Tag Archive | "limited company contractors"

Contractors to foot £7bn bill envisaged from dividend tax hike

The Telegraph reports today that contractors billing £80,000 per annum will be £2,000 a year worse off under the new dividend tax system. That’s based on advice from WTT Consulting’s Graham Webber, after adding the additional 2.5% tax shareholders will sucker for come April 2016.

Should a contract be worth double that, £160,000 per annum, the shareholder will have to pay an extra 3% on their dividend drawings. That’s due to their higher tax bracket, thus they’ll pay £4,800 extra from next Spring.

Some may argue that anyone billing so much can afford to pay the extra. First, there’s the defence that people live to their means (or beyond them). Contractors who’ve secured mortgages and other finance based on the existing dividend set-up may have to rethink their budget.

Second – applicable to the most vulnerable sector – are contractors whose total annual billings are below the basic tax rate allowance. Yes, there’s another argument here: if you’re only billing £42k, are you really a contractor?

The answer is yes; there are genuine multi-client contractors – like writers, for instance – with several contracts on the go. But despite their number of clients, the going rate may not bill enough to catapult them into the 40p-in-the-pound bracket.

What’s the effect of the dividend tax hike?

Up until now, basic rate tax payers have paid no tax on dividends. From April 2016, only the first £5,000 of dividend drawings is tax free.

So, let’s imagine a contractor with two clients, billing them both £20k per annum. Their total income of £40k means they retain their basic tax-payer status. All good so far.

Let’s then imagine that they – quite legally – put £120 pounds a week through the books to maintain their NICs, but keep payments to a minimum. For contractors billing so little, they’ll want to ensure that there’s a State Pension pot when they retire, for sure.

Let’s also work on a 50-week year (that’s to keep the maths simple – normally, 46 or 48 weeks would represent a fiscal year). So, 50 weeks x £120 = £6,000 per annum the contractor draws as salary.

Take that £6k from the £40,000 earnings, the contractor then has the potential to draw the £34,000 in dividends. Less Corporation Tax @ 20% (at source) gives the contractor £27,200 to play with.

This is a very simplified explanation, remember (Whitfield Tax go into much more depth). It doesn’t take into account Personal Allowance – next year to rise to £11,000 – which can’t be used against dividends, anyway. Nor does it factor in any expenses, as few and far between as they’ll soon become.

So, in the 2015/16 tax year, this year, the contractor will not pay tax on those dividend drawings. The £27,200 will be theirs.

Come next year, 2016/17, the only chunk of that £27,200 not subject to dividend tax will be the £5k allowance. The balance of £22,200 will be subject to dividend tax.

The net effect of the new charges will mean that this basic-rate contractor will pay £1,290 next year that they haven’t this. That leaves £20,910, plus the £5k tax free = £25,910, or a net loss (all other factors being equal) of 4.98% next year.

If we shoot everyone, we’re bound to get our man

By the time the National Insurance personal allowance changes come into effect, many contractors are going to wonder whether it’s worth creating a company at all. Even genuine contractors, let alone those who are inside IR35 and are the genuine target of these changes.

The government hopes to raise £6.8bn from the changes to dividend tax. Limited company contractors and independent professionals will foot that bill. Then, there’s the discussion document coming on IR35, too

The government could well be shooting itself in the foot by killing the flexibility that contracting brings to the economy. The ability to employ specialists on a short term basis is what’s helped the UK recover. It’s also what will see UK businesses become more competitive in the global market, too.

The £7bn the government wants to raise from dividends will be pittance compared to the additional cost to businesses. With few skilled contractors, they’ll have to employ full time staff for tasks that don’t need full time supervision, direction or control. But that’s another story, entirely…

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Will Self-Employed NICs be Tories Get Out Of Jail Free Card?

So, the Conservative Party swept into power while two thirds of the UK wasn’t looking. But was their promise to freeze income tax, VAT and national insurance the clincher? Or was it the promise of a referendum on EU that Mr Cameron promised (knowing full well we’ll vote to stay in) that bought the keys to Number 10?

In a post like this, I’d be tempted to say, “Well, it doesn’t matter, now. The Tories are in and that’s that.”

The problem is, that isn’t that. At least not as far as taxation goes.

Vultures are waiting for the first sign of a hike in tax

Already, all eyes are waiting for the first sign of a tax increase. The market was truly shocked by the pre-election tax-freeze promise, given how tentative economic recovery is.

Mr Cameron must be as confident in the UK recovery as he was of his continued tenure in Downing Street. He was, after all, the first Prime Minister in an age not to have a bag packed ready to vacate No 10 had things gone horribly wrong last Thursday.

And they could have. Just ask Messrs Farage, Clegg and Miliband (not to mention Balls and Cable) how quickly the political tide can change.

An article in today’s Financial Times hinted at several ways the new government could sneak tax increases in on the blind side. At least in a way that won’t have the electorate calling for Mr Osborne’s head.

The Conservative Party has, as the FT says, “boxed itself in” with the taxes that the average working man pays. They’re frozen for the full term of the next government; any move to the contrary could be political suicide.

But that’s the key: the average working man. At the beginning of this government, there are a lot more unaverage working men and women than ever before.

Are contractors a victim of their own success?

Self-employment has propped up employment figures during the recovery. While growth may have slowed in comparison, freelancers and contractors continue to set up shop for themselves in droves. And this is one of the areas the Treasury could exploit.

Anyone operating through a limited company draws low salary and dividends. It’s an age-old tax planning measure that, when done correctly, offers a considerable (compliant) saving.

The Conservatives may well look at eliminating this ‘preferential treatment’, as the FT puts it. They wouldn’t be increasing NICs, per se. Just making less of it available as tax relief for limited company directors.

Other taxing conundrums for contractors (and their accountants!)

In addition, we already know that certain benefits for umbrella contractors are in jeopardy. There’s still plenty of discussion ahead, as promised. But the 2016 end date of travel and other expenses for ‘managed employees’ looks more certain than ever.

The Tories have given themselves very little room to manoeuvre on tax. As such, the crackdown on evasion and aggressive avoidance will go further than a few expenses.

Couple this with those earning in excess of £150k about to cop for a rise in pension tax and contractors could soon need all the help from their accountants that they can get. Moreso now than ever.

And they say that the Conservatives are the party of free enterprise? Ironic, then, that the freeze on tax for the working man may see entrepreneurs footing the bill.

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Autumn Statement brings business rates system review

It’s music to some small business owners’ ears: the business rates system is due for a major overhaul, according to Chancellor Osborne’s Autumn Statement.

The review is coming, and the Treasury plans to investigate the whole messy ball of wax according to one spokesman. This is the good news. However, the bad news is that the total amount collected from firms isn’t likely to change much at all – something that limited company contractors, sole traders and other self-employed Brits that work out of a shop are likely not to be terribly happy about.

These particular types of entrepreneurs have been fussing over the business rates system for some time, complaining about the costs smaller-scale firms and micro-businesses are subject to. The rates need to be overhauled, these campaigners have been saying, and considering the current system hasn’t been changed since its inception in 1988 it sounds like that it’s about bloody time for this new review.

There were some fine points in Mr Osborne’s words during the Autumn Statement, though. Firstly he said that any retailers who have less than £50,000 in property value would have their discount increased to £1,500 next year, up from a paltry £500. This should provide a boost to around half a million companies that have a shop, and will provide around £1 billion in business rates relief. With the business rates cap to remain frozen at two per cent as well, I suppose it’s better than nothing – and much better than bad news.

Of course this is just for England. In Northern Ireland and Scotland, business rates are a dealt with in a completely different manner. Not only that, but business rates administration has been devolved to Wales, with the Welsh government getting to name its own tune within its borders.

If you ask me, England needs a serious overhaul. It’s got the highest paid business rates in the entire European Union – and for some firms, these rates cost them ore than rent and wages. Plenty of people also say that declines in the High Street can be attributed to out-of-control business rates, and is likely why there’s so many vacant shops seemingly everywhere. For what it’s worth, I hope that this review changes things for the better and that some small-scale firms get some more relief.


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HMRC implements new contractor PAYE fix

All you limited company contractors, you can breathe easy: the taxman has handed down a PAYE reprieve that exempts you from the new RTI rules.

Her Majesty’s Revenue & Customs has been causing headaches with their new Real Time Information scheme, and if you work through your own limited company you’ve likely been pulling your hair out – especially if you get paid annually. Well it’s your lucky day: HMRC has decided to begin granting requests to change your PAYE status to exempt you from having to submit a return every month and simply do it once a year.

The taxman had to put a few new systems in place before they could offer this service to limited company contractors, but now they’ve got it up and running. Not a moment too soon, if you ask me; for what it’s worth, limited company contractors have enough on their mind without having to muck about with RTI on top of everything else in their hectic lives.

Of course, HMRC is still not making it necessarily all that easy to keep up with this, as they’ve decided to not inform employers as to when they actually accept these requests and change your tax status. I swear I don’t know what it is but the taxman just enjoys taking one step forward just to take two steps back, don’t they?

I swear it’s like the taxman just loves making things difficult and more confusing for as many people as possible. This whole RTI thing has been a nightmare from the very beginning, especially for employers; any firm that didn’t have computerised payroll software that was capable of interfacing with HMRC over the internet had to upgrade when it went into effect this past April, and maybe it’s just me but if I was a business owner I would have a lot more important things on my mind that having to learn a whole new payroll accounting system just to satisfy the whims of some passel of government bureaucrats!

Yes, I know what you’re saying: RTI is supposed to make income tax and National Insurance payments more accurate. Well, what the government calls ‘more accurate’ sounds like ‘a big pain in the arse’ to me, and with the amount of additional red tape this new initiative is generating, I think you’d be hard-pressed to prove me wrong, now wouldn’t you?

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New Year to bring welcome changes for some contractors

Limited company contractors are set to see VAT rules easing in the New Year, thanks to new EU regulations.

There are several new legislative changes going forward from 1 January of next year that have been instituted to make contractors’ lives easier and allow them to save money. In fact more than £14 billion could stand to be saved by by businesses every year by the new measures, which aim to reduce administration costs, says the European Commission.

One of the changes will be to the way invoices are handled, with paper and electronic invoicing to be considered one and the same. This means that firms may choose the solution that is the easiest and saves them the most money when it comes to VAT invoicing.

Additionally, all EU member states – which includes the UK – will be permitted to offer small businesses with turnover of around £1.6 million a year (€2 million) a cash accounting option. This will leave these smaller businesses with the option of not paying the VAT until customer receipt, which should reduce the potential of problems with cash flow.

Taxations, customs, anti-fraud and audit commissioner, Algirdas Semeta, commented on the new changes, remarking that firms operating within the eurozone need such changes in order to have their needs met in a better way. These changes to VAT will make procedures simpler, costs less, and increase support for solutions that help EU member country business – especially small business – to grow, added the commissioner.

Hopes remain high that these reduced and streamlined VAT requirements will enable these smaller businesses to grow and help contribute to the economic recovery in greater numbers. In the UK alone smaller businesses are often referred to as the backbone of the economy, and contract workers especially so due to their flexibility and high value for money.

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IR35 – and still it rumbles on…

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.

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

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

Image: Day 280 – Sisyphus by Menage a Moi

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HMRC will not pay compound interest on overpaid VAT

Limited company contractors who have overpaid VAT are unlikely to be allowed to claim compound interest from HMRC.

The European Court of Justice’s advocate general has decided that despite HMRC’s breach of European law, the VAT that was overpaid by UK taxpayers would only have simple interest applied.

Some of the overpayments date back to 1973 and taxpayers have been arguing that the overpaid amounts should attract compound interest. However, Trstenjak, the advocate general, said it was unlikely that taxpayers would be allowed to claim compound interest and his opinion is general followed by European court judges.

Stuart Walsh, a tax partner at McGrigors, said this was a significant blow to the many UK businesses that are currently contesting VAT claims. There is a vast amount of money at stake and given the uncertain state of the public purse, this new guidance could provide a significant boost to the Treasury.

By allowing the Revenue to only pay simple interest it gives it the incentive to keep hold of taxpayers’ money in order to boost its own cashflow position. That perverse incentive would have been removed if HMRC had to pay compound interest on overpaid VAT.

HMRC has also recently been accused of deliberately withholding notices informing small businesses that their income tax returns were late. The tax tribunal said the Revenue was using small businesses as cash generators by not alerting them straight away when tax returns were late. HMRC disagreed with the ruling and said it would not refund money to those who had been hit by steep penalties.

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

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At a VERY long stretch, this IR35 judgement may be supportable

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…

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: 1996 UK Royal Mail Cartoon Stamp Card by andertoons

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AWR – everyone ready for the end of the world?

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

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

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

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

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

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

But it does beg an interesting question. Why?

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

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

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

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: Family Circus Redemption Project #31 by cutup

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Did you dream of being a footballer rather than a contractor accountant?

Are many accountants for contractors regretting their career choice?

A lot of employees now wish they had pursued their childhood dreams rather than take up the career they did, according to a recent survey carried out by Monster.co.uk.

The poll found that 42% of the over 30s wished they had followed their childhood ambitions. A lot of these aspirations were traditional but ambitious careers, such as becoming a medical professional, a sports person or going into acting.

Actual careers were found to contrast sharply with these early dreams. 10% of respondents said they work in IT and the same percentage work in education. A further 9% said they were employed in an administrative role.

47% of people in their 40s said they wished they had followed their dreams, whilst only 31% of the over 60s felt that way. Men appear to be slightly more dissatisfied than women – 44% compared to 40%.

Michael Gentle, a spokesman for Monster UK & Ireland, said it’s perfectly normal to look back and think about might have been but people should take stock of whether they are simply feeling nostalgic or genuinely unhappy with their current position.

Today’s workers and limited company contractors have considered what jobs they would like to pursue now and 14% said they’d like a role in the arts or entertainment industry and 12% said they would opt for broadcasting, film and music.

Gentle went on to say that it may be too late to become a doctor or a professional footballer, but it’s never too late to move into a different role or industry. Whilst a job used to be for life, that idea no longer exists and many people work in a variety of fields during the course of their career.

Another survey, this time by the CMI, discovered that 42% of employees have not progressed as far in their career as they would have liked. 22% think their company has not been able to afford to give them a pay-rise or promotion in the last 12 months. A further 19% admit they either lack experience or the right qualifications to progress.

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Disqualification orders against directors continue to rise

Reynolds Porter Chamberlain LLP, the city law firm, has reported that 1,437 disqualification orders were placed on directors of companies, including the clients of contractor accountants, that had gone into insolvency last year, a 4 % increase on the number imposed in 2009.

Five years ago there were only 1,173 disqualification orders but since then 6,422 directors have found themselves disqualified. A disqualification order forbids a director of an insolvent company becoming a director or creating or promoting a limited company for anything up to 15 years.

Company insolvencies reached a peak in the third quarter of 2009 when the UK was in the middle of the economic downturn.

Jonathan Davies, a partner at RPC, commented on the results saying that a disqualification order can be career threatening for a director as the director is unable to set up or participate in the creation of a new business for such a long time.

Administrators and liquidators look to blame somebody when a company goes insolvent and company directors have felt the brunt. There was a substantial increase in insolvencies during the economic crisis and as a direct result we have witnessed this increase in disqualification orders.

The law firm also pointed out that the government has clamped down on corporate governance issues since the start of the recession and company directors should protect themselves by obtaining Directors & Officers insurance. A lot of small firms and limited company contractors forego this cover and end up paying enormous legal costs if their company is investigated.

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Small businesses lose faith in the UK’s banks

Britain’s sole traders and contractor accountants have lost faith in the country’s banking system, according to the Forum of Private Business.

The FPB is now calling on the government to introduce new measures to restore smaller enterprises’ trust in banks.

The British Bankers’ Association recently published research showing that about 670,000 UK firms have needed funding in the past 12 months but did not submit an application for it. 18% of companies believe they will require finance within the next three months but say they will not be able to apply unless there is a significant improvement in the country’s economic conditions.

The FPB’s senior policy adviser, Alex Jackman, pointed out that the report showed that small businesses have a crisis of confidence when it comes to the banking system in the UK. As well as practical measures to restore confidence, innovative funders must also be allowed to compete in the current bank dominated finance market.

The Bank of England published its Trends in Lending report for May recently and it showed a record decline in the number of approved loans for smaller enterprises. It also stated that the average interest rate payable on small business loans is 4.66%. Two years ago, the rate was 4.29%.

John Walker, the national chairman of the FSB, said that entrepreneurs and limited company contractors should be able to take advantage of healthy competition from the UK’s banks. He pointed out that the 4.8 million small businesses in the UK are the ones that will create jobs and drive the economic recovery, and yet they are getting a worse deal than their larger counterparts.

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Should contractor accountants warn about late filing penalties?

ICAS has warned that as many as a million taxpayers could face penalties for late filing of tax returns and claims HMRC has not taken enough measures to notify the public of the changes.

As from the end of this October, anybody who files their paper self-assessment form late, even if it’s only by one day, will receive an instant fine of £100. After three months, the fine will increase by £10 for every day overdue. Even larger fines will be levied if filing is six months late.

It may be time for accountants for contractors to be at the forefront of reminding people!

The same rules will apply to people who file online as from January 31st 2012. ICAS has calculated that an online return due for filing at the end of next January, but held back until August 5 2012, would attract at least £1,300 in fines.

Since self-assessment began in 1997, almost one million people file their return late each year and many of them delay by more than 12 months. Until now, HMRC could not charge a penalty as long as the taxpayer paid all the monies owing.

ICAS’ director of tax, Derek Allen, said he was concerned that the majority of people are not aware of the new penalty regime as it has not been widely publicised.

The Scottish Institute also warns that some people could miss out on tax rebates. Self-employed people in the construction industry often have their tax deducted by the contractor initially and repayments are calculated after they have lodged their return. However, if they file late, the repayment is likely to be a lot less than the fine.

Small businesses and limited company contractors are also becoming increasingly tardy in filing their year end accounts with Companies House. The executive agency recently reported that 12,739 businesses were fined for late filing last month; up from 12,154 in May.

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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

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