Contractors working through umbrella companies may be surprised to discover that some small business owners would rather remortgage their property than reduce the size of their workforce.

Research from MORE TH>N Business found that 5% of small business owners have freed up funds by remortgaging their home and 35% have taken a significant cut in pay so that they don’t need to lay off workers.

Of those who have reduced the size of their pay packet, 60% said they’ve been doing so for over a year and 17% believe they may have to continue doing so indefinitely. Furthermore, 70% say they have chopped their own salary in half and 5% aren’t taking any money out of the business for themselves at all!

Other ways of keeping the wolf from the door include moving to smaller premises and selling off inventory at reduced prices.

SME owner may find these statistics depressing, but the Business Inflation Guide suggests that a light may be appearing at the end of what has been a very long tunnel. The BIG Index shows that key costs only rose by 0.31% in the final quarter of last year, and that rise followed an increase of just 0.05% in the third quarter of 2011.

Janet Connor, the MD at MORE TH>N Business said it was sad to see business owners having to take drastic measures to retain their employees, but it shows they are compassionate enough to sacrifice their own personal gains.

Although trading conditions are still tough for the small business community, they may be able to approach the summer with more confidence now that key costs are not increasing quickly.

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Six months on from the introduction of the Agency Workers Regulations and its still pretty much business as usual as far as contractor demand is concerned.

The regulations offering contractors and other temporary workers the same employment conditions as their permanent counterparts after 12 weeks came into force on the first of October last year. The first 12-week period came to an end during the Christmas break and thousands of temporary workers should now be benefiting from equal treatment.

Research from de Poel showed a 13% year-on-year increase in the usage of temps in January. Adecco has reported that only 16% of hirers say AWR has had an impact on their plans.

However, it appears that employers are now turning to recruitment agencies when they want to hire contractors in order to get help with administering AWR.

In the UK, 4% of the total workforce is made up of contractors. Employers use contractors to fill skills gaps or short-term needs and in many cases they earn more than their permanent counterparts. Some employers also think of contracting as a type of probationary period when they can assess whether or not to offer a contractor a permanent position.

So far, we haven’t seen contractors rushing to lawyers and claiming unfair treatment, although some recruiters have exploited the Swedish Derogation Model loophole and forced contractors to become employees of the agency.

It’s still early days, but so far indications show that AWR has not had the adverse effect a lot of people thought it would have.

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A new study by ReThink Recruitment suggests that IT contractors will soon need to work harder for their money.

Almost 90% of IT directors are expecting to see workloads increase but only 39% expect their budget to increase accordingly. This will be the third consecutive year when workloads outstrip budget increases and this has led directors to worry that they will be unable to deliver business-critical projects.

Michael Bennett, a director at ReThink, explained that organisations are focusing on their balance sheet and expecting wider productivity gains for less expenditure and this is piling an increasing amount of stress on everybody who works in IT. Contractors now have to work extra hours in order to meet unrealistic deadlines, but they are not receiving any additional money for doing so.

ReThink surveyed IT directors with at least 250 members of staff and discovered that years of budget austerity are taking their toll on IT departments. IT heads report that downward pressure on pay is making it difficult for them to retain key talent. In previous years, companies could offer financial incentives to keep skilled umbrella company contractors but this is no longer the case and competitors are stepping in and poaching key staff.

The recruiter believes that companies need to do more to motivate and engage with talented individuals if they want to retain them.

As far as budgets go, 43% of IT departments saw their budget increase last year, up four percentage points on 2010, whilst 32% saw their budget decrease, up three percentage points on the previous year.

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Umbrella company contractors are no doubt waiting to find out what the government intends to do about IR35.

The wait will soon be over as HMRC has indicated that it intends to unveil six IR35 scenarios as well as a business test for contractors that operate through their own personal service company. These will help contractors self-assess whether they fall under the rules of IR35.

Members of the IR35 Forum are finalising two new processes for personal service companies and details will be published on the Revenue’s website this month.

The business test, which will be on trial to begin with, asks a series of questions which will be scored based on the answers given. Their total score will help them determine their level of IR35 risk. HMRC has decided to adopt this approach to move IR35 risk assessment away from focusing on individual contracts and instead considering the PSC as a business entity.

The IR35 scenarios are likely to be contractor’s first port of call when they look to self-assess their status. Similar to the case studies the Revenue must on its website back in 2000, these are for guidance only.

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The IR35 Forum actually agreed 14 scenarios with HMRC but the Revenue says it would confuse matters if all of them were published. The Revenue has confirmed that none of the scenarios will be sector specific – two will show cases where a contractor falls inside the rules; two outside; one split and one demonstrates a grey area.

Clients who reduce IT contractor rates with the take it or leave it mindset could find themselves in trouble if contractors take them at their word and look for opportunities elsewhere.

A recent survey of 160 contractors found that the majority of them use the pay reduction ultimatum as a trigger to leave, even if they inform the HR department that they will accept a rate cut. Only 8% of contractors would settle for a sudden cut in their rate. 29% said they would reject the reduction by looking for a new opportunity straight away and 54% said they would accept the cut but look to get out at the first available opportunity.

Companies still need to prioritise cost control and scrimping on temporary workers rates is not going to work. In fact, it could have the opposite effect. If disgruntled contractors leave the company, productivity will decrease and so will profits.

If companies are intent on reducing rates, they must avoid doing it mid-contract and only implement the change when taking on new contractors.

The banks started the rate reduction trend towards the end of last year. Now, to add insult to injury, it transpires that our financial institutions intend to offshore a lot of contractor roles to India. RBS is offshoring around 300 jobs to the Asian country and the Lloyds Banking Group says 513 IT jobs, including 205 contract roles, will be offshored to India.

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The government still hasn’t managed to fine tune the clearance system to make sure it gets the best value IT contractors for sensitive projects.

Ministers have been accused of operating a closed shop when it comes to sensitive projects because only contractors who already hold a valid clearance certificate are let in.

Michael Shryance, the head of the national security secretariat, said recently that the Cabinet Office is committed to addressing circumstances where vacancies specify that security clearance is a pre-requisite.

In response to a criticism levelled by the PCG last October, Shryance said he shared the Group’s concerns that some contractors may be excluded by this bad practice. He also admitted that the government was not getting the best value from sub-contractors.

The latest government guidance states that candidates should only be required to hold valid security clearance at the application stage in exceptional circumstances. Despite this, the PCG found that many top workers are still blocked from contracts they deserve, in favour of people who already hold clearance.

It’s something of a Catch 22 situation, but Mr Shryane said it was impractical to put all vetting procedures on a statutory footing, although it would be worth exploring the policy objectives. It would also be worth drawing up a Code of Practice and make adhering to it a requirement for recruitment and procurement professionals who want to gain other forms of certification.

He also welcomed the PCG’s proposal to start a Security Clearance Forum. This would monitor the actions of recruiters and clients and would be a welcome “challenge function”, he said.

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Umbrella company contractors north of the border will be pleased to learn that demand for their services continues to rise. The latest PMI shows that growth reached its highest level for four years in February and plenty of job opportunities are springing up for job seekers.

This welcome news came from the Bank of Scotland, which said the country is continuing to see “bountiful work” opportunities. The service sector demonstrated strong growth with its PMI increasing from 51.4 in January to 51.7 last month. That’s the 14th consecutive month when the PMI has increased, and that indicates positive times ahead.

Donald MacRae, the chief economist at the Bank of Scotland, said it was encouraging to see that the private sector still maintained a positive track after the financial meltdown. Both manufacturing and services registered increased output last month and increased recruitment in the service sector ensured the number of people in work grew at the fastest rate for four years. The latest results confirm that there is less likelihood of a double dip recession and Scotland should be able to look forward to a stronger recovery this year, he added.

After last week’s dismal employment statistics from the ONS, any positive news must come as a welcome respite to contractors. Scotland does seem to be well placed to recover, especially for contractors with experience in manufacturing, services or renewables.

Contractors in other parts of the UK may take solace from the fact that the BCC now says we are unlikely to slip back into recession.

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Well that’s the Budget over and done with for another year. During Prime Minister’s Questions directly before the Chancellor’s speech, David Cameron joked that we were in for a kaleidoscope budget.

But will George Osborne’s measures have any drastic impact on umbrella company contractors?

We heard that this was to be a Budget that rewards work and a budget that provides a competitive tax system for small businesses. The Chancellor announced that corporation tax would decrease by 2 percentage points to 24% in April; double the decrease that had been originally planned. He also acknowledged the need to make it easier for small businesses to fill in their tax returns and promised a consultation on the recommendations from the OTS.

Contractors who live out in the sticks will be pleased to learn that the government intends to improve mobile phone coverage in rural areas. The Chancellor promised that 90% of the population would get access to super-fast broadband. However, there was no mention of improving broadband speeds for businesses in rural areas.

Mr Osborne went on to say that the government was exploring the idea of enterprise loans to help young people set up their own business.

We’re all interested in the amount of tax we have to pay and high earning contractors will the pleased to learn that the 50p tax rate is to go in April 2013. The new top rate will become 45p. He also announced the largest ever rise in personal income tax allowances. Again this comes into effect as from April next year when the threshold will increase by £1,100 to £9,205.

The Chancellor always ends his speech by saying “I commend this Budget to the House”. But has he commended it to contractors!

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Contractors may have been amongst the people who received a misleading letter about child tax credits from HMRC recently.

The Revenue sent out letters informing families that the income threshold for child tax credits would be £26,000 from the sixth of April. That is the correct amount for families with just one child, but the threshold increases for families with two or more children. A family with two kids will be entitled to the credits if they have an annual income of under about £32,200.

HMRC sent the letters to warn people that they must contact the department if they want to continue receiving child tax credits.

However, experts think families with more than one child may have been mislead into thinking they were no longer entitled to this allowance.

According to the Revenue, it sent the letters to families who it believes will no longer be eligible for the benefit after the start of the new financial year. But if a family has failed to inform HMRC that their financial circumstances have changed, the letter may deter them from claiming even though they are still entitled to the benefit.

HMRC has apologised for the confusion and advises tax credit claimants to check the Revenue website for up-to-date information on entitlement.

This is just another in the long catalogue of recent errors by the government department. Most recently, it was in hot water for sending out final demand letters to taxpayers who had already settled their income tax liabilities.

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Have contractors noticed that their hourly rate has been decreasing over the past 12 months?

According to one umbrella company, average rates have dropped by £0.73 an hour, from £33.12 to £32.39 over the last year. Whilst a drop of 73p an hour does not sound like a lot, it actually works out as £1,287 over the course of a year. Furthermore, this is the second consecutive year when rates have fallen.

Although the government is keen to put an end to gender discrimination when it comes to pay, that gap is actually amongst contractors. The average male contractor gets £33.09 an hour while his female counterpart only receives £30.56. When calculated on an annual basis, male contractors are getting a whopping £4,459 more than females.

IT contractors may think the above figures rather on the low side, but they are representative of the contracting community as a whole.

Contractor rates have been impacted by turbulent economic conditions in the Eurozone and banks and other financial institutions have slashed contractor rates in response.

But before contractors start screaming that they’re hard done by, the average salary for a permanent employee is £26,244; for a contractor the average is £57,087 and for an IT contractor that figure will be even higher.

Once the economy gets back on course, will start to climb up again.  In the meantime, contractors should make sure they are claiming all the legitimate business expenses they are entitled to in order to maximise their take home pay.

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Umbrella company contractors may be interested to learn that the Revenue is getting near to finalising the new regime for IR35.

The IR35 Forum, comprising industry groups and HMRC officials, has been holding a number of meetings over recent months in a bid to improve the way the government administers IR35 regulations.

The REC has been participating in these meetings and it recently said that HMRC is now finalising improvements based on input received from the final meeting of Forum members. The changes need to be in place no later than April 6th

The final meeting of the Forum should have taken place in January, but the OTS decided that more work needed to be done and it was postponed for a month.

Gillian Econopouly, the head of policy at the REC, explained that the Confederation had been working alongside other interested parties to make recommendations on operational improvements to IR35 and devise ways to provide clarity for the self-employed as to whether or not they need to comply with the regulations.

She went on to say that the REC Technology sector group had been able to provide valuable practical input to the Forum, which raised awareness of the current confusion surrounding IR35 rules for both agencies and contractors.

The IR35 Forum will continue with its work, and the REC will carry on representing the views of the recruitment sector, as the April 6th deadline moves closer, she added.

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Umbrella company contractors who work in administrative roles could benefit from the decision of one of the UK’s leading building societies.

The Leeds Building Society has decided to outsource its admin work because there is too much of it to handle in-house. The Society has now begun a pilot scheme to farm out the work to qualified professionals.

UK companies are increasingly looking to streamline and one way of doing this is to outsource some of the work. Becky Hewitt, the head of HR and the Leeds Building Society, said the company was eager to pass the administrative burden to the experts. Outsourcing is the right choice for the Society as it frees up internal resources to concentrate on other priorities.

There are a lot of benefits to be gained from outsourcing including finding financial improvements, making efficiency gains and helping companies survive the current economic problems and emerging more positively.

The Leeds pilot scheme intends to outsource a number of roles including admin and communications work and full regulatory reporting. Suitably skilled contractors will be able to benefit and freelancers could gain some lucrative contracts. At the same time, outsourcing companies may look to recruit new staff to cope with the increased demand.

More companies outsourcing their work is obviously good news for the contracting community, but what do employees feel about it? HMRC staff have held industrial action over proposals to bring in outside contractors to man their call centres. Will employees in other organisations feel threatened by outside labour and do the same?