There has been a lot of angry reaction to the new IR35 business entity tests ever since they appeared on HMRC’s website last Wednesday.

John Whiting, the tax director at the Office of Tax Simplification, has now urged taxpayers to give them a chance. He welcomed the fact that they were drawn up in collaboration with members of the IR35 Forum and said it was important for the Forum to monitor the results of the pilot scheme in order to make an informed decision on whether the system should be abolished or retained.

Kate Cottrell, a member of the Forum, agreed with Whiting saying the tests have been blown out of proportion. They only play a minor part in the improvements HMRC is making to IR35 administration. She did however say the tests add further complexity to IR35, and that is not helpful.

In addition to the tests, HMRC is setting up three specialist teams based in Croydon, Edinburgh and Salford. When these teams select a case to investigate, they will take into consideration the reasons why a contractor feels they are outwith the scope of IR35.

The Revenue is also increasing the size of its helpline and review service, which will be staffed by employees that specialise in IR35.

These moves are likely to lead to more IR35 investigations but HMRC argues that the risk assessment tests should mean that the majority of contractors get their tax affairs in order and only those who abuse the system will be investigated.

© 2012 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Psychedelic Love Hearts by eek the cat

Since outing Mr Lester as a tax avoiding monster intent on destroying the UK economy single-handed, the press and the BBC have continued to turn up cases where people are working for the Civil Service in a range of senior roles but who aren’t actually Civil Servants. Gosh, who’d a thought it…

The reason for all this angst is, of course, that these people are not paying the same taxes as they would as employees. OK. And your point is, exactly? That is wrong on so many levels you wonder just how much research these journalists have done.

Firstly the workers are almost certainly paying all the taxes they are due to pay. Contractors – for that is what they are, even those labelling themselves as interims – don’t use limited companies as a tax avoidance device. As I explained last week most of the time if they haven’t got a company or work through an umbrella, they won’t get the work at all.

Secondly, of course, they tend to charge rather more than the equivalent Civil Servant while they are working. So although they may pay a lower percentage than an employee, they will quite probably be putting more back in the revenue’s coffers that the said employee. Plus, of course, when their time is done, they leave with none of the costs that a redundant permie will incur.

So a contractor doing basically a time-bound role is not costing anybody anything; in fact, they may well prove to be more economic. Perhaps that’s why Cameron values the freelance contractor workforce as adding £20bn to the UK economy every year.
But, all that aside, there are still a couple of issues that do need to be cleared up.

The first is that a major benefit of using a contractor to fill a permanent post is that the employer – in this case the Civil Service and related public bodies – is stepping away from quite a lot of costs. They avoid having to pay employer’s NICs for one thing. They also avoid the costs of training, sick pay provision, pensions and a whole heap of incidentals. And that applies whether you’re talking about hotel chambermaids or Programme Directors. Get them off your headcount and you’re saving serious money.

So, question one: how many of these roles are filled by contractors only to benefit the employers?

The second is that the row is basically about people in senior Civil Service roles. Which rather begs the question, why are there not suitable candidates coming up through the ranks to take over these roles as the incumbent moves on? Where is the succession planning that any executive ought to be applying to their own role?

For example, our dear friends at HMRC saw fit to retain their Head if IT (at, it has to be said, a ludicrously inflated rate) when he stood down until a replacement could be found. Secondly the even more esteemed Mr Hartnett is leaving HMRC and being replaced by someone moving sideways from another Department entirely because, according to Hartnett, there are no suitably qualified replacements available.

So, question two: why the hell not?

There are lots of things wrong that have led to this whole bun fight. However, using contractors as a key resource and then bitching about their tax arrangements is not one of them.

© 2012 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Day 280 – Sisyphus by Menage a Moi

In the aftermath of the Lester affair, I have managed to get involved in a bit of a debate has sprung up about what actually is a freelancer. This might seem a fairly trivial and straightforward question, but as you dig deeper into the reasons why IR35 was brought in, it all gets just a little complicated.

As the 12th birthday of IR35 rapidly approaches, it’s worth reflecting on why it was introduced. After all there is a whole generation of freelancers out there who have never known life without its Damoclean presence. And who may not know its gestation

Originally it was promoted as a way to recover taxes from people who left their permanent positions, had a nice weekend off, and then returned as a fully-fledged contract worker doing exactly the same role for exactly the same people. Nothing to do with freelance work, everything to do with them getting more take home by taking advantage of corporate taxation rates and their erstwhile employer not having to worry about little things like Employers NICs and holiday pay any more.

And you have to accept that is actually not a totally stupid idea. Certainly HMG accepted it as a rationale and after a couple of false starts, brought in the IR35 we know and love.

Snag is this was the Tony Blair government we’re talking about here. It may just be coincidence but IR35 was drafted so poorly that nobody knew who was actually in its scope; the Friday-to-Monday brigade clearly was, but so was every other one man band out there. And that’s when the fur started to fly and the PCG came into being.

It’s also worth noting the shift in emphasis by HMG themselves. They were clear that “genuine businesses have nothing to fear from IR35”, which they probably wouldn’t have if anyone could define a genuine business. In 2002, in the House, the then Postmaster General expanded on her concept of IR35: apparently it was now meant to apply to people who used a Limited Company to avoid paying the correct taxes. Which is fine apart from there still being no way to distinguish my company from Richard Branson’s without taking it to court. But the point is that the original intent seems somehow to have gone walkies and IR35 is now being presented as a general taxation measure to which all sorts of people are liable.

Scroll forward ten years and we have Osborne saying that he has to keep IR35 to protect a taxation revenue stream, from which we can assume that he was still sold on the original idea of IR35 as a preventative measure and not as a tax gathering one. Shame nobody told HMRC that, really…

So after all this time we are still in this idiot position of trying to prove we are genuinely in business should HMRC suddenly present us with a £90,000 tax bill. And as we have seen, that is a path fraught with peril and pitfalls. To my simple mind the fact I don’t have a constant income stream, I have to pay for all sorts of things that employees don’t, I am always at risk of not being paid at all and I have multiple clients a year would seem to say I am a business, but sadly that doesn’t count for much in the eyes of the law. After all, where’s my factory, my employees and my pile of manufactured widgets? Which is about as far as HMRC’s understanding of a business stretches

For IR35 to be applied as per its original intention – if we allow that the original intention is the only one that counts – is actually really obvious. If your client now is the same as your previous employer, it’s up to you to prove that IR35 doesn’t apply by using existing case law. If you’ve never worked for your client before, IR35 can’t possibly apply. How hard is that?

Clearly, very hard. 12 years on and still nobody knows if they’re in or out.

© 2012 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: I don’t know by cowbite

There’s been a wonderful example this week of exactly the kind of problem we contractors are faced with when trying to get our point across. A government agency, SLC– which is basically a private firm owned by HMG – was having some operational issues, so they brought in an expert, a Mr Lester, to sort them out. He was proving to be quite good at it, so they offered him a two year deal. Which he accepted. So far, so good.

The original work was done as a bog-standard interim management role: the guy was not employed, he did the job and charged a fee. When the two year deal turned up, he said fine, can you continue to pay me gross to my existing Limited Company and I’ll sort out the rest.

And then it all starts to go a bit wrong.

Someone – doubtless someone with just enough knowledge to be dangerous – asks exactly why Mr Lester has been allowed to avoid paying his taxes. Shock horror! Let’s do a TV programme on it!! This is outrageous!!! Lets’ have a witch hunt and track everyone else doing the same thing!!!!

Yes well, hang on a minute. Firstly we have zero evidence what taxes Mr Lester is paying, since he’s not obliged to disclose that information. There’s no evidence he isn’t paying quite a lot in tax; certainly, like many well paid contractors, a lot more than the average worker. He may even (say it quietly) have declared his earnings under IR35. Who knows?

His is a perfectly straightforward and entirely legal way to operate his company, to share his income with his other half and generally behave like the other 1.5 million freelance workers in the country. Like that chap who earns a million or so a year from public speaking. You know the one, David Milliband, sometime brother and elected, serving MP. Or indeed, the unloved Mr Brown who does the same with his outside earnings, although in his case they all go to charity.

It’s also interesting to note that various senior people had to sign off the arrangement whereby Mr Lester was paid gross. One might think that they had a handle on such things, but I could be wrong. And it’s all a bit moot now anyway, since Mr Lester has done the honourable – if arguably unnecessary – thing and gone on the payroll like the rest of the wage slaves.

But we can glean some interesting insights from this débacle.

Firstly, there are clearly a lot of senior people, including some who are actually in charge of such things, who don’t have a Scooby about how contractors work and how they are paid. Basically they do not trust a usually intelligent and highly skilled worker to arrange his affairs so that all taxes due are paid in full and on time.

Secondly we have once again seen the conflation of avoidance and evasion. Yes you can be against avoidance, but it’s not illegal; quite the opposite, in fact, it has long been sanctioned as an acceptable practice. You want evasion? Fine, so make whatever it is illegal and you’ve got it, but being tax efficient is avoidance, not evasion, and perfectly fine.

And finally, someone can’t actually count. Mr Lester will finish his contract and leave. No pension, no golden handshakes, no extended period on full pay while he finds a new job. That’s quite a chunk of public money saved over a full time employee. In fact, if you do the sums based on the figures that have been published, this tax saving exercise of moving Mr Lester on to the payroll will actually cost several tens of thousands more that if they’d simply left things alone.

But hey, nobody ever accused either HMG or the fourth estate of being financially competent, did they.

And what grates is the underlying point that people who should know better simply fail to recognise that there are freelance contractors among us. People who keep the wheels turning, who make few demands on the state, who represent an efficient and cost-effective workforce. People who are a long way removed from those who create companies for no other reason than to avoid paying taxes on earnings that they wouldn’t have got at all were they not already on the public payroll. You know who you are.

So bring on the witch hunt. But please, break the habits of a lifetime and point it at the right target…

© 2012 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Getting insight by Miran Rijavec

January, and the vexed question of self-assessment rears its head again. My accountant friends have said good bye to the family until February and closeted themselves with quill pens and envelopes of receipts. Others have burned the midnight oil trying to complete their online returns. Still others – like me for example – pay the bill to the accountant, send off a small corrective payment to HMRC and wonder what all the fuss is about.

In my case that cheque is for precisely eighty pence. Can’t pay that online so a cheque it will have to be. Which will cost the drones in HMRC around £30 to process but basic economics was never really their strong point. And it’s only outstanding in the first place because last year I ignored a similarly trivial underpayment and this year got rightly stung for the interest.

Meanwhile, away from the distractions of the self-assessment merry-go-round, a rather more invidious tax change has crept in, largely unannounced and unremarked. As of now, there is a limit on how much cash you can take out when closing your company under the provisions of Extra-Statutory Concession 16 of just £25,000. Anything over that attracts Capital Gains tax at the relevant rate. Great. More taxes you never knew you owed.

There is a way around it; you simply have to liquidate your company. That means using the services of a liquidator who, incidentally, can’t be your current accountant. And it seems that such a service comes in at around seven grand a pop. Until, that is, Liquidators-R-Us get up and running and the cost comes down, so defeating the whole purpose.

But if you think about it, if the idea is to increase the CGT take from closing companies, why leave the Liquidation loophole in the first place? Joined-up thinking? Not at all, merely another excuse to get taxes imposed by relying on people not knowing the detail.

But what really irritates me about this is the underlying assumption by HMRC that a company’s sole purpose is to grow into an eternal corporate body and any that don’t are not to be taken seriously. There is no acceptance or understanding that if you are working in a world where income is variable and frequently non-existent, using a company to store and distribute your income evenly across the year is the best way to do it. And when you finally stop grinding away at the coal face you want to get your money back as efficiently as you can while paying whatever levies are due to the Treasury, not to some pointless corporate leech.

It’s exactly the same mindset that got us IR35 in the first place. We have companies. We don’t have 300 employees and a pile of plant and machinery so we must be cheating the taxman, else why have the company? Well there’s S44-47 for one thing and the idiot tax liability transfer rules it embodies. But hey, that’s no excuse.

I have to conclude that the increasingly rapacious predations of HMRC are the single biggest inhibitor to the recovery we can think of. It’s all very well the Government saying we need a vibrant and flexible workforce, and we’d love to give them one, but getting constantly cut off at the knees by a body that has absolutely no experience or expertise in the real world is getting more than a little wearing.

And finally it’s the next meeting of the infamous IR35 Forum soon. There is a hope that they will come up with a final answer to the IR35 question. Personally, I’m not hopeful. Can’t imagine why…

© 2012 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Clueless BUB by Birdies100

Start the year as you mean to go on. Not a bad maxim, of course. Except that I’m starting with the prospect of being out of work at the end of the month. Not, I hasten to add, that I hadn’t seen it coming; the current gig is to fill in for a full time guy who’s been off on a specific project that he has now completed and is returning to business as usual. So no hard feelings. Honest…

Obviously I’m not all that worried; if you want to be a freelance you know that you’re going to finish contracts and you plan for it. There’s money in the corporate war chest so just focus on finding the next exciting opportunity and move on.

Except for an awful lot of contractors, it’s not that easy. These are the ones that don’t understand the risks of IR35 properly, or who have always worked in a world where IR35 is hanging over their heads. Quite rightly they take the low risk option and either declare themselves inside IR35 or work through an umbrella (or, if you’re a real hero, one of the strange offshore things…). That means you take out all, or almost all, your income as taxed earnings and leaves you with no reserves in the company to tide you over. And that is one of the hidden but very real negative impacts of the IR35 legislation; Cameron wants a vibrant, flexible economy but insists on cutting off its base material at the knees.

Then again, I am slightly appalled at the number of contractors who blithely accept they are IR35 caught in the first place, usually quoting conditions that we disposed of years ago. It’s not like there isn’t a huge amount of material out there but too many seem happy to roll over and pay taxes they probably don’t owe in the interests of a quiet life.

Their decision, obviously. But it does irritate.

The other side effect of finishing the gig is that I’ve had to take notice of the recruitment trade again. Never something I enjoy. The first step is to dust off the CV of course. I’ve already seen a couple of roles that I know are within my range and experience so a quick cover letter and attach the latest edition and sit back and wait for the phone to ring.

Which it hasn’t. Bugger…

So back to the CV with a more critical eye. It’s not a bad one in terms of things achieved, though I say so myself, but I re-read it properly and I have to say it needs a bit of work. It’s kept up with the recent contracts I’ve done, but I have been lazy and not re-engineered the whole thing, simply adding on the last contract each time. As a result, it’s all got a bit unfocussed and a couple of years too long. So this weekend it’s back to the drawing board with the electric pencil and re-write the thing to tell the world how good I really am.

Let’s face it; there aren’t that many roles out there at my kind of level that are close enough to home to make them feasible, and there are an awful lot of good people on the market. So the CV has to fill two completely different roles in one document; tick all the boxes that the “recruitment consultant” (for which read ex-sporting goods salesman turned sales researcher) thinks I can do all those funny things that the client absolutely has to have while being literate enough to persuade someone who does know what they’re doing that I know what I’m doing. But hey, I write stuff for a living, ranging from complex technical analyses to fully architected service designs to this blog, so how hard can it be? Well, actually, pretty damned hard. Wish me luck!

© 2012 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Voting Screen – Cartoon by DonkeyHotey

So this is Christmas, and what have we done? Well, speaking personally, quite a lot in one way and another. But it has been a funny old year in some ways.

Last December I was being optimistic about the Coalition making significant changes in various things. I was cautious about IR35, thinking they wouldn’t be a position to repeal it out of hand, but I didn’t expect young Osborne to come out in the Budget with the statement that he needs to keep IR35 to prevent abuses of the system. Which is kind of where we came in.

He did set up the Office of Tax Simplification though, and from there has sprung the IR35 Forum. The former has turned into something of a toothless wonder, getting ever more bogged down in detail. The more cynical among us might be tempted to suggest that this is because a lot of the parties around that table have something of a commercial interest in keeping IR35 exactly where it is, but that would be an unworthy thought. Wouldn’t it….

The IR35 Forum is still to produce anything but it looks like it can at least claim it has a direction and an intent that its parent body is sadly lacking. However we won’t really know much more until the next Budget.

In reality the best we can hope for is that IR35 remains as is, but Hector is rather more competent at judging who to stick under its microscope.

The Agency Workers Regulations arrived and caught all the agencies by surprise – hey, they only had a year’s warning, so what do you expect – leading to a flurry of letters demanding that you declare yourself outside its scope. Tricky, when anyone is potentially inside its scope and we have no case law to work with. Plus can change as they say.

The Cabinet Office was presented with a major paper on Security Clearance following a detailed, wide-ranging research project led by PCG, who highlighted what’s wrong with the system and, perhaps more importantly, what damage is being done. And even some options for how to fix it. This has been very well received and personally I am delighted, having been pressing for this kind of thing to happen for around eight years now.

Several IR35 appeals were completed, all but one of which were found to be outside, so reinforcing the status quo if not setting any new precedents. The other was the one I wrote about just last week, where the guy was found to be outside and then outside, all in the same contract. I think we’ll park that one in the folder marked “Say What?” and just forget about it.

The Market: now that’s interesting. The financial sector suffered an almost universal 10% rate cut during the year, with a few going even further. The rest of the world, however, seems to be plodding along at the same level. Lots of contractor layoffs and enforced holidays as well – again, only in finance. There are nowhere near as many jobs as they were, and rather more people chasing them, but you have to say that, taken as a whole, things aren’t as bad as some were predicting. The job losses seem to have been in the permanent market, so you have to conclude that UK PLC is sticking with easily-disposable temporary resources until they can see the light at the end of the tunnel. A light which is most likely to be a train coming the other way, if the pundits are to be believed.

And best news of all – our favourite MP and failed tax evader, the fragrant Ms Primarolo, is standing down at the next election.

So it’s been a difficult year for many but not a disastrous one, overall. Speaking for myself I’ve been gainfully employed most of the year, and am hopeful of that continuing a while longer. I’m looking forward to a week off eating and drinking far too much – and not having to face a sheet of blank A4 on Thursday night – before having to face the 7:15 from Bristol in the bleak midwinter again.

Have a good one.

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

Image: new check cover by jelene

You will probably have heard me sounding off at fairly regular intervals about how inconsistent and impossible to judge the average IR35 case is. I’ve looked at many appeal judgements over the years and each one has been supportable, given the vague nature of that which is being judged. You can usually kind of see where the judge was coming from.

Now, however, we have a case that fails even a generous stab at understanding the logic.

How else do you describe a judgement that puts the contractor outside IR35 and then inside IR35, within the same contract…?

The case was JLJ Services Ltd vs. HMRC, heard by Howard Nowlan. On the face of it this was one of those cases where a contractor, a Mr Spencer, working through his own limited company and an agency for an end client had been challenged under IR35 and found wanting. He appealed the case and it went to the First Tier tribunal.

So far, so good. Well, not good for Mr Spencer, but you know what I mean.

Then life starts to get a little strange. JLJ had started off as a Unix-based technical expert for the client, Allianz in Bristol, working on a succession of projects. After a few years of presumably valuable and acceptable work, Allianz’s requirements changed and Mr Spencer moved to a more part-time role, on a series of rolling contracts, picking up whatever needed doing.

Now this is the key point, as far as the judge was concerned; the first part, being deliverables based, did not exhibit a degree of control, the second, however, did. Accordingly Mr Nowlan rules that the first part was outside and the second part inside. This despite everything working to the same overarching contract – only the schedule of deliverables had changed – and I’m guessing it never crossed Mr Spencer’s mind that the game had changed underneath him. He simply kept on doing what he was clearly very good at for a client with whom he had a good and mutually beneficial relationship.

That said, by screwing up your eyes and squinting, you could just about see where Nowlan was coming from; the increased level of Control moved the IR35 goalposts in the wrong direction.

Ah but, I hear you cry, having been paying attention over the years, Control is not the only test. What about Substitution, Mutuality and that most recent phenomenon, “being in business”? Which is where I rather part company with the judiciary.

Substitution? The contract had a right of substitution and, as near as I can tell from the judgement, Allianz could reject a substitute with reasonable grounds but were not actually averse to considering taking one on if Mr Spencer was unable to work. Nowlan, however, after a bit of verbal gymnastics – including allowing an Allianz representative rather too much latitude in the accuracy of his evidence giving – said that he “ took it to exhibit a realistic businessman’s contempt for a clause that he probably found irrelevant”, a position he agreed with.

So, Mr Nowlan, how many employees do you know who are allowed to submit a substitute worker?

Mutuality? A mere bagatelle. Mr Nowlan’s words: “There is considerable case law in relation to this test, progressively indicating that the test is of diminished importance or that it is indeed nearly meaningless”. Really? Can’t say I’d noticed any diminution in its importance. Cases have recently hinged on someone being sent home without pay when the systems failed and they could no longer work, while the permies sat and waited for normal service to be resumed. On full pay. Heigh ho.

So there went the RMC judgement on what constitutes employment then.

In business? It’s clear from various comments that Nowlan considered JLJ Services to be irrelevant and queried why it had been set up. So a judge trying a contactor case involving an agency who hasn’t heard of S44-47 ITEPA 2003 then. But hey, it was Nowlan’s first IR35 case.

So in conclusion, at a very long stretch, the judgement may be supportable. But we should not lightly dismiss the ability of a judge to take a fairly cavalier attitude to the key IR35 tests on some fairly flimsy grounds.

In fact the only good thing to come out of the whole case is that we should be grateful that First Tier cases do not set precedents. Luckily for us…

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

Image: 1996 UK Royal Mail Cartoon Stamp Card by andertoons

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.

Image: Cartoon Man by TheNickster

You have to laugh, you know. I never cease to be amazed at the number of posts I see about contractors claiming all sorts of problems with, variously, notice periods (don’t need them, as I’ve said before), IR35-safe contracts (fine as long as they represent reality), the AWR (don’t start me on that one again) and the infamous opt out from the Agency Regulations (opt out if you can but it makes little real difference). Plus, of course, the running complaint about the agency’s percentage of the contractor’s rate: except, of course, as ony fule kno they don’t get the percentage, the contractor does.

However there is a common theme to these various complaints. The agency.

We have to be fair to the poor agents themselves though. Increasingly they are run by accountants targeting sales figures and maximising margin. Little details like serving both sides in the contract have zero relevance to their business model. The individual agents are given achievement targets and so have no time for the niceties if they want to pay the mortgage. And of course it is much more cost effective to employ minimally experienced drones to handle the phones and use software to do the pattern matching between CV and job description.

All of which is fine if you’re dealing with a commodity market like general development, operations and service management roles. But it’s a serious problem for all sides if you are a little more senior, or have niche skills in some area or another. Or even if, like many, you aren’t a specialist in any given field, just a good, solid all-rounder who can make a success of any contract they’re given.

In effect you start from scratch every time you need a new contract. No matter how good you are, you still have to get through the auto-pilot box-ticking recruitment business we have these days. The one that says the agent gets a new role then stands there waving a piece of paper in the air to see who might be interested: usually several hundred, often hopelessly under qualified people on average. The signal to noise ratio in recruitment is actually appalling. How much cleaner if he had the resource to hand when the role comes in.

So how do we change the paradigm (see, I can do business speak as well…). The answer is surprisingly obvious.

The contractor pays the agent, not the client. Shock, horror…

Seriously, it would work. I have many skills but selling isn’t one of them, nor is cold-calling to find work (actually that’s just cowardice, but the result is the same). So why not outsource that part of the business to someone who does it for a living? The agent goes to the client with a zero margin deal. The contract would have to be B2B and, legally, you would have to be opted out of the Agency Regulations, both of which would appear to be good ideas. You know, solid in business indicators, no IR35, no AWR, no secret upper contracts…

There would be no hint of you being anyone’s employee either, since you’re at the top of the contract, not the bottom.

The agent would have to know who you are, what you can do, what you are worth and what your history is. He would be able to sell you actively and be incentivised to find you repeat business, since that’s where his margin comes from. He could specialise in given areas and build up a stable of people with the relevant skills, or he could be the one to fill the awkward jobs from his knowledge of his customers.

Best of all, you set the gross and the agent gets the percentage.

So what’s not to like? If you’re big enough and strong enough to build and justify a working reputation, and be able to be sold into an open market, why not go for it? I’d happily pay for that level of access and support, which has to be better than fighting your way to the top of some disinterested minion’s in tray to get noticed.

All we want is a couple of good agencies with the courage to bite the bullet and disregard the way they’ve always done it.

Ah. That might be a problem. Anyone know any brave, risk-taking agency FDs…?

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

Image: SmiAl – Sad by Al aka pintofeggs

It is interesting to note that before an MP takes his or her seat in the House they are required, by a law dating back to 1562, to swear or affirm an oath of allegiance to the Crown. Perhaps surprisingly they do not make any promises to behave but rely on a long tradition of honest and open behaviour instead. Which is perhaps a good thing; MPS are, after all, honourable people…

Our friends in the PCG have been asking questions of HMG again, digging even further into the financial history of IR35. And they now have a breakdown of the cases and income arising for the whole life of the law to date. And it makes for fascinating reading (OK, fascinating if you’re a detail freak like me, I admit).

Nevertheless, the total number of cases to date is 4208. The total income from IR35 is precisely £12,126,572.00. And that means that the average tax gained per case is £2,881.79p. Be still my beating heart, Gordon must be so proud.

This, you may recall, from a tax measure that was intended to bring in around £900m. A year. Every year. So not exactly a resounding success then. And we don’t yet know the cost of collecting that twelve million, but with the average case costing the defending side about ten thousand, we could make a worst case stab at around five thousand for HMRC’s side. This means, even if vaguely accurate, they spent twenty one million to gain that twelve million. Hmm… Not looking good, is it?

The distribution of the cases over the years is also interesting. Sixteen cases the first year, a couple of hundred the next. It peaks in 2004 and then drops away remarkably quickly so that in the last two years there have been just thirty five. That distribution coincides rather neatly with the time that PCG got its act together and started to get the message out that IR35 is largely a voluntary tax, if you know what you’re doing.

Ah yes, “voluntary”. What we don’t know is how many people are paying up under IR35 or working through umbrellas to avoid it, which amounts to the same thing. There must be quite a few, there are lots of people using umbrellas. So we have an unknown amount of taxes being paid for no reason at all other than fear, or at least uncertainty, over how a law of the land actually works.

So what was my first paragraph all about, I hear you ask.

We’ve been asking for the numbers for a long time. Since around 2003, in fact, when we first started to think things weren’t going well for HMRC. And answer came there none. Well, not strictly true, that well known failed tax evader, Ms Primarolo, replied to a written question in 2004 (when there were exactly 771 cases and precisely £1,973,851 in IR35 taxes paid) that it was not possible with any accuracy to isolate data relating solely to this legislation. Furthermore, a year or so later, Kitty Ussher said in response to the same question, “Disclosure of HM Revenue and Customs’ compliance data relating to the legislation would result in a risk of non- compliance with the legislation. Accordingly I am not able to provide the data requested”. Don’t know about you but I see that as a fudge of the highest order.

But, as we have seen, the numbers have been there all along. Perhaps the honourable ladies were so embarrassed by the total disaster they were defending that they chose to evade the question. Dim Prawn is still in Government, and is reduced to only being able to threaten MPs as a Deputy Whip. Ms Ussher was forced to resign over being caught evading – sorry, didn’t mean that, I meant avoiding – paying quite a lot of taxes on the sale of her house.

As I said, honourable members both.

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

Image: IR35 Tax Yield by some dude who wants to be famous

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.

Image: Ethan Nichtern Banner Illustration by bainesmcg