contractor accountants
Government support use of agency staff
There have been some worries within both sectors that the private sector is not proficient enough to take up the full extent of the public sector cuts. It has been hard to fully evaluate the situation, as many of the public sector cuts are still to occur, and whilst private sector employment is increasing, unemployment has been fluctuating over recent months. The current rate of unemployment has been apporximately 7.7% over the course of this year; however it is predicted to rise to around 8.7% by the middle of 2012 according to some experts. This suggests that despite the private sector currently performing efficiently in terms of employment, they will face a fight when the cuts fully take effect.
The private sector boom has been largely contributed to by the increasing numbers of freelance workers, who have been able to establish a higher rate of pay and more resourceful tax solutions using a contractor calculator.
With the flexible working model becoming more of a popular working way for UK workers, many are seeking the advice of contractor accountants who can offer a range of workable solutions and resources inlcuding a self employed tax calculator, which can work out any potential savings by operating through either a limited or umbrella company.
The government have taken a growing interest in the role of contractors over recent months. They have noticed that many more public sector organisations are making good use of agency and temporary workers, including the NHS. The efficiency, long run cost saving and higher level of professional service are clearly all beneficial to employers of these workers. It is for this reason that recruitment companies and industry bodies have all supported the increased use of freelance staff and held a big effort to highlight the vital role that they can play in the growth of the economy and UK jobs market.
Government see increasing use of freelancers
The government seem to be taking more of an interest in the role of freelancers and contract workers, and the key role that they can play in the economic recovery. With a lot of the public sector work being transferred to temporary workers, and the increased use of agency and locum staff in public sector organisations like the NHS, the government is taking heed. They have already formed a independent body, the Office of Tax Simplification, to investigate taxation issues that surround contractors and small business owners. They have now formed a parliamentary group, which involves a number of industry bodies, in order to discuss various freelancing issues.
With employment legislation causing concerns for limited and umbrella company contractors, recruiters and contractor accountants have called upon the government to fully support them, because as pointed out, this workforce can really help to boost the UK jobs market and keep the economy growing at a difficult time.
The first all party parliamentary group meeting for freelancing occurred recently and created a vibrant discussion about the numerous tax issues that are currently of concern. The MP who was leading the discussion as chairman of the group identified IR35 as the concern that his constituents have raised to him. This particular law is currently under review from the Office of Tax Simplification, with a report due later this year into potential alternatives.
Many current worries for the freelance community come with the impending Agency Worker Regulations, which is part of an EU legislation and due in October 2011. This will see contract and agency staff receive the same working rights as full time employees. Although this may be useful for the lower end workers, contractors by nature receive higher pay and the right to choose their holidays, and so would receive little benefit from the AWR. Top contractor accountants are working on efficient solutions to ensure that their clients are not caught by the scope of these regulations.
Unemployment fluctuating as public sector jobs cut
Last year the government announced that over the course of the next few years, close to half a million public sector jobs would be cut. This was regarded as a huge cost saving exercise by the government who were facing mounting pressure due to the economic situation and budget deficit. Whilst these cuts were later reduced by about 30% to 330,000 job losses, there was still a challenge for the private sector to fill these positions; a challenge which is continuing through 2011 as unemployment fluctuates and the UK jobs market struggles.
HMRC were also handed a cut of around 15%, reducing their budget to £3.2 billion. However, a review by the nation audit office suggests that they will need to almost half their spending in order to reach their desired levels of productivity and efficiency. This included a £900 million ‘war chest’ aimed at targetting the increasing levels of tax avoidance, evasion and fraud seen over the UK economy, which costs the treasury billions of pounds each year.
HMRC also have long terms plans to change the current Pay as you Earn system, in order to reduce their workload and make the system clearer for tax payers. Whilst they feel that this would help to reduce administrative costs and on the number of tax problems, many recruiters feel that it would create problems for freelancers and contractors who often change jobs.
In order to assist tax payers there are currently a range of tax calculators which can help to establish an employee’s tax rate based on PAYE. A contractor calculator is a similar resource offered by contractor accountants and compares a contractors current PAYE tax to potential savings made by operating through a limited or umbrella company. They can offer tax efficient solutions for the growing number of UK freelancers and contact workers, and ensure compliance with all government employment and tax legislation.
Government cut public sector IT contracts
Government IT contracts are one area of public sector spending which are facing a huge change. The government plan to reduce spending on IT projects by over £800m over the next few years; a task which may be tough but vital in order to achieve efficiency. This plan is likely to have affected current IT contractors as many currently work for government bodies, but it will also hamper those who had been hoping for projects to be outsourced to the private sector. Although in some cases IT projects may be offered to private companies or on contracts to freelance workers, some major planned work such as the national ID card scheme have been scrapped completely.
This aim for efficiency has also been mirrored within HMRC, who are looking to improve the PAYE system and cut down on tax avoidance and evasion. The treasury lose hundreds of millions of pounds every year from those who don’t pay enough tax. Most contractors currently pay a minimum amount of tax due to efficient working solutions established through a contractor accountants’ tax calculator. Whilst this is legal, it is those who avoid tax offshore and those who commit tax fraud that HMRC want to crack down on. So despite the budget cut and an aim for more efficiency, they have been allocated a specific fund to clamp down on these other practices.
A lot of the government and HMRCs efforts have also been put on generally improving the UK tax system, which has started with a review of small business taxation and other reliefs. This included an issue of close interest to contractors, which was the review of the controversial IR35 legislation; this seeks to determine a contractors employment status and the level of tax they should be paying. Whilst this particular investigation has not seen any changes as of yet, there is still an ongoing review through the independent office of tax simplification.
Flexible workforce supporting economic recovery
With the planned public sector cuts still ongoing, the government are trying to reduce their expenditure accross many departments. In order to continue their planned work and projects, many civil servants are getting replaced by short term contract workers and skilled freelance workers. This course of action should allow the government to make a long term saving by reducing the amount of permanent staff that they employ as well as potentially improving productivity with the use of temporary workers.
This trend has become clear throughout various levels of the public sector, with recruiters and contractor accountants both noticing the growing number of contact work availabilites. Flexible working has been highlighted as one of the top reasons as to why the economy has held up fairly well post recession, and it has been hailed as the way to continue the economic recovery. In fact, as well as giving an economic boost, some recruiters believe that the flexible workforce also have a greater job satisfaction.
The crucial role of flexible workers has led to some concerns about the forthcoming Agency Worker Regulations. These regulations are part of an EU directive which will enable temporary and agency staff equal working rights, in regards to things such as pay and holiday. The concerns were that the regulations will take away from some of the key benefits of agency workers, such as their flexibility and the speed at which they can be supplied and employed.
Despite widespread confusion over the interpretation of the regulations, it has been made clear that the AWR will not impact on this. This is a welcome announcement for the many contractors and freelance workers who may have been caught up within the scope of the regulations. Most contractor accountants who employ contractors in umbrella companies have also found payment models which will allow them to be employed in the same way, without any trouble from the AWR.
Freelance opportunities boosted by public sector cuts
Recruitment agencies and industry bodies in the UK have long been pushing the use of temporary and freelance workers, and it is becoming much clearer to businesses about the benefit that they offer. Online job boards are just one of those to have witnessed the growing movement of freelance job take up, with IT and digital positions the most popular. This growth of contract positions has highlighted the fact that many businesses have been quick to realise that by keeping the number of permanent staff low and supported by short term contracted staff, they are more likely to remain solvent and cope with the economic conditions.
This trend is visible in both the private and public sectors, with the latter being moved towards a more cost effective and efficient approach to staff appointments because of the Government cutting budgets. Whilst the private sector was quick to adopt this recruitment strategy, the public sector has had a close eye on things and has learnt themselves about the benefits of using freelancers. Although contractors and freelance workers are still constrained by employment laws such as IR35, this style of working is very attractive to both employers and employees.
As well as being given the freedom to work on any particular project, working as a freelancer in the current economic climate provides a much better opportunity to actually find work, with less permanent jobs available and more contract jobs being created. Although there is less security and long term stability in freelance work, by operating via a limited or umbrella company, workers can become much more tax efficient.
With many job postings for this area of freelance work, many people may want to find a quick way to start contracting. The first thing to do is to contact a contractor accountants, whose specialist services can provide workers a range of solutions to become effectively self employed.
Employment laws need to support UK SMEs
The need to help the UKs small businesses and self employed workers, in an attempt to stimulate job creation, is an important issue for the government to address. With unemployment a fluctuating problem and a large number of public sector jobs still to be cut, there is still lots of uncertainty in the UK jobs market. After a fairly wanting budget in terms of business support, the government has now started to look towards measures that can stimulate the jobs market and therefore the UK economy in general. This will include a widespread review into the administration of the UK tax system, described by many as one of the most confusing for SMEs, and overall in need of proper reform.
The Office of Tax Simplification (OTS) led review into various areas of small business taxation covered topics such as tax reliefs and a look into the inefficiency of HMRC. It has also brought about the formation of a forum with a specific aim to review IR35; the legislation that was introduced in 2000 to determine whether a temporary worker is genuinely self employed. It is legislation like IR35 that has caused much burden and unnecessary problems for the UKs freelance community. It was hoped by many industry groups and contractors that IR35 would be removed as part of the budget, however it remained in its current form, which came as a disappointment for all.
With the review of IR35 still in progress, contractors should contact expert contractor accountants to get advice on how it may still affect them. As well as a personal IR35 report, many offer a number of services, including a contractor calculator to eastimate potential take home pay. With even more employment laws coming later this year, including the Agency Worker Regulations in the autumn, it is vital for all contractors and freelance workers to understand how they will be affected.
Government implement new taxation system
With the pressing need to address the UK tax system a hot topic amongst businesses and recruiters, much focus is being placed on the measures that the government are currently taking. Many government tax policies and decisions over the last year are being heavily scrutinised and industry bodies are starting to put pressure on the government to make crucial changes. The call for more government support for small businesses has been reiterated as there is a consensus that helping this area of the workforce will kick start growth and recovery in the economy.
A highly skilled, flexible UK workforce has also been highlighted as much more than a stop gap solution to reducing unemployment, absorbing public sector jobs cuts and simulating job creation. This area of the UK workforce is seen as key and many people are choosing to go down this route of contracting. There are many workable options for contractors to consider, with limited or umbrella companies popular amongst most.
One of the proposals, announced at the budget last March, is the merging of National Insurance contributions and income tax. Whilst this would create a simpler system, removing some confusion and reducing HMRCs workload and inefficiency, it would mean that the self employed would most likely be taxed more. One of the main advantages of being self employed is the tax savings that it brings, and this proposed system would damage this idea. This is one of the examples of the lack of support that the government is showing to an important section of the UK workforce.
Whilst the tax system merging would mean that national insurance contributions would rise for most self employed workers, there are still a number of viable tax efficient solutions for contractors and freelancers. Working through an umbrella company would still ensure a high net income return for most workers. And although it appears that this policy will be implemented, the hope is that the government will look more positively on contractors in the future.
Self employed workers concerned over EU laws
With the Agency Worker Regulations October deadline now getting closer many recruiters and businesses are preparing themselves. Not since the introduction of IR35 legislation has employment legislation faced a set of rules similar to the AWR. Aimed to give support to the lower end of the temporary worker market, the AWR will offer equal treatment and rights to all workers; temporary or permanent. This will be an advantage for these lower level workers but a burden for those who are freelance for other reasons. A large number of highly skilled workers, commonly involved in IT or financial services, will be affected by the AWR because of their employment status, however it will offer no real gain to them.
Benefits including equal pay and holiday rights to permanent staff are not really attractive to contractors and freelancers; many are highly skilled workers who already earn a higher daily rate and because of the nature of their employment they are not tied down to certain hours, which makes holidays irrelevant. This issue caused confusion amongst the freelance workforce as well as employers, and there was an early concern that businesses may stop employing contractors or offering short term contracts because of a lack of understanding about the AWR.
Advice was however given from the Government department for Business, innovation and skills. They worked with some recruitment bodies to issue full guidance to concerned workers and businesses, confirming what the position was with some of the key issues raised. This made it clear that limited company contractors would not be affected and offered advice as to how umbrella company contractors could still be employed.
Guidance can also be found from the top contractor accountants, who also offer a range of other resources such as a contractor calculator; a tool designed to show workers how much they could increase their net income by operating as a contractor.
Fluctuation within the construction sector
Contractors within the construction industry have experienced an up and down year, with job demand fluctuating because of the economic downfall. There have been some booms in demand with large scale projects, including the Olympic Games in London, creating a large amount of jobs; the games are thought to have created around 5,000 positions mainly in construction. On top of having to deal with this unpredictable demand, contractors have been faced with investigations from HMRC and a dispute between their construction union and a leading employment group.
The construction union UCATT have criticized the role of some employment agencies who had been avoiding National Insurance payments as they are registering workers as self employed. This meant that the workers did not receive all the basic employment rights. The REC defended these claims, saying that they are wide of the mark. They have argued that a permanent structure is not very fitting for the operation of the construction industry, and that a flexible workforce brings many more advantages .
With full support from recruitment agencies the REC believe that workers can operate in a way that gives them the highest benefit. Most construction contractors work through a government created ‘CIS scheme’ which is similar to a limited company and can be eastablished through most leading contractor accountants.
The other issue for construction workers was linked to this dispute over the way that contractors are employed as HMRC launched an investigation into what they classed as ‘tax evasion’. Investigations are still ongoing, but HMRC increased the number of tax officers for this case in order to fully look into it. Whilst the non payment of Nation Insurance Contributions is classed as tax evasion, the CIS system is a completely legal way for construction contractors to operate. Worried contractors can use a tax calculator to determine what exactly they should be paying.
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