Tag Archive | "freelancing"

EDM needs to be reviewed, say contractor bodies

Three separate contracting industry bodies have come out in protest of the taxman’s Elective Deduction Model, claiming it fosters excessive tax avoidance.

Her Majesty’s Revenue & Customs have been pesteerd by APSCo, the Recruitment and Employment Confederation and the Freelancer and Contractor Services Association over EDM. The scheme is designed to make it easier to classify self-employed workers under employment regulations yet leaves them as employees under current tax laws – something that the contractor bodies say is fostering a culture of abuse leading to tax avoidance.

HMRC has remained neutral on the scheme so far, which has created shedloads of anxiety amongst APSCo, the REC and the FCSA. Freelancing and contracting industry experts say that EDM is nothing more than a vehicle for short-circuiting the requirements to comply with Agency Workers Regulations and National Minimum Wage laws to name just a few.

For what it’s worth, this scheme sounds absolutely terrible in that it can and does open up a massive can of worms when it comes to disguised employment. IR35 enforcement is already bogging down countless self-employed Brits who end up staying up nights worrying about whether they’re at risk for classification under disguised employment, and we don’t need to be giving HMRC any more ammunition in its unyielding crusade to stamp out tax avoidance. Besides, when you’ve got not just one or two but three industry bodies coming out to express their extreme concern and displeasure about EDM, it’s more or less a foregone conclusion that there does indeed need to be a review undertaken in order to ensure that this scheme doesn’t end up catching on just to have contractors making use of it fall prey to an HMRC investigation.

At any rate, you heard it here first: do your best to avoid EDM, as it’s most likely going to create much more trouble than it’s worth. Yes, it might be tempting to try to have your cake and eat it too – especially when it comes to your tax burden – but the risks are too great that you’re going to end up with HMRC come a-knocking on your door with some very pointed questions. With any luck the taxman will heed the warnings of all these contractor bodies and decide to take a much closer look at the scheme. I simply hope that this review comes sooner rather than later so as to minimise its exposure in the freelancing and contracting marketplace.

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What happens when the world changes?

One of the great appeals of freelancing your way through life is the constant change, working in new places with new people, solving new problems and generally getting away from the mundane grind of the usual nine-to-five employee world. Well, that’s what they always told me. Perhaps I’m getting old (hell, I am getting old) but I fear I’m beginning to disagree…

As the train pulled out of the station this morning at precisely 07:14, I was reflecting on my journey in. I followed the same old silver Mondeo up the hill out of the village. We were overtaken by the same small white van, doing rather more than the posted 40 mph limit. I just knew at the next set of lights that the red Fiesta in the right turn lane was going to go straight on to get ahead of everyone else in the queue (and screech to a halt 50 yards later at the Pelican crossing…). The flash of brake lights for no obvious reason had to be someone encountering the suicidal loon in the black hoodie cycling along with no lights and no awareness of the world around him (with his luck, he really should be buying lottery tickets…).

Hearing the same announcement every morning at 07:03 about penalty fares. Standing on the platform at a point where you just know the carriage door will be right in front of you and the guy in the over-elaborate winter jacket is going to push in so he can get to the coffee counter on the train before anyone else, not that there’s ever much of a queue to make it even faintly worthwhile doing.

And work, while satisfying and frequently challenging, is basically about bringing a range of systems and services from development into business as usual in a totally consistent way. I have to capture the same information for each system, spot the occasional variation from the standard model and make sure the usual suspects know exactly what to do with the new service when it goes live.

Consistency and repeatable processes. That’s how the world works if you don’t want to waste resources reinventing the wheel every time you need to go somewhere.

But what happens when the world changes?

This is something the agencies are going to have to wake up to, probably sooner than they think. Over the last 20 years they have evolved to the point where most of their process is so consistent you don’t actually need to apply intelligence to it. A lot of the time, you don’t even need people, good pattern matching algorithms will do the drudge work. You keep the good guys chasing the jobs but filling them is all about cranking the handle.

But the market – or the IT contracting market, at least – is changing, and changing very quickly. I’m working for a Managed Service Provider at present who can charge their end client less than £200 a day for programming resources. When you consider the margins they make and the overheads they have to cover, that is eye-wateringly cheap. UK-based contractors simply cannot hope to compete at that level.

The implication is that very soon now the requirement is going to shift to supplying genuine expertise: clients will be looking to the contract market only to bring in people who can add specific skills, in either technical, business or delivery arenas. And our current highly commoditised agency supply chain simply won’t be able to cope any more; they will have to start applying intelligence again. Oh dear…

As Henry Wallace said, the only certainty in life is change. But I say the real trick is to notice change is happening.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

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

Image: Open Source World in KLDP.net by joone4u

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How do you make the Invisible Man visible?

Now here’s an interesting question: if you wanted to hold up an example of a successful freelance, who would you pick? That might seem an odd sort of thing to do, but as part of the lead up to National Freelancers Day on November 23rd, the idea was floated that maybe an example of some top quality freelancers would be a good way to highlight what we are to the man in the street.

And that’s where it went a bit wrong.

Firstly, there is the general perception of what a freelance really is. We think of ourselves as independent workers who hire out our skills to the highest bidder: or at least, in these straitened times, a bidder that wants work doing for a half-decent rate. But the snag is, to our clients we are simply a slightly better class of temporary worker. And to the aforementioned man in the street, even those who work with us, we are something just a little bit odd. Neither group really understands the term “Freelancer”.

Of course, they know what one is. They have several high profile examples to work from. There’s Tony Blair, freelance envoy. Peter Mandelson, freelance business consultant with no business to speak of but able to buy £8m houses. Geoff Boycott, freelance broadcaster, suing for the half share in a 2 million pound house that he didn’t get back for free.

Hang on a minute. That’s not what we’re trying to say.

OK, so Plan B. Let’s use some examples of where freelancers have delivered serious pieces of work. Except that doesn’t really work either. I’ve worked on several major (and, let it be said, highly successful) programmes over the years, and in most cases the real delivery has been achieved by the hired help. Except that it’s not their names on the press release, that honour goes to the prime contractor, such as IBM or PwC.

The problem is that we don’t actually have a high enough profile that we can make the case that we routinely fulfill such a valuable role. And that’s how it should be; we are, after all, people who provide our skills for as long as they’re needed, then duck out and get on with the next job.

It’s a bit of a puzzle, isn’t it. We want the world to know just how good we are, except that in the areas where we can make enough of an impact to shout about it, we are actually invisible.

But in a world where we are constantly fighting to be recognized as pursuing a genuine career path that doesn’t involve working for some nameless corporate, where we can be refused work because a credit check turns up some trivial default payment from ten years ago, where we have a constant argument about which bits of employment law and related protections should apply to us (hint: none of them), being recognized for what we are is something of a necessity.

So all suggestions on how to make the Invisible Man visible will be gratefully received.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

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

Image: the invisible man? where? by badjonni

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If you want to freelance then come on in. But make sure you’re good enough first.

I got involved in a fairly interesting little debate recently: when is it a good idea to encourage people to compete for your own market? This is not quite as silly a question as it sounds. The government has already stated that it sees a flexible workforce as a key driver to our economic growth and is looking at encouraging people to build their own businesses if they want to do so.

OK, so the latest jobless figures, the rather depressing statistic that most newly created jobs aren’t going to UK residents and growth is still something of a twinkle in Osborne’s eye might seem to indicate that we have bigger problems to solve. Nevertheless, it’s always good to know that The Powers That Be think that what you do is of value.

But this leaves something of a dilemma. Especially for the PCG who are, as we all know, the only real voice speaking up for the freelance workforce. Quite rightly, they are aiming to ensure that if someone wants to take up the freelance banner, they have all the information they need to make a success of it.

Sadly, that also means pointing out the downsides. Which are considerable.

Firstly we still have IR35 and, inherent in that particular stupidity, the feeling that HMRC and, to a lesser but still significant extent the Treasury, still think that we are doing what we do to step around paying taxes. Which we aren’t, of course, but let’s not go over that again. That attitude manifests itself in many ways: the AWR would be a lot less of an issue if it had been drafted specifically to exclude incorporated workers, for example. To any logical mind, career freelancers are not in scope of the AWR and never should be, but still there is that “genuinely in business” caveat, as I may have mentioned in the past, so clearly HMRC still don’t really understand why we do what we do.

Anyway, leaving that well-trodden path to one side, it should be obvious, but often isn’t, that the other thing a freelancer needs is something to sell. After all, you are selling your skills and expertise, whether you’re building websites for local businesses, doing safety audits for nuclear power plants or running hundred million pound projects. That means that you need to have a fair bit of experience and expertise to sell on the open market. And that means that freelancing might be a valid career choice but, like boxing, you have to put in the roadwork first.

Of course there are always exceptions: I know of people who have never held down a “real” job and went straight from college to freelance, either by being very clever or very lucky. Or both.

So freelancing is a career step, but it has to be one that comes a little later in life, when you have learned enough, not only about your own subject but about business in general. It’s like skydiving, where stepping out of a perfectly serviceable airplane is a hopelessly stupid thing to do – until you do it and immediately want to do it again and again…

So, going back to the original point, perhaps the line should be not to encourage people to turn freelance, but to make sure they know that they need three things first – expertise, experience, and understanding. The first two are up to you but PCG are there with the third, in spades.

So the real message is if you want to freelance then come on in and we’ll do what we can to help out. But make sure you’re good enough first.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

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

Image: “Just use an open standard that already exists!” by Todd Barnard

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Recruiters – the only people who seem not to understand the value of uniqueness

How would you feel about a business where you didn’t really understand what the product is and were selling to someone who also doesn’t understand what it is but whose understanding was different to yours? But nevertheless the overall business has an annual turnover close to £30 billion.

Because that’s the Recruitment industry these days.

I was in a meeting recently where an account manager from one of the local agencies gave a talk on how the agency interacts with the contractor and all the various add on services they provide. Made for several PowerPoint slides of things ranging from de-risking payments to providing help and guidance And very interesting it was too, until another speaker, this time a contractor, stood up and gave their view of the same relationship..

Guess what? They didn’t really match.

To be fair to the agency, they do find the business and they do factor the money and they will, if pressed, negotiate rates and the like with the end client, all of which is pretty valuable if you want a quiet life. Where it goes wrong is how they represent us to the client.

Every agency tries to tell the client that they have this pool of highly expert staff ready to fulfil any role the client wants filling. And what is more their sophisticated search facilities and in-house databases match candidates to roles with unfailing accuracy. So explain why, if that’s what they do, why is my Inbox getting three or four emails a day from agencies offering me a whole series of roles, almost without exception ones that bear little or no relationship to my actual skills or location. Could it be that what they do and what they tell people they do aren’t exactly fully aligned?

And, of course, this same doublethink has permeated the client HR departments. Because they get contractors from the “recruitment” agencies and those contractors are presented as individuals, rather than as service providers, they see us as a slightly weird form of employee. OK, we may have different email addresses to the permie staff and we might miss out on things like car parking rights and canteen access, but ultimately we are still seen as just another worker.

So why is this important? As long as we get paid, does it really matter?

Well yes it does, actually. In fact it’s getting increasingly important. The career contactor has to demonstrate more and more to HMG that we are free-standing businesses; small ones, admittedly, and ones who probably won’t ever grow too much, but still businesses with all that implies. Sadly, that argument gets cut off at the knees by the way the market treats us as a lightly modified employee with an inflated salary.

Of course, deflecting this juggernaut from its path is not going to be easy; in fact, it may not even be possible. After all, £30 billion a year is something with a lot of momentum. But that doesn’t mean we shouldn’t try. The freelancing model we have in the UK is certainly unique in Europe, and pretty much unique in the rest of the world, with only Australia and the USA coming close to the level of operational freedom we enjoy.

So it’s a real shame that the very people we have to deal with to get our skills to work are the only people who seem not to understand the value of that uniqueness. I think it’s time they found out.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

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

Image: HAIER kids by boni_face

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If it ain’t broke…

Don’t fix it, goes the old cliché. But how about if it is broke, don’t fix it either? Why not simply get rid of it?

Now the Office of Tax Simplification is up and running, many bodies have been making their submissions on how they think things should be changed. And needless to say the abortion that is IR35 comes in for a lot of debate. Which is nice.

However I am struck by the fact that almost all that debate is centred around how it could be made to work better. Make it more fair, make when it applies a lot more clear, make it more of a level playing field. No, says I, you don’t want to do that…

Let’s think about why we have IR35 at all. If you work through a Limited Company, you gain certain advantages in how you convert gross into personal income. This means that it is not all that difficult to switch from employment to freelancing, trading through a limited Company that has no other purpose than to save you tax and NICs.

This, clearly, is a bad thing. Especially if you are an unimaginative MP from South Bristol well known locally for an inability not to jump on bandwagons.

So in comes IR35, which is not meant to stop people switching from employment to freelancing but simply to make sure that they pay the same tax as those who chose to stay as wage slaves. OK, it is a model of NL legislation, poorly conceived, poorly drafted, utterly incomprehensible and all in all about as effective as a chocolate fireguard.

But, and it’s a big but, nobody is asking why we have to work through limited companies. So rather than fix IR35, let’s fix the root cause. Which is the legislation that makes the intermediary company liable for any unpaid taxes. Which is why we have small companies. Which is why we have IR35.

So, change the law slightly so that the worker, not any other intermediary, is liable for their unpaid taxes. Then agencies can use sole traders, a status that has a recognised legal framework. It means no more debate about the nonsensical 24 month rule on expenses. You can be registered for VAT, you get working expenses and you can ignore those people who say you are only pretending to be a business. If you want a limited company you can have one: but if all you do with it is move its income to your bank account, be prepared for HMRC to declare it a sham. Hire people, reinvest income in growth, build a list of assets, then no problem.

Is that not a simple solution?

Incidentally, the members of the OTS have been announced. Number 6 in that list is one Christopher Bryce who, as you may know, is current chairman of the PCG. His being there is not only a huge endorsement of PCG’s ten year struggle for recognition but a major step forward in the fight to get rid of IR35 altogether.

Let’s hope he reads this blog…

Alan Watts can found at LinkedIn.
© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Bob the Builder by Dustin C Oliver

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Motion vs. progress?

Usually I find one thing to talk about each week; even in the depths of the silly season there is something relevant to freelancing worth trying to write a few hundred words about. This week, for some reason, I haven’t found a single thing. Perhaps I’ve been a bit too busy to notice – you could say the current client presents some interesting challenges – but I have tried. Honest…

The main event in the news – well, the BBC version of the news so it really must be important – is all about the Millibands and the will-he-won’t-he tedium of will big brother work with little brother or not (and he won’t, it seems). Sorry but from here I really don’t care that much. While Her Majesty’s Opposition is an important element of the government process, precisely who wears the various labels in the Shadow Cabinet is actually fairly irrelevant. Unless you’re interested in who fights the next election, which is far enough away to be of zero interest, I’m afraid. And anyway, I’m a contractor; there are far more important things to worry about.

One of them is a bit of a debate on EBTs. I’ve said before that these may be a good thing for some but you have to go in with your eyes really wide open. The risks are just that bit too high if you don’t fully understand the scheme and, equally importantly, the government’s attitude to them. My point is that since HMG have effectively shut down EBTs from next year, people who sign up to one now are at a considerably higher risk of investigation than those who have been using them for some time. This, for some people, seems to be an unreasonable position. Heigh ho…

There’s been another discussion on Security Clearances and the old Catch-22 of no clearance no job, no job no clearance. Somehow this has mutated into a discussion about how clearance works. That’s really not what it’s about, the process and the parameters work well and are pretty effective. All I’m really interested in is being allowed to get in front of the hiring manager to sell my services, which is something that I and a majority of other contractors can’t do at the moment. I’m more than happy to take my chances of persuading a hirer that I’m worth the effort of sponsoring for clearance, but I can’t do that if I can’t ever get to meet them.

And of course the whole visa issue rumbles on. This is getting increasingly confused, not helped by a certain Mr. Cable’s interventions. Nobody is saying we shouldn’t allow ICTs; there are plenty of instances where they are entirely justifiable. However, when you consider that some of the people complaining about the proposed cap on them haven’t actually used the ones they are allowed to use, just what is the problem? Apart from reading that a small number of companies from one country have brought in several thousands under ICT visas. The argument is not about ICTs, it’s about misuse of ICTs. Some supposedly well informed people will insist on missing that minor detail.

So, lots of motion, not a lot of progress. Bit like the current contract, really.

Alan Watts can found at LinkedIn.
© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Progress by kevindooley

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The Not-so-Silly Season?

Traditionally this is the Silly Season, when the Press have to file stories about singing sheep to fill the papers since there is no real news to talk about. But actually there are not one but two interesting stories to ponder this week, one illustrating how very confused the whole immigration argument has become and the other illustrating just how out of touch with reality the Senior Civil Service seems to be.

Firstly, immigration. A large delegation of politicos, business leaders and sports stars (why sports stars?) led by Mr Cameron has been dispatched to boost our trade with India. Given that they are a tiger economy in their own right, this is probably a good move. Snag is, the Indians and Vince Cable have been talking about opening up the barriers to immigration while everyone else is talking about closing them. Remind me, what is the definition of “Coalition”?

Still, Mr Cable is actually correct; bless him; the ability to allow highly skilled workers in to the country to fill necessary gaps in our native skills is a good thing, not least because we have signed reciprocal treaties that mean we have to do so. Sadly this has got wrapped up with the whole net immigration argument which in turn has evolved from the last government’s unofficial but very real open door policy. We do actually need these skilled people, be they heart surgeons or chefs who understand Thai cuisine. Provided they pay their way and add some value to the UK economy, what’s the problem?

However, before we get all optimistic about them, how about the government looks at abuses of the system first? There isn’t a skills shortage in IT; we have 40,000 IT graduates out of work and hundreds of good applicants for almost every role. Why then, do we allow IT staff to come in on Intra-Company Transfers in their thousands to learn how to do our jobs so they can export them back home?

This is an entirely different issue to the one about net immigration. It would be nice if HMG and the Press could get that difference clear so we can have a reasoned argument about it…
The other interesting story is that the current IT Director for HMRC, a certain Mr Singh, is finishing his three year fixed term contract but staying in post as a freelance through his own shiny new limited company. Instant cries of “Foul” and “Why isn’t he being done under IR35?” arose. Unfairly perhaps, since he hasn’t yet had to fill in a tax form so his position under IR35 is unknown. OK, he’s a classic IR35-caught candidate, and I can’t believe HMRC would let him get away with anything, but he hasn’t done anything wrong yet.

Or has he?

The point of a Fixed Term Contract is that it has a definitive, pre-agreed end date: the clue is in the name. So why, after three years, is there not a suitable replacement lined up ready to go, either from the open market or by promotion from within? Is there really only one person suitable in the whole of the UK? Surely not…

But there’s even more to this debacle…

They are paying Mr Singh as a freelance a day rate equal to around four times his previous salary. HMRC mandarins claim this is to achieve parity with an equivalent Deloitte consultant. Fine, except Mr Singh doesn’t work for Deloitte and so doesn’t have to support myriad partners and office buildings. Nor a sales and marketing team, apparently. So while it‘s good that HMRC accept that freelance workers have greater overheads than employees, something we’ve been arguing about for at least ten years, a little bit of market perspective wouldn’t go amiss. Especially when it’s our money they’re spending.

You could also argue that Mr Singh, having failed to identify a suitable replacement, has significantly failed one of his key duties. After all, had he gone under a bus, clearly there is nobody in the organisation, or outside it, ready to take over. So much for continuity planning then.

We could also query the proper application of the OGC tendering rules for new staff and various other inconsistencies, but let’s not Labour the point more than necessary.
In May I was hopeful that our shiny new Coalition had a clear idea of where they were going and why. I confess I am beginning to have my doubts.

Alan Watts can found found at LinkedIn.
© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

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