Churchill Knight Blog

When a contractor comes to us we go through the process of assessing their position in terms of salary, expenses and the nature of their business. This helps us to determine the best business structure for them, be it sole trader, umbrella company or limited company.

In the majority of cases it ends up being that a limited company is the best financial solution for the individual due to the tax benefits of limited companies. However, there are other considerations that are taken into account such as lifestyle and the level of responsibility that the individual wants to carry.

With the details of the new AWR we have been wondering what the future holds for umbrella companies.

If you missed our article last week on this then you can find a good summary of how the Agency Workers Regulations affect UK Contractors here. In short though, it means that those working under an umbrella company may become less attractive to agencies and employers as they will have additional costs through employing them.

Additionally, it could mean that the process followed by many umbrella companies; of paying workers an hourly rate of or about the level of the minimum wage, with the remaining income being passed on as a ‘variable’ bonus or commission payment, will come to an end. Many umbrella companies do this in order to increase the workers net pay through enabling them to collect significant temporary workplace related expenses.

There was an interesting post on IT Contractor regarding this last week. The blog owner asked one of his advertisers to comment on the issue. That advertiser happens to be the founder of a large umbrella company so obviously has strong opinions on the matter, which led to some humorous banter in the comments.

The umbrella company in question said: “Those that offer unrealistic take home pay calculations, or use offshore schemes, or even do creative things with foreign currencies in order to pay their contractors will be looked at by Government and will be clamped down on”.

 

But on the other hand, they stated that umbrella companies that focus on being an employer and meeting their responsibilities fully would adapt and survive.

Of course this all remains to be seen over the course of the next few years. We are still finding as much demand as ever for our umbrella company service, so believe that the jury is still out on the matter.

Churchill Knight and Associates Ltd are pleased to announce that we’ve been shortlisted for both the Medium Business of the Year Award and the Training and Development Award at the Hertfordshire Business Awards 2011.

The Medium Business of the Year Award is open to any business that has a turnover of £2m-£20m, whose growth, drive and quality of management has led to its success.

The key aspects of the award include a strong performance in a particular market and the provision of employment and training opportunities.

We are proud to be a finalist in this category and feel we deserve to win the award.

We have worked hard to reach our goals and have come a long way since the company was founded 13 years ago, with just one staff member. Now we are a team of over 75 employees, each of whom are committed to delivering a high level of service.

With this commitment in mind, it is no wonder why our client base is growing so rapidly. Since the start of the year, it has risen by over 15%.

On top of this, a massive 75% of new clients that join us do so as a result of a direct recommendation.

Despite our growing success though, we are still continually looking for ways to improve. Our dedicated Customer Service department help to identify areas in which staff may require further training and we’re all involved in the development of our systems and processes to better cater to our client’s needs. From minor system changes that enable us to work more efficiently to the creation of the SDE, which was launched following a number of client requests for somewhere to view particular company documents.

The second award we have been shortlisted for is the Training and Development Award. This award is given to a company that can demonstrate a high standard of employee training and development.

The company owners of Churchill Knight and Associates Ltd put a lot of emphasis on personal development so that we, as a company, can improve. They understand the vital connection between team members’ abilities and the performance of the organisation as a whole.

To ensure we are the best we can be, there is a high level of staff training provided, both in-house and externally. Sponsorship programmes are also offered to support employees in achieving professional qualifications; such as AAT, CIMA and ACCA.

Training and development is considered fundamental to Churchill Knight and Associates Ltd; not only because it helps staff members to progress, but also because it’s highly beneficial to our clients. Training in other departments ensures we each have a greater understanding of the business as a whole; which in turn leads to better customer service.

We’re all extremely excited to be nominated in these two categories and would like to say a big thanks to all of our clients who have helped us develop over the years.

Company partner, Louise Payne, said: “Churchill Knight entered the Hertfordshire Business Awards at the end of September in two categories.  I had a telephone call last week saying we were finalists in both.” She added: “I was so pleased that our efforts and company had been recognised and feel immensely proud.  Whilst in my heart I knew we would get through, hearing the news was very exciting.”

The awards presentation is on the 24^th of November and is set to be an exciting event.  Until then, we’re all just waiting in anticipation.

As a contractor you may carry a significant amount of risk with your work. If something were to go wrong then legally it could be your responsibility.

Therefore it is a good idea to have a think about the kind of work that you do and what kind of worst-case scenarios could crop up if things were to go wrong.

For the majority of contractors there are 2 kinds of insurance that are most commonly used, professional indemnity insurance and public liability insurance.

I will focus this article around these two types of insurance so that you can determine if you need them and if so how you can go about getting the insurance organised.

Professional Indemnity Insurance

Any contactors who give advice to businesses or individuals should consider taking out professional indemnity insurance.

Professional indemnity insurance will cover you in the event that you give advice to a client that turns out to have been negligent. It also covers you for the event that you made a serious mistake with the work that you carried out and this resulted in a compensation claim by your client.

For example, if you are a carpenter and you accidentally make windows that are 10cm smaller than the planned size for a building and then the glass turns up to be fitted but will not go in due to your mistake then you could be liable for the costs of fixing the issue so that the glass does go in. If you have professional indemnity insurance it would cover the costs of this work as well as any legal expenses that you incur too.

Public Liability Insurance

There are many different types of liability insurance but public liability insurance is the most commonly used by contractors and small businesses.

This type of insurance protects a business by covering the cost of a claim if an accident happens with a member of the public, resulting in injury or damage to them or their property.

An example of this may be that you set up an exhibition stand and it collapses and breaks a table, vase and hurts somebody. Public liability insurance will cover the costs of replacing the damaged items, including the exhibition stand if necessary, as well as any health care costs incurred by the injured person.

Buying insurance as a contractor

Although we cannot make any specific recommendations to good value business insurance providers there are a few good places that you can start:

Business Link have a very detailed section on the different types of business insurance giving more in-depth information than our summary above:

These are both business insurance comparison pages so you will be able to see what the options are:

Money Supermarket

Simply Business

Disclaimer of liability:

The information on these pages is provided free and for information only, and is provided ‘as is’. Whilst believed to be correct, it is in no way comprehensive. It is provided for your interest only and is not intended to be relied on as formal legal advice. You should not act or rely on this information without seeking professional legal advice. No liability is accepted therefore for any errors, or for any losses that may be incurred if it is relied on.

As a contractor we need the ability to mold ourselves into many different organisations in a short space of time. This is not always easy to achieve.

We have to communicate well with business owners and the senior executives, we have to get along with and work efficiently with the full time staff of the company and to deal with the politics that exist within the company.

Whether you are a specialist in mobile telecommunications systems or rail safety software you need to develop skills that are outside of your core professional skill in order to be effective at your job.

Of course full-time employees need to be good communicators too in order to get things done. However, they do have a lot more time to settle into their role and forge the necessary relationships that allow them to do their job effectively.

What I am getting at here is that as contractors we need to be great communicators.

Communication is widely acknowledged as the greatest difficulty businesses face. If something is not explained clearly enough or buy in from key stakeholders is not achieved then the job will not be done well.

Therefore I thought that it would be helpful to mention a few techniques that could help you to better communicate with those around you.

Becoming a great communicator can be relatively simple. There are two main principles which underpin this skill.

The first is awareness; awareness of the differences in communication and processing styles between you and the person you are communicating with.

The second is to be an effective listener, being calm and creating enough space to listen and absorb what is being said to you. If you are too busy talking and preparing what you will say next, how will you know what is really being said to you?

With every person that you interact with you should always take into account their personality and their communication preferences in order to get the best results out of your communication with them.

Of course, everybody is unique but it is possible to group people based on their over-riding characteristics, for example:

• Are they analytical and data focused and like to think things through carefully and in their own time and through using rational argument?
• Or do they prefer stories, anecdotes and human interaction rather than data? Maybe people like this enjoy reaching a consensus with others in order to make a decision and will use their feelings in deciding what to do.
• Finally, there are some people who seem to intrinsically know what they want and what needs doing. Decisions are made quickly and without too much detail.

Everybody uses all of these styles of communication to an extent but all of us tend to lean towards one preferred style of communication.

It helps communication if you take into account what style of communication you and others around you prefer and to adapt your spoken and written communication accordingly.

Even if you do not make a conscious effort to change the way you communicate with different people just having raised awareness of how others are communicating to you and what styles of communication they prefer will help you to better understand them and accept their ways which will in turn improve communication.

 We have heard a fair bit of confusion in the air about the new agency workers regulations that came into effect on October 1^st 2011.

You can see through Google Insights that the search trends around this area are on the increase which suggests that contractors and freelancers are searching for information on this.

Therefore we thought that it would be helpful to put together a concise summary of what we feel this means for contractors.

In a nutshell the aim of the legislation is to protect vulnerable workers from exploitation and ensure they get the same basic employment conditions as their permanent equivalents after 12 weeks of service – mainly the right to the same pay, working hours and holidays.

It has been a very controversial piece of legislation, particularly in the UK. The legislation came about in Europe at the time that Greece was chairing the European Union. In many countries in the EU, and particularly in Greece temporary workers are very rare so the legislation made sense. However, in the UK where a large % of the workforce is made up by contractors and freelancers it did not make sense at all as there has been no distinction between agency workers and highly skilled contractors who charge a high rate for their services.

How does the Agency Workers Regulations affect contractors working under their own limited company?

 

Individuals working under their own limited company will fall outside the scope of the new legislation

What the documentation actually says is that the ‘agency worker’ definition excludes those who are in a “profession or business undertaking carried out by the individual” where the hirer is a client of customer of the individual, i.e. where a real business-to-business relationship exists.

How does the Agency Workers Regulations affect contractors working under an umbrella company?

The legislation clearly states that contractors working under an umbrella company fall within the legislation.

This has pros and cons to it.

On the positive side it means that contractors working under umbrella companies on contracts of 12 weeks or more in length will become exposed to the same benefits as full time employees doing a comparable job. You will therefore become entitled to holiday pay and potentially health care, overtime, shift allowances, bonuses, commission and stamps given with a monetary value, e.g. luncheon vouchers.

On the negative side it will increase the costs of employing you (as umbrella companies are likely to pass on the additional costs to their clients) so you will become much less attractive to companies than contractors operating under their own limited companies.

Additionally, contractors working under umbrella companies could become more restricted on the amount of expenses that they can claim back.

If you would like to double-check anything or just find out how it all works in more detail here is the full legislation (http://www.legislation.gov.uk/uksi/2010/93/contents/made). Of course you could always just give us a call with any specific questions you have and we will be glad to help.

Disclaimer of liability:

The information on these pages is provided free and for information only, and is provided ‘as is’. Whilst believed to be correct, it is in no way comprehensive. It is provided for your interest only and is not intended to be relied on as formal legal advice. You should not act or rely on this information without seeking professional legal advice. No liability is accepted therefore for any errors, or for any losses that may be incurred if it is relied on.

Honesty is a difficult concept as everyone has slightly different definitions that support their threshold for what is and isn’t morally appropriate.

 This truer than ever when it comes to paying taxes so in order to encourage honesty HMRC have been investing in some simple changes to their processes in order to improve the accuracy of tax returns.

Firstly, the Cabinet Office’s Behavioural Insights Team has suggested that asking people to sign a declaration of truth at the top of their tax return before they fill it in, rather than at the bottom after they fill it in can reduce tax fraud by 10%.

I think that this makes sense, imagine swearing on the bible after your testimony in court…

Apparently this is one of many techniques that HMRC are planning to deploy in order to achieve fuller and more honest tax returns. So what else do they have planned?

Social conformity is also on the cards it seems; as the Sunday Times have reported that those who refuse to pay immediately will be informed that they are part of a small local minority. The Insights team believes that if they tell taxpayers that 95% of their neighbourhood has already paid then people are more likely to become active and complete their return.

As a more positive incentive HMRC are also considering proposals to enter all those who complete their forms quickly and pay on time into a prize draw to win a cash prize.

What do you think could help HMRC to improve the level of honesty?

Now this is going slightly off topic but click here to see a great video covering transparency and honesty and what can be achieved through using them correctly.

All visitors to the Churchill Knight & Associates Ltd blog have one thing in common; we have all made the decision to branch out on our own to freelance or to run our own limited company.

Perhaps the main benefit of freelancing/running your own limited company is the level of control and responsibility that we carry over our own lives.

Running your own business is stressful and time consuming but highly rewarding as you are the direct benefactor of all of the effort that you put in. Conversely, lessons are learned the hard way and impact our lives beyond the typical 9-5.

You are living and working in a high risk environment compared to full time workers as you do not have an institution with responsibilities towards you to fall back upon should things not go to plan.

How do you feel about your decision to go it alone now, do you ever think of going back to full time employment?

As Contractors and Freelancers we have not chosen an easy path as there are constant challenges such as:

• Finding clients is hard work and time consuming
• Time management is difficult to get right
• Setting rates to charge customers is not always easily done
• Managing difficult client relationships
• Invoicing is an admin pain
• Collecting payments & clients who do not pay
• No sick pay – this needs to be planned for
• Loneliness if working alone at home.

Additionally you need to be able to cope with a more emotionally challenging career as well as a more professionally challenging one. You need to be able to hold onto your confidence through tough times and to have the understanding of your family as you cannot just switch off at 6pm (at least for the first few years).

However, we do have the benefit of feeling that we are in full control of our work lives and considering the amount of time people spend working this is pretty important.

Other benefits include:

• Choosing the projects that you work on and rejecting the ones that you are not interested in.
• Having the ability to just get rid of clients that cause you too much hassle and become unprofitable.
• You are rarely bored as you are constantly busy on one project or another.
• Having the ability to differentiate and create a multi-faceted income stream. If you get fired or laid off from your full time job then you are in trouble.
• Flexibility around working hours and holidays. Take time off when you like, as long as you can afford it financially. 

It would be great to hear from some Churchill Knight & Associates Ltd clients’ on your experiences and whether or not you are happier working for yourself or whether you would actually like to go back to the security and conformity of a full time job?

If you are finding yourself in the unpleasant scenario of having not registered for VAT with HMRC then you have a few days left to reduce your potential penalty to a 10% penalty on top of the VAT that is due. Penalties for undeclared tax can be as high as 100% so it is really worth biting the bullet and getting this done quickly.

If your turnover in a full tax year exceeds £73,000 then you need to be VAT registered.

You must register for VAT if any of the following applies:

• Your VAT taxable turnover for the previous 12 months is more than £73,000 (the current VAT registration threshold)
• You think your VAT taxable turnover will exceed the threshold in the next 30 days
• You exceeded a VAT threshold at an earlier point in time and have not registered for VAT
• You take over a VAT-registered business as a going concern.

You can find out full details from HMRC’s website here.

Mike Wells, HMRC’s Director of Risk and Intelligence, said: “Most people do register for, and pay, the correct amount of VAT. This isn’t about honest taxpayers, who have nothing to fear from any of our campaigns.”

“But we are committed to ensuring tax is paid so that the maximum is available for public services used by everyone. I therefore urge people who have not registered their businesses for VAT to get in touch with HMRC and get their tax affairs in order simply, and on the best terms available.”

To take advantage (so to speak) of the VAT Initiative, people and businesses must register with HMRC by 30 September in order to “notify” that they plan to make a voluntary VAT disclosure; and tell HMRC about VAT due and make arrangements to pay it, as well as any penalties due, by December 31. Those who do not come forward will be investigated by HMRC meaning that substantial penalties and even prosecution could follow.

You can let HMRC know that you are planning to make a voluntary disclosure of VAT owed by filling in an online form here.  Alternatively you can call HMRC on 0845 600 5217, where you can get some specialist help and advice on paying your VAT.

Additionally in the hope of a full confession, HMRC have offered to reduce the penalty due on any other (non VAT) undeclared arrears. The customary penalty on these arrears is 100%. The reduction amount has not been clarified but will be less than 100%.

HMRC have stated that target industries could include: construction, business services, hair and beauty, hotels and catering, retail distribution, recreational services, motor vehicle distribution and repair, sanitary and domestic services, agriculture and horticulture, property and road haulage.

If you would like some independent advice prior to contacting HMRC then please give Churchill Knight & Associates Ltd a call. We are happy to give advice to both our existing clients as well as those not currently registered with us.

Only 1 month ago we were reading about finance being the best area to be for IT contractors at the moment with solid growth in jobs numbers as well as day rates. My, how things change: In the past 2 weeks we have seen 4 major banks announce that their UK divisions will be making large scale redundancies as well as culling IT contractors through attrition (not replacing workers who leave).

This began with ABN Amro announcing in their half-year statement that prior to their return to private ownership they will be cutting costs in their IT division. 1,500 workers are facing redundancy with an additional 850 set to go through attrition.

Next was Barclays who have cut 140 jobs in operations in addition to an earlier 500 jobs in June.

Then Bank of America announced that they would be trimming (or hacking may be more appropriate) 3,500 jobs over the next month which is obviously a significant percentage of their overall UK workforce.

Finally this week UBS announced that as part of their £1.5 billion cost cutting efforts they would be reducing their workforce by 1,500 staff. Additionally UBS have announced a 10% pay cut for all IT contractors on the payroll for those who stay following the cuts.

All of the aforementioned banks did however mention that they would be also recruiting in different divisions. The focus seems to be moving to web development and optimization and in particular there is significant demand for systems analysts and solutions architects.

Alexandra Kelly, founder of Powerchex, which screens IT contractors for financial jobs has

 

“Some financial organisations are looking at costs they never even considered before…on top of [a more conventional] hiring freeze on temporary IT people, which is in addition to leavers’ [IT] posts not being refilled.”

 

“IT contractor recruitment now – the first week of September, has been exactly half the level it was in June,” she said. “It was quite strong then, but since June IT contractor hiring has fallen off a cliff.”

 

Cost cutting has been stated as the core reason for the redundancies but also it has been noted that there has been a cultural shift towards recruiting permanent staff in favour of contractors as it is seen as a cost saving in the long term to keep skills within the business.

It would be great to hear some experiences from the front line. If you are an IT contractor in the Finance sector then please let us know how the land lies from your perpective.

The government has closed a well-known tax loophole, it has been announced.

According to HM Revenue & Customs (HMRC), the changes come into effect immediately and prevent firms from accelerating capital allowances claims for plant and machinery costs in order to get advantageous early tax relief.

The closure of the loophole was originally planned for April 2012, but was brought forward after estimates showed that it could cost the Exchequer a significant sum.

Full legislation will form part of the 2012 Finance Bill, people in tax related jobs were told.

Justine Greening, economic secretary to the Treasury, said: “By ending this loophole today we will preserve important revenue while maintaining a fair system of capital allowances to support business investment.”

Ms Greening also said that the move will “maintain fairness for the taxpayer”.

A written ministerial statement concerning the closure of the loophole will be published in the near future.

HMRC opened a hotline for businesses and individuals affected by the recent riots in major cities across the UK last week.

For advice and information about how changes in tax apply to you, do not hesitate to contact our Personal Tax department on 01707 871610 or personaltax@churchill-knight.co.uk.