You may have been following the recent tax case involving HMRC and specialist recruiter Reed.

The long running battle revolved around the travel and related expenses incurred by temporary job candidates.

Reed’s agents made expenses payments to about half a million temps between 1998 and 2006. The daily “allowance” covered travel expenses up to £11.45 and up to £6 for lunch. These were supposed to be included in a salary sacrifice arrangement, but it turned out that no such agreement covered the period in question.

HMRC argued that the temporary workers were engaged in job-by-job contracts and not a continuous contract as claimed by Reed.

The recent tax tribunal judgement implies that Reed manipulated salary figures to make it look as if a part had been sacrificed when in fact the temps actually received their full payment. The tax tribunal also said that although there were signs that Reed received initial approval for their scheme, there may have been a ‘cock-up’ at HMRC and it was entitled to claim backdated tax.

Reed’s problem is that it is unable to reclaim the total of £158 million in National Insurance and income tax from the temporary workers. Reed Global, the owner of the company, is disputing the figure and intends to appeal the tribunal’s decision and ask for a judicial review into the treatment it has received from the Revenue.

However, the tribunal ruling sounded emphatic. The judges said they were satisfied that the allowances constituted Chapter 1 earnings, and even if that was incorrect, they classed as Chapter 3 earnings that should have been declared for tax and NICs.

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Regular readers – both of them – will have learned by now that if someone ever sets up an Appreciation Society for the benefit of Saint Vince of Cable I am unlikely to be in the queue for tickets. His tenure as Business Secretary has been littered with decisions that seem almost deliberately intended to make the contractor’s life even more difficult than it already is. I doubt he does it on purpose, so we have to conclude that he simply doesn’t think things through properly. Or perhaps he doesn’t pay attention to the outcomes. Well, hey, he is a politician, I suppose.

Consider the Agency Workers Regulations, which are looming ever larger on the horizon. The intent of the original EU-derived ruling was to ensure that low level temporary workers – people who aren’t really in the best place to fight their own corner – are protected from being denied basic rights that are taken for granted by permanent employees; little things like holidays and sick leave and access to the canteen. It has to be said, that is an entirely reasonable and even laudable aim.

As is the way of such legislation, the EU sets the objective and leaves it to the member countries to enact as best they can. So guess what happens when St Vince’s department get hold of it?

Firstly there is a consultation period. They produce a straw man proposal and invite interested parties to comment on it, note ambiguities and errors and suggest any obvious improvements. They consider the responses, redraft the straw man into a final document and that become the legislation.

Except for one minor point. They kind of missed the ever-so-slightly critical point about the scope of the legislation.

Like I said, it’s meant to protect vulnerable workers. Now I am many things but I don’t for one minute consider myself to be vulnerable to being downtrodden. Apart from She Who Must Be Obeyed of course, but I volunteered for that one. So why the hell am I potentially in the scope of the AWR?

It seems that DBERR have been gold-plating the requirement. Specifically, rather than draft something aimed at “agency workers” they allowed it to cover any independent worker, including freelance contractors who, as a breed, are probably the least vulnerable workforce in the country.

And what makes me angry (and No 10, who tried to see if it could be redrafted at the eleventh hour) was that very point was made, clearly and explicitly, in the original consultation. They were told the scope is wrong, it’s not meant to apply to this group but only to that one. But when the final draft hits the presses the only exemption is the somewhat mealy-mouthed exclusion of “those genuinely in business” which, as we know all too well, is not a clearly defined anything. They may as well have said “Those who are either taller, or shorter, than six feet. Without shoes”.

So apart from now facing the risk that our contracts are going to get even more tangled as HR and the agencies try to get around the legislation, we lost the chance for a clear chance to define exactly what is meant as a freelance contractor, as opposed to an agency worker. Given the average itinerant fruit picker is unlikely to own his own company, there is at least one simple and very clear separator. This would have greatly aided various other arguments such as who is caught by IR35. But it is not to be; instead of clarity we get muddle and greyness. A bit like St Vince, in fact. Which is something of a pity.

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Image: Back Yard On New Year’s Day 2011 by Kerry Niemann

Although UK businesses have had plenty of warning that VAT will increase to 20% at the beginning of January, almost 20% of small businesses are still not prepared.

Business software provider, Sage, conducted a survey of 1,500 SMEs and discovered that 11% have not even thought about the increase and another 7% are worried that they have not done enough to prepare for the change.

This change will not necessarily be as daunting a task as it was previously. We’ve had two changes in the last couple of years, so it’s not as if contractor accountants and businesses are faced with a completely new phenomenon. Small firms will have to decide whether to pass on all or some of the increase to their customers, or absorb the full amount themselves.

The other problem for businesses this time around is that the increase does not take place on the first of a month. Therefore some firms will need to complete VAT returns showing two different standard VAT rates. If business owners are in any way unsure of how to proceed, they should contact a contractor accountant for advice.

Meanwhile, third-sector employers who are not registered for VAT could find January’s increase represents a commercial nightmare, according to the MD of Cash Simply, David Thornhill.

The standard rate of VAT will rise to 20% as from the 4th of January next year and the Charity Tax Group estimates that this will increase costs for the third sector by an extra £140 million.

Employment businesses must charge VAT on the wages of the workers they supply. Businesses that are registered for VAT claim this back as input tax on the VAT returns, but charities are not VAT registered and therefore they cannot reclaim this cost.

However, there is a way around this problem, Thornhill explains. If a temporary worker was to be engaged on a short-term contract and the charity outsourced the payroll processing to an independent payroll company that also funded the wages, invoiced them separately and was effectively the charity’s PAYE agent, the unrecoverable VAT would be removed from their costs.

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The FSB thinks that micro firms should not need to comply with the government’s new pension scheme that comes into effect in 2012.

Under the new plans, all businesses need to enrol their employees in a pension scheme automatically but this would cause an undue burden on firms with 10 staff members or less, according to the Federation.

The FSB also believes that the government set up pension schemes do not meet the requirements of SMEs and that the time and money spent on their administration would be damaging.

Mike Cherry from the FSB said that whilst they welcomed plans that encourage people to save for the future, the new automatic payroll pension scheme will cause administrative headaches for smaller businesses.

To back up their comments, the FSB conducted research that revealed that 70% of business owners are not confident about selecting a pension plan for their employees due to its complexity. To solve this problem, the FSB suggests that a default scheme is set up and anyone who is currently not in a pension scheme should be enrolled.

The REC, on the other hand, is concerned about the auto-enrolment issues for recruitment agencies using temporary workers. The Confederation would like there to be a six month qualifying period before a worker is enrolled into a pension scheme. They point out that the bureaucracy involved in setting up a new scheme for a worker who is only temping for a few weeks will not be off-set by savings benefits.

The REC intends to work with the coalition to make sure the pension reforms will work for everybody concerned.

In addition to the qualifying period, the REC is calling for an option that allows workers to opt out of the scheme before enrolment and the maintenance of the National Employment Savings Trust which all employers can access.

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Image: Credit crunch bites! by Iain Farrell

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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