Are contractors maximising the benefits of tax-free ISAs?

Time is running out for contractors who want to deposit the maximum £10,200 in a tax free ISA.

Robin Bailey of Nationwide advises that contractors may want to use their Individual Savings Accounts (ISA) tax relief allowance for this year before time runs out, as this is definitely a legal tax reduction vehicle.

He also said that people are still confused about ISAs and therefore they do not take full advantage of the tax benefit on offer. Nationwide has estimated that cash ISAs are saving consumers more than £680 million every year in tax which is a substantial saving, but that there was still a need for better education on the benefits of ISAs to help consumers save even more.

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Will Umbrella companies be affected by the new employment laws?

According to a new survey conducted by the British Chambers of Commerce at least half  the Umbrella companies and UK small businesses are concerned that changes to employment law will damage their business.

The survey showed that 52% of companies are concerned about the regulations governing paternity leave, with 34% believing that this will be particularly detrimental to the running of their business.

21% feel that the scrapping of the Default Retirement Age will harm their business.

Fathers are entitled to take the unused portion of a mother’s maternity leave should she decide to return to work early. The new ruling is only applicable to fathers of babies born on or after April 3rd.

David Frost, the Director General of the BCC, said that the government had promised to listen to the concerns of business and to reduce bureaucracy but these new pieces of employment legislation would hit companies hard. Employers now have to cope with more changes in employment law instead of getting on with running their company.

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Umbrella Company contractors plan for April shut down

Due to the Easter weekend and royal wedding bank holidays April only consists of 18 working days. While this is good news for employees throughout the UK, Umbrella Companies and small businesses will need to plan early for the shut down.

The smaller and cash-strapped companies and contractors will be most affected and they are advised to start following outstanding invoices long before the weekends.

It has been estimated that at least 15% of the working population will take leave for the three days between the 2 weekends, which effectively gives them an 11 day holiday.

Approximately £6bn is lost in productivity when there is a UK bank holiday; this year the impact, with the two holidays falling one after the other, is likely to be much worse.

The tourist industry, hotels, restaurants and the retail sector should however see a strong increase and come out as winners this year.

In a recent report it showed that New York hotels are also offering special deals in the hope of enticing British citizens living in the United States to celebrate the royal wedding.

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StartUp Britain hopes to give a helping hand to UK entrepreneurs

While the government’s new StartUp Britain campaign has been met with some mixed feelings, it is hoped that it will give entrepreneurs a helping hand. In March David Cameron helped launch a new initiative to support entrepreneurs.

StartUp Britain is a ground-breaking response from the private sector to the Government’s call for an “enterprise-led” recovery.

It is hoped that it will offer the very best in support and advice for startup companies, led by entrepreneurs for entrepreneurs, and that the campaign will encourage more people to set up their own business. Welcoming the campaign the Prime Minister said,  ”People best placed to help business are the people who do business”.

The Prime Minister also hopes to see a country where entrepreneurs are setting up on every street, in every area of the UK. The recovery has to be led by the private sector and the StartUp Britain campaign is part of the plan to make that happen.

Dr Tim Bradshaw, head of enterprise and innovation – Confederation of British Industry (CBI) -  commented that StartUp Britain is part of a group of government initiatives to stimulate the UK economy. He feels that more people could be encouraged to become entrepreneurs if they received the necessary guidance and support. He also welcomed the changes to entrepreneurs’ relief and the cut in corporation tax that was announced in last week’s budget.

Barclays, Google and Virgin Media have backed the campaign offering new start-ups support worth £1,500 in practices such as online advertising and IT. Approximately 60 companies have already pledged support worth millions of pounds to the StartUp campaign including Axa, Google, O2 and McKinsey & Co.

The government wants to start educating children on the benefits of entrepreneurship from an early age and schools will receive support to run a company through the Enterprise Champions Programme.

UP to 250,000 young people will be loaned £10 to enter the Tenner Tycoon competition.

In addition small firms will be able to pitch their ideas through an online tool on improving the efficiency of government. The best of these ideas will be selected by a group of civil servants with winners receiving intensive mentoring from the UK’s most successful entrepreneurs.

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Good value for money provided by Umbrella company IT contractors

It is felt by nearly 80% of IT directors that the private sector workers provide good value. Speaking for ReThink Recruitment, Michael Bennett said that the government suggests that the private sector can absorb the public sector redundancies, but employers feel that IT workers coming from the public sector do not offer as much value for money. He added that it won’t be as easy as the government expects for these employees to transition into the private sector. Umbrella company IT employees who have the experience of managing highly complex projects do have the transferable skills. The private sector is now seeing a growing demand for hybrid IT staff.

According to ICAEW at least 45% of UK businesses expect the cuts in public sector spending to have an adverse effect on turnover this year.

Companies that supply the public sector directly are now being forced to explore ways of counteracting this negative impact.

In a recent interview Michael Izza, the chief executive of ICAEW, said that there was a perception that businesses could pick up the pieces and this included employing ex-public sector workers in addition to supplying the drive to return the economy to growth. In fact the private sector businesses were already affected by the cuts and about 21% of companies had seen their business turnover fall last year.

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Employee Benefit Trust Schemes investigated by the HMRC

The HMRC is investigating Umbrella company contractors and will deal harshly with employment benefit trust schemes (EBT’s).  These schemes, usually offshore umbrella company schemes, are being looked at by the HMRC as a form of disguised remuneration.

Employee Benefit Trust Schemes have been popular among footballers, entertainers and contractors, as a way of diverting part of regular income into loans which attract minimal or zero tax rates. The HMRC is hoping to bring in an additional annual revenue of £500 million by closing this loophole.

Several umbrella companies claim that they provide a fully compliant, safe and secure HMRC approved scheme, and thereby allow you to retain more than 90% of net income – be careful! the claim is not only false – it is now illegal.

There is however a small number of large companies as well as a few individuals who may be compliant with HMRC’s new rules, but it is estimated that as from 9th December 2010 approximately 50,000 contractors will not be compliant.

There is no cut-off date and this means that schemes in existence prior to December 9th may still be included in the new legislation.

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IR35 ineffective and ready for change

According to a survey carried out by the REC (Recruitment & Employment Confederation) a large majority of recruiters believe that IR35 is ineffective and ripe for reform.

At the same time the OTS was due to report on its findings on IR35; 92% of recruiters who responded to the survey, in areas such as engineering and technology, felt that the Intermediaries Legislation was not effective in its present form.

The two most common complaints being cited being are (1) a lack of certainty as to whether a contractor is inside or outside IR35, and (2) that the rules are open to interpretation.

REC Technology Chair, Jeff Brook, commented that the IR35 has been an awkward, unsatisfactory attempt to tackle the problem of disguised employment ever since it was set up in 1999. These survey results make it plain that the recruitment industry would not accept anything less than a serious overhaul of the current system. And further that whilst many recruiters would be happiest to see IR35 simply removed from the statute book, there would also be support for a pragmatic attempt to clarify the rules. If contractors, employers and recruiters could be certain in advance whether they fall within IR35 or not, many of the current problems could be eliminated.

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Umbrella contractors should keep their CVs updated

In order to keep themselves successful on the job market, Umbrella contractors need to change the way they present themselves by keeping their CVs up to date. A strong and up to date CV is essential.

The managing director of The CV & Interview Advisors, Matt Craven, recently said that instead of presenting their career experience in chronological order with half a dozen bullet points underneath each job, candidates should treat each contract as an evidence-based case study. He said that the Case Study Portfolio Approach provided the most effective framework for professional contractors to write their CV.

This style of framework would provide contractors with more flexibility and allow them to tailor their CV to the roles they are applying for in a much more effective way,

Mr. Craven concluded by saying the recruiters would still want to see dates of employment, and that a career chronology section should be put in after the case studies with the date, company name and your job title.

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Umbrella Contractors could be in demand due to IT spending rise

Due to the expected investing in technology over the next 12 months, IT-focused umbrella contractors could be in greater demand.

It is been predicted that there will be a 7% increase in IT spending in 2011, due to the strong expansion in 2010.

A recent report showed that global sales of IT goods and services were up 8% on the previous year.

The Recruitment and Employment Confederation has said that the demand for staff continued to increase in both the temporary and permanent job sectors during January 2011.

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Putting contracting in perspective

Contracting, especially within the UK, is a very attractive proposition to many workers due to the good daily contract rates and flexible employment structure.

Contractors will generally be paid considerably higher rates than a full-time employee, but while this may seem perfect, there are also a number of things to consider before making the jump.

Contracts generally last between 1 month and a year before the contract will expire or require renegotiation. This allows a contractor to work on a range of projects and will expose them to a very dynamic environment resulting in gaining experience fast. It does, however, also mean the contractor will continually need to find new contracts, negotiate rates, and manage their tax and finances.

While there are many tax benefits in contracting, such as expense deductions, you will also need to provide for your own pension fund to ensure your future is taken care of.

It should be noted that contractors are paid for the days they work and therefore do not receive employee benefits, holiday pay or sick leave. It is vital that these are factored in when calculating your day rates, and that you account for this properly during your years of contracting. The upside is that contractors get paid overtime and this can provide a lucrative income stream in times when deadlines loom.

One of the negative sides to contracting is the risk of alienating future employers, who will often avoid hiring former contractors. The reason for this is often due to higher salary demands and the risk of losing you to a higher offer from a competitor.

Another factor to consider is the state of the market. During slow periods of economic growth, you could be subject to struggling to find a contract, or be the first in line for cuts when budgets need to be trimmed.

Adminstration and accounting are other issues to consider. You will need to keep track of your financial situation and will be responsible for your tax. You will need to decide on the best vehicle for you, usually choosing between an umbrella company or limited company, depending on the value of your contract and your specific terms of employment.

Getting advice from a qualified UK accountant will help you in making the best decision, most of which will offer some advice for free if you are evaluating their services.

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