Good to see the Coalition coming good on their promise of reviewing IR35. The announcement of the creation of the Office for Tax Simplification was rapidly followed by the publishing of its Terms of Reference. This made really good reading since they contained a specific statement of IR35 as a prime target for their review.

Needless to say this has prompted an immediate flurry of speculation about how IR35 would be replaced with something more draconian. For example, the new head of the OTS, John Whiting, mentioned 80/20 when talking about their proposed plan of action, which some have immediately translated into meaning the OTS would resurrect the failed and discredited Australian idea that to be a real freelance, no more than 80% of your income should come from a single client. Heigh ho…

As I’ve said before, there is a real difficulty distinguishing between genuine one-man companies and those who use a Limited Company purely as an artificial tax avoidance vehicle. But however the OTS suggests we square that particular circle, I’m fairly sure the 80/20 rule will not be part of it.

Meanwhile this whole (and rather premature!) debate has prompted some other thoughts.

Key to any resolution to the IR35 question is defining a freelance worker. While the traditional model in UK economics defines everyone as either employer or employee, in reality there is a third category of “none of the above”. If that third way was properly enshrined as a working model, consider the many areas where things would become much clearer.

Firstly, there is the vexed question of business expenses. As we know, travel and subsistence expenses for a temporary workplace cease after two years. While this makes perfect sense for a permanent long-term employee, it is nonsense for someone like me who takes work wherever it may be found. Why should I personally be penalised if my company’s client base happens to be based in the same approximate geographical area?

Secondly ID checking and the right to work in the UK, while important, is the responsibility of the employer. My clients are not my employers; in fact most of my contracts go to great lengths to prove they are not. If we allow me to be an independent worker, that checking becomes unnecessary since my company can make the necessary declarations and accept legal responsibility for their accuracy.

Thirdly, liability for payment of taxes could go down to the individual and not, as at present under S44-47, up to the intermediary company (which in most cases would otherwise be the agency). That would step around a huge amount of contractual debate of who is an employee of whom, which incidentally would only help resolve the IR35 “problem”.

Finally there are a raft of current and future issues with the Agency Workers Directive and the Agency Regulations that would cease to be of any relevance. For example, we have to go through the nonsense of opting out of the Agency Regulations when, as any fool knows, the way this is routinely done means you are in fact opted in anyway.

And, looking a bit further over the horizon, it is clear that the EU has no concept of the UK model for the freelancer worker. If we can establish our legitimacy up front right now, we would avoid a whole new set of problems.

The UK Freelance is a hugely valuable factor in the UK economy. There are around 4.8 million of us. Why is it so hard to get that fact recognised in law?

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Image: paranoid polaroid by Andrew Mason

You have to feel sorry for the poor recruitment industry. I mean, after several years of being beaten up by the bean counters who run their business these days to improve throughput and efficiency, they finally get to the point where the process is as effortless as it’s going to get.

Preferred Supplier Lists mean they get first sight of any new work. Keyword searches mean they don’t actually have to talk to candidates, but simply send in the first few CVs with the right keywords. Write-only answer phones mean they can’t be contacted. Back Office systems and so called “self-billing” arrangements (which aren’t but let’s not quibble) mean payment processes are self maintaining. Life is simple and efficient.

Then Primark got prosecuted for using illegal workers…

Let’s remember that agencies’ main concern is the avoidance of risk. That’s why the contracts are usually so complex; it’s mostly to ensure the agency doesn’t get caught for the mistakes of the contractors it supplies nor for any taxes or other costs the contractor or client may incur for any reason whatsoever. So naturally their reaction to Primark was typically understated.

It used to be that you could go for a job with only a cursory check on your actual existence. Of course, having actually spoken to you – or even met you in person – the agent could be reasonably sure you were who you said you were. These days, as I’ve said before, the agent would much prefer not to talk to you, much less take time away from the telesales work actually to go and meet you.

When the need to demonstrate you had checked the candidate’s ID first cropped up, this got extended to you sending a bastardised copy of your passport – not that that’s a proof if ID, of course – and maybe a utility bill or similar to prove you had a real address (none of which, needless to say, can possibly be faked).

However Primark made them realise they could be prosecuted for a whole new range of things. As a result half of the agency’s time is now taken up with people running around looking at candidates holding passports, paying other agencies to run ID checks and doing a whole host of credit checks and other activities. All this, note, before you get sent for the interview.

As an aside, there are also concerns about what happens to all this data once it’s in the agency’s hands. A typical contractor might well supply half a dozen copies of some fairly personal data in a year, and I’m pretty damned sure not too many agencies will have paid to be ISO27001 compliant.

Thing is, of course, 99% of this is totally unnecessary, since it applies to employees, not contractors. Since the agency goes to enormous lengths to demonstrate that legally you are not their employee, nor the client’s, why does this whole scenario apply at all?

Perhaps if we ever get IR35 sorted out and have a clear test for whether or not you are a supplier or an employed temporary worker, then we can stop all this pointless activity.

Meanwhile, can anyone explain why my Company Secretary can’t sign a letter asserting all my company’s staff, be they employees or directors, are allowed to work here and accepting full responsibility should that prove to be untrue?

Do that and the agencies can go back to their usual state of happy indolence again.

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Image: Vintage ITT Telephone Handset by mightyohm

There’s been mixed reactions to the Coalition’s plans for the promised IR35 review. Mostly people see the announcement in the Budget as a positive step forward, and even those who previously seemed to have found a new enthusiasm for IR35 seem to have gone quiet.

And you have to admit that Mark Prisk’s reported comments, indicating that IR35 as it stands is doomed, was welcome news, if they were accurately reported.

Of course there are still those who demand immediate action and the instant repeal of IR35 and all its manifest evils, but I fear they are to be disappointed. Let’s face it, we are talking about Government decision making here. Despite the obvious urgency and energy of our new masters, they work at a speed that makes geological time seem positively reckless.

The other thing that keeps coming up everywhere is “What do we replace it with?” I know I wrote about son of IR35 recently, but this constant drip feed of suggestions for how it can be re-worked is beginning to irritate.

For one thing, nobody has yet persuaded me that it needs to be replaced. In my case, I own a Limited Company through which I provide various services to a range of clients (including this blog, for example). The company has been around for many years, is operated in accordance with all the relevant laws and pays all its required taxes without a murmur (well, not a very loud one, anyway…).

So why is there a clamour to single me out as some kind of anomaly and insist that I have to operate under some differential taxation regime because I don’t aim to become a rival to Accenture? Actually I am a rival to Accenture in many ways, but let’s not go there just yet!

With or without IR35, I would still use my company to sell my services, that’s what it does. So what am I doing wrong that some people demand I become some form of special case?

My hope is that HMG and the Office of Tax Simplification will see sense and cancel IR35 with no thought of replacing it. I admit they may take a longer look at small company taxation in the round, but that should be against all small companies equally. Those who for various reasons only have one or two workers are no different to bigger small companies, if you see what I mean, so why should they need different treatment?

On a different subject, I was talking with my last clients recently, who are in the Public Sector, and asked them how they were planning to cope with the impending cuts in public expenditure. Seems they are actually quite relaxed about them, since they’ve been working a programme of examining expenditure and optimising their budget management for several years now. They are confident that they’ve already made the level of savings expected of them. So you have to ask, if that one organisation can do that so successfully, why can’t all of them…?

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Contractor accountants can pass on this welcome news for freelancers and sole traders from Mark Prisk, the small business minister. In a recent interview he said that the comprehensive review the coalition is going to undertake of business taxation will seek to replace IR35 with a long-term alternative.

The rules surrounding IR35 are continually changing and the new government wants to put in place a lasting settlement. The chairman of the PCG, Chris Bryce, is delighted by the news. Although there is still a lot of work to be done in order to find a fair settlement, he is optimistic that his organisation can work together with the government to achieve this.

George Osborne’s budget speech only contained one mention of IR35 when he confirmed that the tax would be reviewed, along with the small business tax, and that the government would release more details soon. It is expected that the review will be launched in the summer.

The coalition has committed to simplifying the British taxation system. They want to implement measures that prevent tax avoidance whilst at the same time ensuring that the self-employed do not face undue administrative burdens.

There are currently around 1.4 million freelancers in the UK who are governed by IR35.

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Image: a dilemma by Julia Manzerova

So where was I…? Back refreshed from two weeks of idleness in the sun, and already looking for the next contract. Don’t seem to have missed anything too serious while I was away.

I managed to get back just in time for the Coalition’s first Budget. I watched it live – oh the joys of being on the bench – and for the first time in 13 years I didn’t have an overwhelming urge to throw something heavy at the TV. What a pleasure it was to listen to someone who sounded like they both knew what was going on and was willing to be honest about it.

Of course, the underlying message isn’t very nice, which is not much of a surprise unless you’ve been living in a cave for the last five years, but you have to say that the overall tone was actually surprisingly positive.

Yes, it’s going to hurt, but we knew that anyway. We’ve had the usual suspects leaping up and down in a fury about a return to Dickensian England and the public sector is up in arms about facing the same pain that private industry has been through already, but all in all I thought it was quite well judged. Let’s just hope that it has the desired result!

With my freelance hat on, it was actually pretty much neutral. I’m not planning on opening a new company and employing people so the National Isurance incentives won’t touch me the slightest, but they will help people who do want to build up their businesses. The eventual VAT rise will hurt of course, but it’s only 25p extra on something costing £10, so personally I can live with that.

The personal tax allowances are nice as well, as is the promised reduction in Corporation Tax rates. As a jobbing freelance contractor – well, when I get a job that is – I’m actually quite relaxed about it all.

The other bit of news tucked away in the Red Book (or as Cameron said to Harman at PMQs this week, in her case the “unread” book) was a clear commitment to look hard at IR35. This was backed up by an interview in the Telegraph, where Mark Prisk emphasised the intention to lose IR35 altogether.

Welcome news indeed, although we won’t break out the champagne until we know exactly what is going to come after it.

Elsewhere in the real world I’ve been plunged back in to the chaos and misery of having to deal with agencies offering work that they don’t understand on behalf of clients they don’t know to contractors they don’t want to talk to and whose CVs they utterly fail to understand. I’ve spoken to five this week and have absolutely zero confidence they know what they’re doing.

Call me an old curmudgeon but in my not inconsiderable experience it’s about one in fifty that does the job they way they tell the clients they do, so I guess I’ve a few more pointless and frustrating phone calls to get through yet. Come the revolution, I know who I’ll be putting against the wall first

Still, let’s be positive, if the reaction to the budget is positive, there may actually be some real work out there.

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Image: Meet the Knuckles by KayVee.INC

The plight of UK contractors, freelancers and temporary workers has once again come under the spotlight this week following the launch of the REC’s Agency Workers Directive (AWD) Toolkit.

Since the EU-inspired regulations were signed off in January this year there has been much speculation within the industry about the scope of the AWD. As things stand, umbrella company workers are thought to be captured by the regulations whereas those who are genuinely “in business on their own account” are not.

This would appear to suggest that contractors working outside of IR35 and through their own limited company will not be subject to the much critised ‘12 week rule’. Many industry insiders however are yet to be fully convinced that this is indeed the case.

The REC is under no illusions about the potential impact of the AWD. According to the organisation, their new toolkit will assist recruiters to overcome the administrative, legal and practical challenges in a post AWR world.

A spokesperson from the REC said that the industry has reached an important milestone and the now was the time to sit up and pay attention to what is one of the most significant events ever to hit the industry. More information about AWR toolkit can be found by visiting the REC’s website.

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Image: Ofdensen and Nathan Explosion by ittybittiesforyou

According to a recent survey by online accountants My Accountant Friend, nearly two thirds of IT contractors could be paying too much tax.

The firm surveyed 300 IT professionals in the city of London to assess how they were managing their accounting and tax affairs.

Of those that took part in the survey, 74 per cent were either not paying themselves tax-efficiently based on their employment status or not claiming the expenses they should. 61 per cent of respondents were not sure when key tax payments are due and a further 57 per cent said that they do not fully understand how their end-of-year accounts have been produced or what the figures mean.

Not surprisingly, the subject of IR35 featured prominently with nearly 70% of respondents saying that they are still nervous about the possibility of an IR35 investigation, despite the government’s recent commitment to review it. Graeme Hart, Managing Director of My Accountant Friend, commented on the results of the survey:

“We expected many contractors to be a little apprehensive about their accounting and tax affairs. However, we were quite surprised by both how many people seem to be paying too much tax and the level of concern in some areas.”

According to Hart, My Accountant Friend now provides a number of guarantees around their services. He continued, “we promise to save people tax, increase their take-home pay and reduce the burden. Our online system automates the bookkeeping and provides real-time visibility of personal and corporate tax liability. ”

The firm is currently running a special World Cup promotion. Sign up before the 15th June and they will provide 2 months of accounting services completely free of charge. What’s more if England win, they’ll provide their services for FREE UNTIL 2011. More information can be found on the My Accountant Friend website.

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Image: In which I go insane in a sea of paperwork by Strawbleu™

Small businesses and contractor accountants are still in the dark as to whether the new government has set out a coherent plan that will enable them to survive the current economic conditions.

There are around 4.8 million small companies and limited company contractors in the UK and although the Lib-Con coalition has announced a deluge of proposals, the lack of clarity has left an air of uncertainty amongst the business community.

The coalition talks of simplifying and reviewing the small business landscape but it has not disclosed the finer details. A wholesale review of IR35 and all the other small business taxes is going to take place. This aims to prevent tax avoidance and decrease the administrative burdens on SMEs.

Whilst this sounds good in theory, some experts question whether it will work in practice. One area that has not been addressed in the coalition’s plan is the difference in NIC rates paid by employees and self employed workers.

Manufacturers, for example, are already concerned that simplification will mean scrapping the allowances that benefit their sector. Vince Cable, the business secretary, has been lobbying for a preservation of these allowances saying that without them manufacturers will not be able to purchase the machinery they need.

Experts also believe that the capital gains tax rise on non-business assets is bad for businesses. It has not yet been confirmed how much the rise will be and there is no guarantee that entrepreneurs will be exempt from the rise.

Although corporation tax is expected to fall by 1% to 20%, this move also has hidden pitfalls which could leave the very people it is meant to benefit at a disadvantage.

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Image: We just wanna scream it louder and louder! by cristian_may

After 10 years of beating our collective heads against a brick wall, there is a clear commitment from the Government to do something positive about IR35. Right there. In the full manifesto. In actual black and white. Forgive me while I indulge in a loud cheer and a large whisky.

Of course, we don’t actually know the details, such as when. Also, a lot of the tax plans are based around the Lib Dems’ ideas, which include worryingly non-specific threats to address avoidance. Sure you don’t mean tax evasion, chaps, I mean that’s the illegal one, isn’t it? Whereas avoidance is not only legal, but was actually condoned in the House of Commons back in the 20s.

On the other hand, of course, the Conservative side of the side of the House (if you see what I mean) are talking loudly and clearly about helping small businesses. Let’s just hope the two cancel each other out and we get some sense.

To be fair, I like what I’m hearing from the new Government. There is a clear sense that they want to unwind a lot of the major stupidities of the last 13 years (and let’s face it, there are plenty to choose from!), so I’m mildly hopeful. Even if IR35 itself isn’t deleted but wrapped up in a sensible set of criteria that we can all understand, that I could live with.

On the other hand, the Public Sector looks to be in for a hammering, (although the commercial job market seems to be taking off big time), with talk of serious budget cuts across the board. I’m taking a close interest in all this of course, mainly because the current contract is about to stop and I need to be looking for gainful employment again. I have actually had a positive response but, as is the way of such things, that was a week ago and it’s all gone quiet again. Also it’s hard to job hunt when you’re working. The basic approach is to find the role, rearrange the CV to highlight the relevant bits of your vast experience so the agency will see that you can do the job, mail it in, wait about ten minutes then phone them up and do the sales pitch – if you can catch them, of course, which isn’t always possible. Usually isn’t, in fact…

Except you can’t really do all that three times a day sat at your desk in an open plan office. Especially when you’re the boss. Hence I’ll be taking a week off soon and hitting the phones in anger.

Know anyone wants some Services Delivering?

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Image: Blow by *saxon*

Now here’s a problem. I try to write about things that have happened during the week that might affect us freelancers. Usually I manage to find something worthy of comment, but this week it’s going to be a bit tricky.

It’s because the Election is on a Thursday that I have a slight problem. I normally write these words of wisdom on a Thursday, you see, which means that as I sit here with voting still going on, it’s a bit tricky to find something to talk about that will still be relevant on Friday morning.

There’s not been a lot of news either, if you discount Nigel Farage’s plane crash or the Labour candidate in Bootle losing the end of a finger when bitten by a dog (which all goes to prove everyone’s a critic). There have been some interesting surveys around. One of these shows that over 50% of contractors would vote Conservative. So perhaps there are a lot of people that agree with my views on why I hate this Government.

So I’ll wait a little longer until the exit polls are published and see what they think will happen. In 2005 they were spot on in predicting the result. Then again, the previous four were miles away from the reality. I’ll return to that point a little later

Meanwhile I’ve started hunting the next contract. Tricky operation, with limited internet access at work (I use my own mobile internet link, but we’re in a bit of a black hole where I work) and obviously I can’t keep calling agencies up from there either. Not that agents ever seem to answer the phone these days, it’s a constant litany of “He’s away from his desk” and answer phones. Actually they are well named, answer phones, since that’s all they do. If only someone would invent a Call-you-back-right-away phone, we might get somewhere.

So, the initial exit poll is in. Have to say it’s a bit inconclusive; a swing away from Labour (or, more likely, away from Gordon) but showing the Lib Dems’ share going down, which seems a bit unlikely. And all of a sudden they’re talking about voting reform rather than economic recovery. Good to know the politicians understand what’s really important…

Anyway, no real decisive conclusion. So let’s wait until a few real counts are declared and see what that tells us…

Hmmmm… interesting. Two declared, both safe Labour seats. Both big swings to the Tories. Perhaps IR35 is doomed after all? Fingers crossed!

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Image: Crossing my fingers… by Erica_Marshall

Now that the real dark cloud over the UK has blown away, I suppose we ought to focus on the important stuff, like the election.

I was quite lucky with the flights, since I was already driving rather than flying. Not quite as lucky as one friend, who’s been stuck in the Seychelles for an extra week (and he’s out of contract so had nothing to rush back for either). The problem I have now is the way the election seems to be heading.

Thanks to a bravura – or was it merely unchallenged – performance by Nick Clegg, the polls are all up on the air again. I realise this is probably more of an X-Factor thing than any kind of considered response to his policies, but it does bring back the haunting fear of a hung Parliament. After all, I know more than a few people who vote for party leaders regardless (hence the years of St Bliar) so it is possible that’s what we’ll get.

Don’t get me wrong, I think there is a lot wrong in Whitehall at the moment, and a good kicking is probably needed – but not this time around, please…

Consider the plight of us poor downtrodden freelance workers. The Tories have in effect promised to do something positive about the dreaded IR35. I hope that means repeal, but even if it doesn’t, we ought to get something we can at least understand and deal with; not something you can say about IR35. However, if they aren’t the guys in charge on May 7th, but some mixed-up partnership or even, forbid the thought, a Labour majority government, then we can forget about any chance of repeal, or even a rethink. That might be a selfish view but hey, I’m a freelance, I look after me.

OK, so the Lib Dems also said they would repeal IR35. That EDM calling for repeal was led by Lorley Burt, and she has recently placed another one on the table on the same subject, just as a reminder. Problem is, her party is also promising to raise taxes on the “better off” in order to pay for various other programmes, like windmill making. Net result, I suspect, will be not to my advantage.

Also, just to add to the confusion, we seem to be seeing stories that are effectively supporting IR35 saying interestingly stupid things like “it underpins other important legislation”. Does it? First time I’ve noticed, to be honest, after ten years of fighting it. Of course there is quite an industry relying on IR35 being there, so perhaps these musings are not entirely unbiased. Who knows…

Still two more weeks and we might find out. Or perhaps we already do: I’m writing this on Thursday, by the time it gets published the latest leadership “debate” will have happened. Perhaps Mr Clegg has already shot himself in the foot, or been outed by the other two. But then if I could predict things like that, I wouldn’t need to work for a living.

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Image: Screen Test 3 by kfisto

The Conservative’s manifesto for business was released today. In among all the detail was a commitment to encourage the use of Open Source in HMG contracts, which is nice.

However they also are talking about breaking HMG contracts down into smaller pieces so SMEs can get in on the action, rather than being swamped by the Big 5 consultancies all the time.

This is seriously good news on several fronts. For one thing it is an exact match to something the PCG have in their own manifesto. That means that at least one party has read what the PCG wrote and, more importantly, acted upon it. It also puts pressure on the other parties to take note and maybe recognise the smaller businesses are every bit as capable as the big ones. Well we knew that anyway, I’ve yet to work not a Big 5 contract that wasn’t held together by a bunch of freelancers.

Even if that doesn’t reach as far down as the one-man band companies like mine, it does open the door to things like collaborative ventures and what I call the Virtual Consultancy, a small group of freelancers working together and pooling skills to deliver a piece of work. Provided, that is, you can get through the hurdle of the paperwork – have you ever tried to fill out a PQQ – and can agree how your little consortium is going to work and don’t get stuffed by some spurious demands for security clearance.

Still, small steps but, in this case, highly significant ones. Let’s see if the other parties have the courage to follow suit. And maybe actually deliver what they promised. Now that would be a first…

Elsewhere, life carries on as normal. The usual drip feed of questions from people who ideally should know more than they do on various forums. If I’ve seen one question about the 24 month rule this week I’ve seen a dozen, and I can’t keep referring them to an article I wrote a while back explaining it all. Or perhaps the other one I wrote, about how many people set up limited companies with no idea of what it entails in terms of knowledge and responsibilies.

It also occurred to me, reading some of these posts, that we have a fair number of contractors who have never known life without IR35, and who accept it as part of the landscape. Now that does wind me up more than a little; IR35 is no less of an abomination just because it’s there.

Now that would be a good entry in the Tory’s manifesto – a clear commitment to remove IR35 form the statute book. What, do you suppose, are the chances…?

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Image: IMG_8882 by pmilg