Month: October 2009

Much talk lately about opting in (or out) of the Conduct of Employment Agency and Employment Business Regulations 2003 and later amendments (hereinafter called “The Regs”!), much of it conflicting. Latest nonsense is Capita apparently saying that you have to either opt out or take a PAYE contract, which is patent nonsense (and, incidentally, illegal, for reasons that will become clear).

Firstly, The Regs are a good thing. They exist to protect vulnerable workers such as casual labourers, office temps, assorted low-grade locums and a whole range of people. They are not explicitly aimed at comparatively high-earning, informed and independent freelancers like us (well, me, anyway…).

Secondly the provision of the Opt Out is a good thing. Without it, many small businesses would be in scope and that would limit their ability to expand and employ others, among other things. PCG negotiated the opt out for very good reason. Also, despite the woolly wording, the opt out takes you out of the whole of the Regs, not just bits of it.

Nobody can make you opt out. It is entirely your decision and that of YourCo. It cannot be made conditional in any way. The only difference is that the agency will have two flavours of contract since they have different responsibilities to meet depending on your status.

It is absolutely nothing at all to do with IR35 and has no impact on your status.

You can’t opt out once you’ve been introduced to the client. Despite what agencies think, this means, in effect, as soon as the client knows who you are which for most of us means the interview stage (the real agency worker won’t have an interview, they just turn up on the Monday morning). So the only real way to do it is to send an Opt Out letter with your original application: you can always opt in later. If you don’t send that original letter, you’re opted in and that’s it.

Commercially, opting in gives you two “benefits”, a reduced handcuff clause and stronger guarantees of payment. Neither, in the real world, actually confer much benefit to be honest.

However, opt out and some good things happen. You can have a far more IR35-friendly contract. The agency has less work to do. The Agency doesn’t actually have to perform all those tedious ID and residency checks, although none of them seem to have realised that yet.

Finally I have argued that opting out also removes the restriction on agencies charging you for work finding, meaning they could then act like entertainment industry agents do and actively sell you to clients. Now that’s something we ought to pursue…

If you’re a member (and if you aren’t, why not?), PCG have written a very good guide to the Regs covering all the key points. Well worth a read.

Ultimately it has to be your decision to opt out (or in). However, my own highly personal and unsupported feeling is that out is better; we’re independents, we don’t need nannying.

Welcome to my new home!

I was reading that article in the Sunday Times about BBC employees switching to using limited companies  to avoid paying 50% tax.  Assuming, perhaps unfairly, that the journalist got it right, I was rather less than impressed. Is HMRC really suggesting that people commit tax evasion…?

Has anyone heard of IR35 in HMRC, I wonder? Surely if someone is currently a full-time employee of a company and then leaves, sets up their own company and contracts themselves back to their previous employer doing the same job, they absolutely have to pass the criteria for “deemed employee”.  Hence IR35 must apply.

If IR35 applies, as it surely must, then how do they intend paying themselves in dividends? They have to take 95% of their gross as PAYE/NIC salary. Hence no saving in tax (or a very small one, at least).

Or, of course, we assume that their shiny new contracts contain all the relevant IR35-friendly options regarding Direction, Mutuality and Substitution. Snag is that the Dragonfly appeal, while perverse in several respects, did establish finally that the contract and reality must align (which they didn’t in Dragonfly’s case since it seems the contract changed over time while the working arrangements didn’t).

So sorry but no cigar. You ain’t going to save any taxes by taking this route and someone is telling you porkies. And if you do, you’re breaking the law.

However, I’m not going to hold my breath waiting for the first challenge from HMRC to one of these contracts. Far simpler and less controversial for them to focus on us little people who don’t have nice profile roles in a publicly funded body…

I was reading the various contractor-related bulletin boards over the weekend (as you do…) and I was struck yet again by the number of people in this game who don’t really understand  the business they’re in. There’s a lot to understand and nobody expects you to be a combination of chartered accountant, tax barrister and employment law expert, but some idea of the basics would be good.

It’s not like there isn’t plenty of information out there. I’ve long been a fan of the PCG’s free Guide to Freelancing (available at www.pcg.org.uk) but there are plenty of others out there on the end of a Google search. However, the key bits that keep coming up are IR35 (gosh!), expenses and opting in or out of the Agency Regulations. I thought a brief overview now might be useful with some more detailed discussion on these issues to come.

IR35 is a total mystery. I’ve been looking into it for ten years and I still don’t have a clue how anyone is supposed to know if they’re in or out: not only is it incredibly wooly, the rules change on almost every case that comes to court. It hinges on three factors – Direction and Control (which is imperfectly defined), Mutuality of Obligation (very basically, does the client have to provide work or pay you if there is none to do) and a Right of Substitution (can you send someone else to do the work).  Minimal D&C, minimal MOO or a definite RoS will theoretically put you outside IR35, but you’ll need an expert to prove it.

Expenses are dead simple. If you spend money that is wholly and exclusively for the execution of your business, then it’s allowable against your personal taxation. If they aren’t, you can still claim them but you pay tax as though they were straight earned income. So travel to work is fine but a 48″ plasma screen monitor for the PC isn’t. Nor, oddly enough, is training unless it is directly related to the job you are currently doing.

The Opt Out causes enormous confusion. The Agency Regulations are there to protect vulnerable temporary staff from exploitation. Sadly they are written so virtually any freelance working through an agency is in scope, so you have the option to say you don’t want them to apply to any given engagement. The thing is, you can’t opt out if the client knows who you are (i.e., you’ve been introduced to them) so most people are opted in regardless. Whether or not that’s a good thing is up for debate; there are some slight commercial benefits, but you’re likely to have a worse contract in IR35 terms. The agencies want you to opt out because it saves them a lot of work, of course.

Like I said, these are all big subjects. I’ll come back to them individually in a bit more detail

There’s 1.4 million of them. They put £2.5bn a year into the British economy. They keep all sorts of things going by making skilled resources available on short notice for as long as they’re needed in all kinds of environments. They are largely unique to the UK. But nobody knows who they are.

I’m talking about us, of course. Freelance contractors. Workers who sell our skills on the open market to a variety of clients. We prefer not to work for any other company than our own. We take responsibility for our own work, we charge a market rate for it and we pay our proper share of tax.

So why does the Government hate us?

Primarola did her work well. When IR35 was being introduced, she branded us as people who incorporate purely to save tax and therefore deprive HMG of income to which it was rightly entitled.  That attitude has persisted ever since, and many MPs of all parties still think we work through limited companies to avoid taxes. In truth, if we didn’t we wouldn’t be able to work at all. Thanks to S44-7 ITEPA 2003, formerly known as S134c, agencies will not take on self-employed people in case they get lumbered for their tax liabilities. Since they control 90% of the work out there, we have to use Limited Companies or not get work.

The reason HMG gets away with this continuing misrepresentation is because we are, by our very nature, a disparate and independent bunch: someone I know once described attempts at leading us as “like herding cats”. PCG has had a very good go at getting us recognised as a group, and has had some notable success, but to far too many people, we are mavericks out to somehow cheat the state.

We not only need a single identity, we need people to understand it and recognise it, or be forever doomed to working in the shadows.

So on November 23rd, we start to fight back in anger. PCG are launching a National Freelancers Day. The overall aim is to make the world sit up and recognise us for  what we are and what we do. I urge you to go visit the website – it’s over here – and join the party. It’s important!

I spoke to two agents yesterday. One of them actually called me about a CV I put in though Jobserve the day before. Amazing that he actually got it, given Jobserve’s reliability, let alone he’d read it. We may return to that one later.

However the other one was rather more typical. Interesting and fairly senior role within my scope and something that I could enjoy doing. In the City of London, which is a pain but nothing I can’t live with. However, it contained that immortal phrase “willing to undergo Security Clearance”.

In the last 12 years I’ve worked in the MOD three times, the Cabinet Office and the Ministry of Justice and have been cleared to SC on each occasion. So foolish me, I thought I’m willing to undergo clearance so I called the agency.

He answered the phone. That’s a good start. CV was a perfect match to the role. Rate was good, given the current market. “Have you got current clearance?”. “No, it lapsed last year”. “Ah well, the client has asked that we only submit people with active clearance. Sorry.”

Should have guessed that was coming really…

Thing is, the guidelines around clearance are very clear indeed that, with very few exceptions, you should not be barred from applying for work simply because you are not cleared. This has recently been re-emphasised to REC, APSCo and the larger agencies by the Cabinet Office, largely as a result of some sterling work by the PCG. Also there are clear guidelines about how people can work on secure projects while clearance is being obtained. With the best will in the world, I don’t honestly believe I represent a real risk to the nation, and I’ve signed the Official Secrets Act anyway, and that is still in force: break that and it’s Malvolio for the Tower…

One has to ask: given the failure rate of HMG programmes, around 40% of which fail totally and very few of which meet all the original cost, time and quality criteria, you don’t suppose recycling the same pool of workers who just happen to have active clearance has anything to do with it?