Tag Archive | "spending review"

Will the Universal Credit system benefit contractor accountants?

Contractor accountants keeping tabs on the government’s plans for a Universal Credit system might be unsurprised to hear that might be delayed.

The government was keen to introduce the new system in 2013, but the Revenue does not think it will have adequate real-time ICT systems ready by then.

HMRC were allocated an extra £100 million in the Comprehensive Spending Review to build a new system that could cope with tracking people’s job changes and form the basis for a universal credit benefits programme. However, last week the Public Accounts committee were informed that delays were possible as HMRC may not have the necessary systems in place.

The Department of Works and Pensions will need to extract information from the Revenue in order to commence the universal credit programme. Welfare reform requirements dictate the speed at which the technology needs to be built and these new requirements are a big job, Dame Lesley Strathie said.

The new system will also sort, identify and crystallise tax amounts owed and then translate them into the correct tax codes quickly. For the tax year 2007/08, HMRC estimates it could be owed up to a billion pounds in back tax and if you go back over the last five years, the Exchequer could have received around £40 billion less than it should have. A large portion of this figure is probably due to tax avoidance, fraudulent activity and organised crime, the Revenue believes.

There have been concerns over the implementation of real-time systems not least because of the of incorrect tax codes that were sent out earlier this year. However, Dame Lesley admitted that this was more down to the quality of the data that was fed into the system rather than the actual software.

HMRC’s financial controller, Jon Fundrey, said that IT work had been held up slightly due to the government moratorium on significant ICT spending. The same was true of IT recruitment but this is now underway.

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Private sector can absorb public sector fallout

In what seems to be a contradiction of other recent reports, the latest quarterly job survey from the CIPD and KPMG claims that public sector redundancies will be more than offset by new private sector jobs.

The latest Labour Market Outlook recorded a figure of +11. This figure is a based on the number of employers planning to increase their workforce compared to those who plan a decrease. Whilst the public sector recorded a negative figure of -44, the private sector registered +39. In the summer the balance was +2 and we have now seen three consecutive quarters with a positive balance.

The chief economic adviser for the CIPD, Dr John Philpott, said there are now encouraging signs of increased buoyancy in the private sector job market. However, he did point out that it remains to be seen whether this will continue after the pre-festive season jobs surge and he didn’t go as far as to rule out a rise in unemployment next year.

Sectors that expect to increase recruitment levels during the final quarter of the year include manufacturing (+51), IT private sector services (+71) and consultancy (+44). Decreases are expected in central and local government (-95 and -65 respectively) and transport and communications (-39).

41% of public sector bodies will be making redundancies before the end of 2010 and these are expected to affect 14% of their employees. Whilst the average cost of making an employee redundant is £12,000, in the public sector it is £19,600 as opposed to £9,350 in the private sector.

Obviously everybody hopes that the latest LMO data is concrete evidence that we are witnessing a sustained improvement that will enable the private sector to absorb the public sector fallout.

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Could public sector cuts benefit small businesses?

It’s not all doom and gloom in the business sector. In fact some firms believe that they will profit from the government austerity measures.

Admittedly many businesses are going to lose public sector contracts, but the job losses could well create outsourcing opportunities. Last week, the government announced that £236bn of public sector contracts would be made more accessible to SMEs. In a bid to ensure that 25% of public sector contracts do in fact go to smaller businesses and limited company contractors, all government departments will be required to publish details of all the contracts they award, and how many go to small firms.

The coalition is also looking into a more open framework to tackle the closed procurement system which generally means contracts are awarded to preferred bidders which are usually bigger organisations.

Other good news came recently when figures were released showing the economy grew at twice the expected rate in quarter 3. Experts say a double-dip recession is less likely as data from the ONS showed the economy is growing at the fastest rate for 10 years.

However, these figures do not take into account the public spending review and the impact it will have on the country.

Nevertheless, the better than expected picture could encourage investors to start thinking about expanding their portfolios. The stock market can seem to be contradictory in times of economic crisis. In 2009, the UK was in recession and yet the stock market rose by around 30%.

Before contractor accountants rush out and pile all their money into stocks and shares, they may want to consider talking to a specialist financial advisor.

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Makes you laugh, doesn’t it?

Do you ever get the feeling you don’t really understand what’s going on? Reading the news over the last week, I kept getting this horrible feeling that I was in an episode of Reggie Perrin.

Perhaps I’m working too hard, but if we’re trying to save as much money from the public purse as we can, why are we promising to give everyone the maximum pension possible? Why is the Mayor of London up in arms about ethnic cleansing in Streatham? And why will I have to take money out of my company to provide a pension fund for my staff – of whom there is precisely one – when the money that I deliberately leave in the company is meant to be to help fund my pension…?

The world really has gone slightly mad.

There have been flashes of sanity though. The Institute of Directors has written to the new Office of Tax Simplification pointing out that there is a tax measure they really need to look at. One that causes great confusion, that is counter-productive and actually costs money to implement since almost all attempts to charge it result in failure. You might have heard of it; it’s called IR35

Errm, hullo, IOD? Aren’t you about 10 years late? Some of us – about 20,000 to be precise – have been beating that drum for quite a long time. Now, finally, it’s on the agenda for reassessment and, dare we hope, possible abolition, and the IOD have realised it’s a bad thing. Keep up at the back, chaps.

Actually what I thought was quite amusing was that they used the same arguments and most of the same statistics that PCG have been generating over the years. So perhaps there was a grain of truth in what we’ve been saying all along.

We’ve also been saying things about abuse of the visa system and the importing of non-EU workers to undercut the local variety, many of whom are now out of work. So it was with a degree of amusement that I read a survey has shown that a quarter of Tier 1 visa holders are working in non-skilled jobs.

Say what? Tier 1 are the people who can stand on their own two feet, who will make a positive contribution to the country and who, after two years, are supposed to be earning at least £35k a year to keep the visa. Granted people can work for whoever they want, at whatever they want, but if being a supermarket cashier is the height of your ambition, you really do have to wonder why they came in the first place.

I also read that someone in government has had a bit of an inspiration. When discussing the proposed cap on immigration and its reputedly monstrous impact on some companies’ ability to bring in staff, it was suggested that perhaps using up the ones they had applied for might be a way out of their dilemma.

And I’m sorry, but I still refuse to take St Vincent of Cable seriously.

Still, some things brought a smile to these grumpy old lips. The better than expected growth figures and the retention of our AAA rating prove that some think we’re going about things the right way. The Coalition’s spending review contained a lot of solid common sense, something politics has been lacking for quite a while (about 13 years, to be precise) although I still don’t quite get that thing about non-aircraft carriers. And I loved Osborne’s parting shot when announcing the programme, that the total cuts added up to 19% of government spending, which is precisely one percent less than the 20% that Labour had said was the most we could afford and what they would have done had they been in power.

So a confusing week in some ways, but not a bad one, all things considered.

Alan Watts can found at LinkedIn.
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HMRC want to spot tax evasion, but will they be able to?

Following the release of the Comprehensive Spending Review last week, HMRC has renewed its pledge to crack down on tax evasion to help lower the country’s fiscal deficit.

Contractor accountants might want to ensure their clients have their affairs in order!

The Revenue has been told to cut resource spending by 15%, reduce its capital outlay by 44% and chop 33% off its administration budget, over the next 4 years. The money saved will go towards a £900 million fund that will help the Revenue bring down the number of cases of tax avoidance and evasion.

The government hopes to claw back £7 billion in unpaid tax through the use of better technology and improved IT contracts. These improvements will also help catch benefit cheats who currently defraud more than £5 billion per year from the government.

Under the new clampdown, anyone earning in excess of £150,000 a year is likely to find their tax affairs subject to increased scrutiny.

David Gauke, the exchequer secretary to the Treasury, said that HMRC has a vital role to play in reducing the budget deficit and this can be achieved by refocusing its resources in order to maximise revenues. It is going to become harder for companies and individuals to avoid or evade tax as the Revenue’s resources will focus primarily on prevention and dealing with cases more effectively when a problem does occur.

However, tax experts believe the Revenue will struggle to win the battle against tax evasion, and provide a service to the public, when their budget is being cut.

One of the tax partners at PKF accountants, Philip Fisher, pointed out that the taxman was already struggling to cope after losing several key employees and these new cuts can only make matters worse.

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We’re all in it together

Amid all the usual and totally predictable debate over the Spending Review, it is perhaps interesting to consider things from the perspective of the freelance contractor. In the long term, any benefits that arise from the review, if it meets its aims, are much the same for everyone. In the short term, the contractor is in a different position to everyone else.

For a start, will he still be in work? That probably doesn’t depend on where he works as much as you might think. While anyone in the Public Sector is rightly feeling nervous, some of the big banks are also shedding jobs at a fair rate, so nothing is guaranteed. The freeze on big contracts by HMG will obviously limit the opportunities within HMG, but also with the prime suppliers and the smaller companies that feed them.

However, it must not be forgotten that work still needs to be done, and if you have to lose a permanent post, you may still be able to fund a short term temporary resource for the duration. So contractors will still be in demand to a greater extent than people looking for permanence.

Equally, perhaps we will see an increase in the number of smaller contracts that avoid the cap altogether. That would almost certainly push up the demand for good contractors. It would also be a good target for the government’s stated aim of giving 25% of work to SMEs, something which so far really has failed to materialize.

Of course, contractors would be a lot more attractive if the clients would only understand that they are not actually more expensive than a permie doing the same job. I’ve had the same argument at my last three clients, where I’ve demonstrated that a contractor getting 350 quid day is actually a lot better value than a permie – or a fixed term contractor – on 35 grand. And since you can send him away at no cost the minute the job is done, he’s probably quite a lot cheaper overall. That also assumes that his work doesn’t actually result in a saving that’s considerably bigger than his fees for doing the work: the old cost vs. value argument is more valid than ever before.

If we could also take out the daisy chain of intermediaries between contractor and end client, there is a lot more to be saved. In my case, the total markup between my day rate and what the ultimate end client is paying for me is around 500%. Agreed a big business will want some confidence that their supplier is capable of delivering what’s needed and covering the risks that arise, but does that assurance really have to carry that level of margin? Is it time that clients started to be made more aware of who actually does a lot of the work on the ground these days, and how much they could save by trimming the middlemen?

At the personal level the tax and allowance changes being made probably won’t affect the average contractor all that much. We have much greater flexibility over how much salary we take, if only to ensure we have funds available to keep on taking an income when the work is drying up. As a result, assuming you’re working at a reasonable level, the tax and benefits changes won’t really do much damage.

So lots of changes, lots of belt tightening for everyone. We may all be in it together, it’s just that some of us aren’t in it quite so deeply.

Alan Watts can found at LinkedIn.
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Many businesses are upbeat about government spending cuts

95% of British business leaders and contractor accountants have a clear conscience about making staff cuts in the next few months according to statistics from Abbey Legal Protection.

While that leaves just 5% of bosses stressing about downsizing, 31% of employees are concerned that their job might be in jeopardy.

Andrew Hawes, one of the co-founders of manufacturing consultancy Newton, said that most CEOs recognise that cuts are inevitable and tough measures need to be taken to ensure their firm survives.

We are still waiting to hear the results of the government’s Comprehensive Spending Review but almost three quarters of SMEs and contractors agree that public spending cuts are essential.

The FSB intends to inform the Conservative party conference that the coalition should reduce the budget for ‘direct’ business support to £500m from the current £1.9bn and concentrate on micro business spending.

The lobby group thinks that business support receives too much funding and of that, micro firms only receive 5% of the money. It would also like to see the NICs holiday for new businesses extended to all firms, an increase in the VAT threshold to £90,000 and the privatisation of the Capital for Enterprise finance initiative.

Meanwhile, leading players in British industry have differing views of the upcoming spending cuts.

Babcock, the defence group, believes the clampdown in the public sector will lead to more projects being outsourced. It says it has a healthy pipeline of bids both at home and abroad and an order book currently standing at £12 billion.

Smiths, on the other hand, said it will be increasing investment in new products with a higher margin as it warned of the short to medium term challenges of achieving sales growth.

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Spending cuts hit the Treasury

The Treasury is set to lose around 25% of its workforce due to the Chancellor’s spending cuts.

The good news for the existing Treasury workforce is that this will be achieved by natural wastage with no further recruitment, as opposed to mass redundancies.

By the middle of this month, George Osborne will have settled the budgets for some of the government departments, including culture, environment, justice and transport, as well as scaling back the role his own department and the financial services function play. He’s even proposing to move staff to smaller desks in order to squeeze more people into his HQ thus saving money on rent.

Over the next four years the Treasury department will lose about 350 staff members through natural attrition bringing the number down to 1,000.

The Chancellor’s willingness to impose cuts in his own department should strengthen his hand when it comes to negotiating with other departments.

One of George Osborne’s colleagues said they would be focusing on macro analysis and spending control rather than attempting to second guess the moves of other departments.

The comprehensive spending review will cut between 25% and 40% from the majority of other government departments. The biggest challenges facing the Chancellor will be defence and welfare. Transport could also be a problem as Boris Johnson, the Mayor of London, is battling with Philip Hammond, the Transport Secretary over Crossrail and upgrades to the Tube. Hammond also wants to see a cut in the £1 billion that subsidises free travel for children, the unemployed and injured war veterans.

Meanwhile, a treasury spokesman said the department would not get drawn into the spending review negotiations of individual departments; each of which have been told to reduce their admin costs by about a third over the next four years.

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