Amongst all the global financial crisis naval gazing at the World Economic Forum in Davos last week I did see a fascinating report co-produced by the Boston Consulting Group (BCG) and Google called it The Digital Manifesto.

The interesting thing about it was that although it had been produced for a high-level global audience of thought leaders and policy makers, a lot of the key learning’s highlighted in the report really translate down to small businesses, contractors and freelancers.

Let’s look at some of the numbers, and the figures here are truly staggering. First of all, many of us in the developed world take the internet as a given. It’s almost like we’ve always had it, the way it’s now part of our everyday lives. It’s hard to think of any other development over the last 100 years that has had more of an impact on how we live and work. However, according to the report, the total value of the web economy is set to double from $2.1 trillion in 2010 to $4.2 trillion by 2016 and this will be fuelled by a surge in the number of people who will have access to the World Wide Web. The report estimates that by 2016 online access is expected to reach 45%, or 3 billion users. For a small business with a decent online presence, that’s one hell of a potential market.

Just to put this is context, by 2016 China is likely to have 800 million web users – equivalent to the populations of France, Germany, India, Japan, the UK and the US all put together.

The report also predicts that there will be a massive rise in the use of mobile devices with the number of non-desktop based web connections set to reach the 80% mark. In my predictions article last week I highlighted how demand for contractors with mobile digital skills was on the up and this backs that up. So good news for contractors with the relevant skills but also food for thought for SME’s everywhere. How does your online visibility match up with this demand for mobile access?

The second point that really stood out in the report for me related to sales, the main focus for anyone in business surely?

The BCG surveyed over 15,000 SMEs worldwide to find out what businesses gain from having a web presence and in the UK alone, the sales of web-enabled companies rose around seven times faster than businesses with no (or little) web presence at over 4% each year from 2007 to 2010. Now based on the findings of the report, the competitive advantage an SME can create through being online is only to going to rocket.

So what are you currently doing to make sure that your business is not being left behind?

The digital revolution is happening. Can your business afford to miss out?

Leave a comment below and let us know or post on our LinkedIn group.

Share this content

There is no denying it’s tough out there from an economic point of view and you don’t have to look too far into the national media for predictions of doom and gloom. The old adage that ‘no news is good news’ never held sway in the markets of Europe and quiet periods would see financial indices around the world falling. It seems that nowadays the opposite is true and no news means no more bad news so investor confidence spikes a bit.

This has certainly been the case in recent weeks although the International Monetary Fund (IMF) predictions for global economic growth last week will no doubt see stock markets falling back somewhat. According to the IMF the UK’s economy will grow 0.6% in 2012, a sharp fall from their early estimate of 1.6%. However the news is worse for the Eurozone as the IMF predicts a fall of 0.5% for the same period. There is no doubt that the troubles over on the continent are having a negative impact on the economy.

Incidentally, the prediction for the global economy is growth of 3.3%.

Growing pains
Back to the UK and, however small, growth is growth, so talk of a recession is premature. Short-term stagnation during the 1^st quarter of 2012 will be tough but does not indicate a recession and the numbers are better than those during the last downturn. Confidence is low though a lot of our recovery depends on the Eurozone. The members of the manufacturing organisation EEF are split almost fifty-fifty on how the economy will go in 2012. 51% think things will improve, 49% think things will worsen. However, four fifths expect sales to maintain 2011 levels or go up.

Many, including the Centre for Economic & Business Research, predict low interest rates in the UK until 2016. A lot of economists don’t expect rates to go lower though and believe the Bank of England will announce a new round of quantitative easing in February.

Inflation fell recently from 4.8% to 4.2% which is good news, but pay freezes and wage stagnation mean real household income is falling. The Government inflation target is 2% and we are a long way off achieving that yet.

Looking on the bright side
Right, that’s all the negative stuff out of the way. Let’s focus on the positive, and believe it or not, there is a lot to be positive about for the UK contractor and freelancer community.

Self-employment is on the up at the moment, by 8.4% in fact, which brings the total number of UK self-employed workers to 4.2 million. Many of you are turning the tough economic times into opportunity and there are opportunities out there for contractors and freelancers.

A Freelancer.com survey recently highlighted that some sectors look extremely bright, one example being IT. In particular, demand for those with skills in mobile technology and digital skills, such as app development are on the rise. Android development roles are up 33% with iPhone and iPad development roles up 18% and 22% respectively.

Demand for programming skills is also still high and climbing, e.g. Java roles are up 36% and HTML 5 up 46%. Engineering also remains strong, online demand for engineers according to the Monster Employment Index is up 28% year on year with construction and extraction roles up 24%.

Oil and gas sectors, bolstered by the high price of crude, are still seeing lots of investment as well.

The marketing sector is also recovering well. According to an IPA Bellwether Report, marketing budgets were up for the second consecutive quarter at the end of 2011. This is always a good sign for the economy as marketing budgets are amongst the first to be cut when times are hard. Increasing marketing spend is a good indicator that confidence is returning to the UK.

Innovation, innovation, innovation
The biggest reason I feel positive about 2012 for contractors, temps and freelancers is that you lot tend to be an innovative bunch by nature, and innovation is key to the economic recovery in 2012.

By your very nature you tend to be very innovative, and innovation is key to the economic recovery in 2012.

When in a recession, there are generally three options to take to get out of it. Firstly, a government can borrow its way out and get people spending by creating jobs, but with the enormity of the UK’s structural deficit this is not an option the current UK Government will take. Secondly, governments can build their way out, and George Osborne did announce some significant public infrastructure projects in his Autumn Statement which should provide opportunities for contractors, freelancers and temps.

However, it is the third option that is key here: innovation. At a time when the Government is attempting to manage the UK’s structural deficit and consumer spending is at an extreme low due to families tightening the purse strings, innovation could be our best tool for creating growth and innovation is something that contractors and freelancers have consistently demonstrated. Hewlett-Packard recognises this and has already pledged to use more SMEs, contractors and freelancers in 2012 on government and private sector projects.

It’s also worth a quick mention of IR35 here. Many commentators believed that the Government’s General Anti-Avoidance Regulation (GAAR) would replace IR35 once introduced. HMRC has confirmed that this is not the case and I believe this is a good thing. For me, when it comes to IR35 it’s ‘better the devil you know’ and there is no guarantee that any replacement for IR35 would be an improvement. Contractors are savvy to IR35 now and know the rules so replacing it now could do more harm than good and lead to more taxation levied on the contractor community.

So yes it is tough out there, but stay positive, be innovative and 2012 doesn’t have to be the doom and gloom year a lot of the media will have you believe.

Share this content

Whatever you do, do not leave your self-assessment online tax return until the last minute this year!

The final countdown to the self-assessment deadline is always a hectic time of year for anyone involved in taxation in the UK, but this time around seems particularly fraught.

Things have not been helped by what seems a continuous stream of bad press for HMRC in the early stages of 2012. This includes news this week that 20,000 HMRC call centre staff are planning to strike on tax return deadline day. This is in protest at what the Public and Commercial Services (PCS) union described as trials that could pave the way for widespread privatisation in HMRC at a time when tens of thousands of civil service jobs are being cut. This relates to HMRC’s plan to trial two private call handling companies in HMRC tax credit contact centres in Cumbria and Scotland which I assume is part of the wider cost cutting exercise in the public sector.

The deadline for online self-assessment tax returns is midnight on Tuesday, 31^st January and fines for late filing start stacking up the very next day so please do not leave it to the last minute, especially as you may not be able to access help from HMRC on the phone. It’s never easy to get through to them at the best of times and any industrial action, should it go ahead, will only make this worse. I personally rang the helpline twice last week and was on hold for well over five minutes on each occasion before giving up.

Speaking of HMRC fines, I was interested to note that in a recent Tax Tribunal, the judgment included that HMRC is ‘deliberately’ waiting months to let small businesses know they have a missed a tax filing deadline so that it can generate additional income from late payment fines.

Under current policy, companies which don’t file their tax returns by the May deadline are not sent a computer-generated reminder until September. This means that they are liable for at least 4 months worth of penalties from the outset.

The judge who made the ruling in the Tribunal said: “It is no function of the state to use the penalty system as a cash-generating scheme. We have no doubt that any right-thinking member of society would consider that to be unfair and falling very far below the standard of fair dealing expected of an organ of the state.”

HMRC has said it will appeal the decision but if it is upheld up to 100,000 businesses could be entitled to refunds worth millions of pounds so we’ll be keeping a close eye on this one moving forward.

Finally this week, don’t get caught out by the latest ‘phishing’ scam.

Fraudsters are sending out emails to taxpayers in the run-up to the self-assessment deadline which informs individuals of a tax rebate and provides a link to a fake HMRC website which then asks them to give their credit card or bank details. Please be very wary if you have received such an email as HMRC will only ever write to you via the post if you are due a rebate with a P800 form and a payment order. They will never ask you for your credit card of bank details.

If you are, or have been, affected by any of the above we’d love to hear from you so please leave a comment.

Share this content

The tax authority is piloting a scheme in North Wales and the North West of England which will act as a dispute resolution service. Under the banner of the Alternative Dispute Resolution (ADR) service, independent HMRC facilitators who have not been involved in the case will be used to resolve disputes that arise during HMRC’s compliance checks. This is designed to avoid tribunal hearings and reduce costs for both parties. HMRC notes that in a separate pilot of the scheme in 2011, 60% of these disputes were either fully or partially resolved, with the “overwhelming majority” fully resolved.

Now, how a panel of HMRC employees can be truly independent is a debate for another time, but on the face of it this scheme seems to be a step in the right direction towards removing some of the red tape and burden of process which can stifle small business in the UK. It should also be a way of avoiding going through costly tribunals which are in nobody’s interest. We’ve had personal experience of a costly tribunal recently with one of our clients and fortunately it went in our favour, however the ADR could have been a much better way of resolving the issue. We’ll be watching this pilot scheme with interest.

Share this content

Well, only a few days into 2012 and it looks like its ‘batten down the hatches’ time at HMRC again. This time, the media storm centres on HMRC’s Business Records Checks (BRC), a new scheme which was piloted last year and one that aims to clamp down on accounting discrepancies by small businesses. Any business found to be at fault can expect a fine of up to £3,000.

On the face of it, BRC does not seem to match with the Government’s commitment to reducing red tape, a point that has been echoed by a large number of MPs and organisations such as the Federation of Small Businesses who accuse HMRC of harassment.  For a small business the days of HMRC taking a relaxed approach to minor mistakes and allowing them to be rectified appear long gone.

Under BRC, HMRC was planning on inspecting over 20,000 businesses from April to check that their tax returns are backed up by correct paperwork going back a number of years. However, in the face of mounting criticism and political pressure it has promised to undertake a full strategic review of the project in consultation with relevant bodies.

This is good news but I would not expect the issue to go away completely. The current Government and economic climate is placing an increasing emphasis on tax take and as the UK seeks to balance its books this is only going to increase.

Of course well managed businesses have nothing to fear but this does demonstrate the benefit of having a close working relationship with your accountant and the importance of working with an accountant that knows your business intimately. If you are a ClearSky client, you can always approach your personal accountant to discuss any concerns you may have. They are a business savvy bunch by nature themselves and understand running a small business inside and out.

A quick reminder

Whilst we are on the subject of HMRC and keeping good records, don’t forget that the deadline for filing your online self-assessment tax return is Tuesday, 31^st January 2012.

Share this content

Under the current rules, when a limited company is wound up, a final distribution of funds can be made to shareholders after creditors have been paid. Shareholders can also benefit from low rates of Capital Gains Tax due to Entrepreneurs Relief. This is all made possible due to what is known as Extra Statutory Concession (ESC) C16.

However, HMRC deemed this to be a form of tax avoidance and wanted to limit the amount of funds that can be distributed this way to £4,000. The new limit announced this week is £25,000 which is good news for some but a lot of organisations are unhappy as a lot of businesses will still be affected as a result.

As reported by Contract Eye earlier this week, according to HMRC, “In 2010 about 325,000 companies were dissolved informally and struck off without going into liquidation. It is possible that some companies making large distributions on the cessation of business may now opt to be formally wound up, in order to protect the tax position of their shareholders.”

Andrew Gotch, representing the Chartered Institute of Taxation, said:

“HMRC’s announcement of a higher ceiling is a step in the right direction. £4,000 would have been a ridiculously low level which would have rendered the legislated concession barely worth having. £25,000 is an improvement, but we would have liked to have seen a higher limit calculated per shareholder, or indeed no limit at all.

“The Government’s argument is that a low limit is needed for anti-avoidance purposes, but we have been offered no evidence that this concession has been abused. I hope the Government will consider a further increase to, or removal of, the ceiling during this proposal’s legislative passage so that the new law genuinely reflects the original concession.”

It’s worth keeping an eye on the new rules as they pass through the legislative process and if you think this might impact on you or your business it’s definitely worth having a chat with your personal accountant.

Share this content

Amongst the group’s demands are requests for the Government to:

• Clarify that the EU Late Payment Directive making 30-day payment terms mandatory, in the absence of any specified/agreed payment terms, is being brought forward to 2012 as originally stated and ensure any new legislation prevents suppliers being coerced into agreeing to vary payment terms against their will.

• Given that small businesses suffer serious cash flow problems as a result of late payment from large customers and public sector bodies, impacting their ability to pay their own suppliers, ensure that the Directive is implemented in a flexible way to account for this ‘domino effect’.

The group have some compelling stats to back up their calls. For example, 51% of small businesses report that the problem of late payment has become worse over the last year, 45% claim that it could threaten their ability to invest in their business and 20% claim that it could prevent them from continuing to trade.

Bacs has recently said SMEs are now owed a total of £33.6bn in outstanding invoice payments – a rise of 10% in the last 12 months and the highest figure since records began in 2007.

Ironically, the same study showed the UK’s SMEs managed to limit their late payment to an average of half a day.

For our clients, we always recommend that the first line of defence against late payment is to make sure that any contract you enter into with a client includes payment terms and that these have been discussed at the outset of the business relationship. Then, make sure that every invoice issued includes a reminder of said terms.

After that, communication is key. It’s vital that you contact the late payer immediately. Let them know straight away that money is due and that they haven’t paid according to your terms and conditions (which you made them aware of earlier).  Make sure that you keep this amicable but professional.

After that there are a couple of options depending on whether or not you want to go down the legal or non-legal route. Business Link has a really good guide on their website and, if you are a ClearSky client you can always speak to your personal accountant for some advice.

Share this content

As a bit of background, our ClearSky contractor had a long standing relationship with their end client over total period of 7½ years.  After a lengthy correspondence, HMRC determined that our contractor was indeed caught by IR35 and that the client was now liable for outstanding tax and NI contributions dating back over the whole of the 7½ year period!

Some of the working practices of the contract meant that it was vulnerable to an IR35 investigation and at the tribunal ClearSky conceded that, in view of the length of the relationship and the substantially 9.00 – 5.00 nature of the engagement that had developed, the later years probably were caught. As a result, we invited HMRC to settle on this basis. Unfortunately they refused, insisting that all years were caught by IR35, so it was down to the tribunal judge to make the decision.

At the tribunal hearing the judge agreed with ClearSky in that the first 3½ years were not caught by IR35.  We were delighted by this as this decision as it has reduced HMRC’s claim against our client by £80,000 – more than half the sum they had wanted.

However, this case demonstrates, firstly, that any lengthy relationship with the same end client is likely to lead to the relationship being viewed as a disguised employment and, as a result, caught by IR35. Secondly, it serves as a reminder that it is not just the contract that determines IR35 status; working practices definitely come into it. Finally, that HMRC’s intransigence should not deter pursuit of appeals against their decisions. In this case we were able to save our client over £80K.

Share this content

Significant investment in public infrastructure will create opportunities across the UK for skilled temporary workers, be they limited company contractors, umbrella company contractors or micro-businesses. The Government’s £300m boost for small businesses, including the extension to the current holiday from business rates, is also welcome. Anything that fosters the development and growth of small businesses has a knock on effect of creating opportunities for freelance professionals who many small businesses rely on when the cost of employing someone full time can be prohibitive.

Freelancers and contractors tend to be forward thinking with leading edge skills too so they can be a real asset to innovative, forward thinking businesses and innovation will be key if the UK is to avoid recession and our economy is to generate some meaningful growth again.

At a time when Government is attempting to manage the UK’s structural deficit and consumer spending is at an extreme low due to families tightening the purse strings, innovation could be our best tool for creating growth and the Chancellor’s statement showed glimpses of this too. The introduction of a research & development tax credit is the obvious example but the Business Finance Partnership which will see business rates cut, National Loan Guarantee Scheme which will help banks pass credit onto small businesses; and the Income Tax relief and waving of Capital Gains Tax for small business start-up investors will all help to foster an innovative and entrepreneurial spirit in the UK and which will lead to economic growth.

What do you think? Let us know if you agree with the Chancellor’s plans or tell us what you would do differently.

Share this content

Now a couple of days off with a cold, or a couple of weeks with full blown flu can be difficult enough as it is and unless you are fortunate enough to have a sizable war chest, a few weeks without work can lead to some sizeable financial challenges. And although it’s not a nice thought, if your family is dependent on you and your income, should the worst happen and you come down with something serious then the financial implications can be just as serious as the health ones.

One of the benefits of working with ClearSky Accounting is you can tap into the expertise of ClearSky Wealth Management so it may well be a good opportunity to give us a call for a chat. There are income protection products out there that will keep you financially covered should you be unable to work for whatever reason and they might be just the right amount of cover you need to give you peace of mind.

If you have any other tips or advice for your fellow contractors, feel free to post a comment below or on our ClearSky Accounting client LinkedIn group.

Share this content