laws that have required a court case or two in order to figure out just what the hell the real rules are. Still, I digress…

So clearly the umbrellas and the agencies are well prepared, to the extent that I’ve heard of one agency that was trying to get its contractors to move to the right vehicle – PAYE through an agency, umbrella or limited Company – depending on their rates. Which is slightly deranged in one way but you can see the logic of it. So well done all.

But it does beg an interesting question. Why?

I mean, why is everyone so well prepared? Previous changes of similar magnitude – stopping MSCs, killing off some of the more imaginative offshore schemes, the Arctic Systems case, even IR35 itself – sort of burst upon a world that wasn’t really ready for them. That doesn’t seem to happen any more.

And that’s down to the wonderful Law of Unintended Consequences. In 1999, when the well-known failed tax-evader Ms Primarola introduced IR35, the aim was to punish us uppity freelancers by smacking us in the pocket. After all, given the recently released Freedom of Information answer that showed how pitifully ineffective IR35 has been financially, it clearly wasn’t done for the money. Or very well, come to that. But what it did do was galvanise a bunch of us uppity freelancers to fight back. And now, ten years on, HMG is not only listening to what we say, they are asking us what we think before they do it. Doesn’t mean they have the brains to listen, mind – else why do we have the AWR in its current foggy form – but at least we get the chance to publicise and explain things well ahead of their implementation. Which has to be a good thing.

So hopefully the AWR will do what it’s meant to do and protect the vulnerable and leave those who don’t need that level of care well alone. And we won’t get any more nasty surprises.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

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Have you ever thought that contracting is about the only job where you have no idea how much you should be charging? You go for a job, you talk to the agency advertising it (assuming you can find them at their desk…) and you have a two minute chat about the work required. With a bit of luck (and some smart questions) you will know where the job is based, roughly what’s to be done and what the agency believes the key issues are (there’s always issues in my experience!).

What you don’t yet know, usually, is who the client is and quite probably not even what their line of work is. That’s because if the agent decides you’re a waste of his time, he doesn’t want you calling the client and offering your services directly, so he’s only protecting his own business.

But on the basis of this rather minimal information you will be asked how much you would charge. And that’s where it gets difficult.

Personally I have a clear idea in my head about what I would like to charge. The answer, oddly enough, is not “as much as I can” although that is certainly one of the parameters. I know what I need to live and I know my routine overheads, so I can work out how much I need to earn a year to pay the mortgage and keep the dog in biscuits. Working on the assumption I’ll probably work seven months a year (OK, that’s a bit low, but I’m getting lazy in my old age) I can set a base day rate.

To that you add the cost of getting to the job. Daily commutes are either so many miles at 40 pence per mile or the rail fares. Staying away I usually cost at £100 a day (slightly more in the Smoke, but that’s usually commutable). Either way I add that amount to the day rate; while I do an all inclusive deal for my labour, I also aim to recover all my costs.

Finally I add a fiddle factor, based on the seniority of the role (it costs more if I’m managing people, for instance) and something I call the risk factor, which reflects how hard the job is going to be and how much damage I could do if I get it wrong. Then add 15%: after all, I aim to make a profit at the end of the day.

So then I have a base price. Sadly, so does the agent, driven by what the client tells him the budget is and his own margins. If we’re really lucky the two will coincide. If we’re even luckier, the agent will be willing to beat the client up to what I want, since he gets more money that way as well. These days, though, that’s increasingly unlikely.

One problem is that the clients have a very clear idea of what they want to pay, Unless you are a serious specialist, there is very little chance you can name your own price any more. Most clients have a rate card of their own which they use to cost their own internal budgets: it’s a brave manager who will deliberately put in an overspend on his own budget. Then there are the companies who have no idea, who set the budget by dividing the permie’s salary by 260, who set the rate stupidly high – councils are good at that one – or even do a kind of Dutch auction, asking for three CVs and saying they’ll take the cheapest (oddly enough they are also the ones wondering why their delivery record on projects is so poor…).

Of course it would be good if we could delay the rate discussion until the interview stage, but that would expose the agent’s margin which would never be allowed. Or we could go in with a per diem and a percentage share of any resultant savings or client income growth depending on the role. (Someone I trained did exactly that: offered to do a job for 10% of the first year’s savings then proceeded to save his client £2.4 million…)

But at the end of the day you are having to bid for work in a fog of ignorance. This probably explains why my rate now is usually within 10% of what I was on 15 years ago when I started out.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited<

Image: vector scuba diving by ?ukasz Strachanowski

Contractors, whether new to contracting or experienced hands, will often be approached by salesmen for tax-efficient pay structures.

You will hear claims such as ;

• We can guarantee you 90% take-home pay
• HMRC compliant
• Guaranteed legal
• Approved by leading Tax Counsel

Great – where do I sign?” might be your first thought. However, you might want to reflect and find out a few things before committing yourself.

How long has the company been around?

Claims are often made that ‘we have been providing contractor solutions for 6 or 7 or 8 years’. Check with Companies House and you may find that the company is relatively newly formed. This could mean that :

a) The company will have little or no track record with HMRC.
b) The company may have no asset base so nothing to fall back on should there be difficult times such as an HMRC investigation.

How can you guarantee take-home pay percentages?

The real answer is that you can’t. It is very dependent on personal issues such as your tax code, previous income and other income. Also, measuring take-home pay is one thing but there is often hidden higher rate tax to be paid via your Self Assessment Tax Return after the end of the tax year. You will also find that a large proportion of the sum that you don’t take home is taken in advisers fees with very little actually paid in tax.

HMRC compliant – surely that’s a good thing?

This may not be as impressive as it sounds. Compliant may mean as little as the fact that the company has registered a PAYE Scheme with HMRC, which is something that it must do to employ people in the UK. They have therefore complied with the basic rules of employing people. Not quite the same as the impression they are trying to portray – that HMRC have looked at, and are happy with the overall way that the company operates.

Guaranteed legal – can’t go wrong with that can you?

Businesses don’t normally state this – only if you are sailing so close to the wind do you think it’s necessary to state it. It may also just appear to be legal – until HMRC proves otherwise, that is.

Approved by leading tax counsel – surely you can trust the opinion of a QC?

Yes, of course you can. But was the QC given a full disclosure of all facts and what was the actual opinion? It is rarely as simple as ‘Yes, that works.’ And also very unlikely that it would be something that you could rely on in Court if you needed to.

So what do I do?

Be cautious and take professional advice from someone you can trust, like your accountant. Only proceed if you are absolutely sure about the scheme. If you get it wrong it’s you that pays the tax, and the interest, and the penalties.

John Mumford is the Accounting Director of Carrington Accountancy
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Image: Seems too good to be true by mattymatt

With the delay of the Agency Workers Directive (AWD) until October 2011, there is at last some relief for contractors. Make no mistake, AWD as drafted would have a big impact on contractors given that agencies and end-clients would be forced into processes that would at best delay placements and at worse, remove some of the roles available.

But it’s only a temporary relief, October 2011 is fixed in stone but at least there is time to plan properly and get all our heads around it. The really ironic thing for umbrella contractors is that much of what AWD tries to do (equal rights with permanent employees) is already provided by businesses like Parasol. On the other hand some contractors don’t want the same rights as the “permie” but because Europe and UK Government can’t differentiate between true vulnerable workers and contractors then everyone is caught.

I would still urge everyone to lobby the government to push the point around understanding the labour market in the 21st century as without continued focus everyone will be classed as “vulnerable”. Make no mistake, I am no advocate of exploiting workers and some of the previous practices are rightly condemned but we seem to be blindly lumping everyone together because Europe don’t “get” contracting and the UK Government are scared to define anything.

I understand the last point to some degree, they will be concerned that sharp operators will find a loop-hole and that’s another reason why umbrellas (who mainly employ professional contractors) are caught specifically.  It did not make a world of difference to Parasol contractors as we have a very robust employment model and a true accountancy practice but of course, by association we get pulled in.

So business as usual for us all in a time when that does make sense for a change. Contractors can get the roles that are coming up, agencies can plan and end clients won’t be hassled for pay rates and conditions, well not yet anyway.

I have a long held belief that UK plc is stuck between two camps and never gets clarity as a result. As a member of the EU we are held to some of the social chapter practices that don’t work for our markets. We also try to be entrepreneurial yet quite often go too far with that too (banking anyone?). AWD is a good manifestation of that problem, socially driven with the desire to protect workers not getting rights (a good thing) versus some complicated carve outs to try and allow the UK to function (excluded if you work for less than 3 months on one client) for our more flexible approach to business.  So we are stuck between the two and guess who ends up paying?

A braver person may have produced a definition of worker and a framework to prevent abuse (that’s what we lobbied for).  That’s an opportunity missed in my opinion and AWD will loom in the background as a distraction we could all do without.

Rob Crossland is the Managing Director of Parasol
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Image: FuBe vorm Pool (27c) by Jorg Weingrill

Many contractors have already heard about the proposed Agency Workers Directive (AWD), but not everyone truly understands how it will affect the contracting and recruitment markets in the UK.

Whlst attempting to establish the EU economy as the best in the world, the AWD’s objective is to create the most appropriate framework of employing temporary workers in the EU and to ensure that these individuals are not discriminated against.

Of all the countries in the EU, only the UK has such a well established recruitment marketplace, which is why approximately 1/3 of all EU agency workers are based here. In Italy, employment agencies were considered illegal until only very recently.

With consultations on-going until 18th October 2009, the Government is now studying the possible impact of the AWD on temporary agency work in the UK. The EU is expected to adopt the proposed directive by September next year, to be implemented into UK Law in two years time.

Impact on UK Contractors

So what does all this mean for UK freelance contractors? Well, there are several proposals currently in consideration, most of which have been included to provide temporary workers with the same (or at least similar) rights and conditions to permanent workers. Recruiters are being asked to scrap Temp-to-perm transfer fees and end clients will need to inform agency workers of available permanent positions.

According to the proposals, member states may refuse the equal treatment of temporary workers but only in the following circumstances:

* temps are paid between assignments (this is rare in UK);
* they are covered by collective agreements (this is also very rare);
* the assignment is for less than 6 weeks (the Government is pushing for a 12-month limit whilst some MEPs believe that there should be no limit at all)

The DTI predicts total costs of between £80 and £194 million to recruitment agencies and the cost for clients between £239 and £387 million. Costs to payroll and umbrella companies have not been estimated. According to some, the DTI’s Regulatory Impact Assessment lacks any objective data on temporary work in the UK and the EU – its quoted figures are therefore questionable.

Since the AWD requires equal pay and benefits for temps, it is believed that temporary work on the whole in the UK could decrease considerably. The UK government contests that the AWD must not include workers pay since Article 137 of the EC Treaty clearly states that, ‘the provisions of this article shall not apply to pay’. The inclusion of pay would mean that the payroll company (umbrella) or recruitment agency must obtain detailed information on a client’s pay standards in order to ensure that temps are not paid less.

Conclusion

The proposed AWD, once adopted, could greatly impact the freelance recruitment industry in the UK and contractors should prepare for the possible consequences. We recommend that you write to your MP and MEP to explain and give examples of how much this proposed directive could cost you.

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.

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