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October 2009 was the month Sir Nicholas Stern told us to eat lentils and quit flying for the sake of the planet, and business secretary Lord Mandelson warned internet users that the days of "consequence-free" illegal file sharing were over. But these serious threats to our way of life are not the only austerity measures contractors are expected to face. For a start, the entire basis for contractors operating limited companies came under renewed attack when the tax tribunal, (which replaced the Special Commissioners in April) found it was possible to classify company payments as both dividends and employment income, and therefore NICs (National Insurance Contributions) were payable on dividends. This ruling turns back years of practice by small business operators that have been happily paying dividends instead of salary in order to cut exposure to NIC. Paul Spindler, technology partner at chartered accountants Kingston Smith, told CUK: "Our advice is that where any taxation mitigation techniques are adopted, one must consider the possible outcome should HMRC decide to bear down." In other words, staying within the law does not guarantee you will remain free of liability; it's all a matter of interpretation and your accountant, it seems, is now unable to interpret for you. Yet one liability is definitely coming. And it's not the Temporary Agency's Workers Directive, which the state proposes should not apply to the genuinely self-employed, it's the 50 per cent tax bracket. CUK understands that some 2000 UK contractors will fall into the new tax rate, and yet many contractors have yet to act. "Whilst the new tax year may still seem like a long way off, contractors who act now might save thousands of pounds, ensuring that more of their hard-earned cash ends up in their hands rather than lining the taxman’s pockets," advised Tony Harris, managing director of ContractorMoney, the independent financial advisers. Harris told contractors to look at company investments for reserves, and company pension funds. But how long before the Revenue comes after these "taxation mitigation techniques"? It seems that HMRC has had it in for contractors – as an easy target – since the first whisperings of IR35 back in the nineties. With so many contractors on the bench and with rates at an all time low, there can be no doubt that contractors are in business on their own account. They suffer all the risks with ever-eroding tax and legal advantages. And lone contractors can be powerless. One contractor this month asked if he could sue for recompense after he incurred personal expense preparing for a verbal contract that failed to materialise. You might say, "more fool you", and legally the situation turns on whether a contract had been formed – or not. But many IT contractors start work in similar circumstances. You often begin work at a new client before contracts are signed, and may endure long periods waiting for contract renewals. You do not down tools; this is how the industry operates. And how is the industry faring? Well, 2009 has been the worst for IT spending on record, according to analyst Gartner. Globally, IT expenditure fell 5.2 per cent this year, while for enterprise, it fared even worse and dropped by 6.9 per cent, shows the research based on 10,000 organisations. Not surprising, then, that contractors will risk starting work without hard-copy contracts, but for many just getting interviewed is hard enough, let alone winning the job. SpaceCadet, writing on the CUK bulletin boards has some advice for those face-to-face rarities. "It's never just about knowing your stuff - try and keep the conversation non-technical when possible. It's more about how you apply your expertise and what benefits that brings. Sell yourself by your successes in terms of results, not how you got to those results." He says being too technical can "make you look like a geek, who just gets on with what you're programming rather than why you're programming." We have turned an economic corner however, and contractors should start to enjoy greater success after this month's nadir, and the disappointing fall in IT contractor placements seen in September, according to figures CUK obtained from APSCo. Why the grounds for optimism? Well, Gartner forecast 2010 will see IT return to growth, with worldwide spending on track for a 3.3 per cent spending increase, and Microsoft has launched Windows 7 to a favourable reception. Researchers at ITIC found that half of outfits plan to adopt the latest version of the dominant OS in the coming year, having being impressed with its initial performance and compatibility. While working Windows might actually seem like bad news for contractors, the daemon is always in the details, and companies will surely need help with compatibility testing and integration. If only for their risk mitigation strategies. Meanwhile, even the buy-to-let market is picking up finally, and after months of weak demand, new tenants are taking up the excess of privately rented properties. Figures from the Association of Residential Letting Agents showed that one third of its members felt the supply and demand of such property was now in balance, up from 19 percent last quarter. So you should take some encouragement. While HMRC is still raging against contractors, the job market – and rates – will improve, and so will your standard of living. And as long as eating lentils doesn't make you feel sick, and you like holidaying by train to Paignton - and you aren't sharing your massive collection of glam rock through bit torrents, then “things can only get better.” William Knight Oct 30, 2009 Email this article Printer friendly page Previous Page
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