Four months after the AWR were implemented there is still an area of uncertainty surrounding the position of limited company contractors.

The AWR summit last week discovered that the recruitment sector is divided as to whether or not limited company contractors are inside the scope of the Regulations. About 100 delegates attended the summit and the split was roughly 50:50 when the question arose.

Even members of the panel appeared to have differing views on the subject. Tim Johnson, head of Tim Johnson Law, told attendees that workers need to have an employment contract, or agree to work personally with an agency, before they come under Agency Workers Regulations. However, company contractors do not enter into such a contract, nor do they personally agree to carry out the work, and therefore they are not affected by AWR.

Kevin Green, the REC’s chief executive, on the other hand said that limited company contractors are not automatically outside AWR, although their status was good evidence to suggest that they might be.

Other members of the panel believed that the acid test was whether a worker was outwith IR35. If so, they were likely to also be outside AWR.

Some recruiters have complained that temporary staff are having their contracts terminated before the qualifying twelve week period is up whereas prior to AWR the contract would have continued. One recruiter has suggested that temps either be allowed to opt out of AWR, or the 12 week qualifying period is extended, so that they can remain in employment.

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Some umbrella company contractors have been getting anxious in case HMRC uses the newly proposed GAAR to hound them.

It was recently revealed that the Chancellor might include a general anti-avoidance rule in the next budget. Contractors have expressed concerns that this could be added to IR35 as a way of policing their employment status. However, a number of experts believe these fears to be unfounded.

CIOT director John Whiting said he did not think contractors needed to be concerned about that a GAAR will have an affect on their employment status unless they have set up an artificial structure.

He went on to say that the March budget is likely to include a GAAR but it is unlikely that this would target contractors working through a company or that it would be used to police employment status.

Paul Mason from Abbey Tax, the IR35 compliance company, said the majority of freelancers and PAYE umbrella contractors working through limited companies would not be affected by a GAAR, unless they work through an offshore-trust arrangement.

The general anti-avoidance was proposed after Graham Aaronson QC conducted an extensive study. The aim of the rule is to deter contrived schemes that use an artificial structure. John Whiting believes that contractors working through a company are highly unlikely to be affected by it. Policing of employment status is already covered by numerous rules including IR35 and MSC, he added.

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Umbrella company contractors are more likely to find opportunities with small businesses, according to the results of a recent survey.

The European Commission published the results of its survey on the 16^th January this year and they make interesting reading. Not only do SMEs provide better quality jobs prospects than their larger counterparts, they provide employment for more than 67% of the UK’s workforce and are responsible for 85% of new jobs.

SMEs are an essential cog in the economic recovery and they go some way towards negating the affect the recession had on employment. The report goes on to say that in order to draw an effective policy after the crisis, there needs to be expert analysis of how new small business job creation was affected by the recession, as well as analysing the quality of current jobs.

Limited company contractors could find lucrative opportunities in the SME market. They could find better quality jobs with a higher rank than would be available in larger organisations. Small businesses could also reap the benefits of turning to highly skilled contractors who are available to slot into a role at a moment’s notice.

Conditions do look favourable for contractors this year. New business opportunities are starting to appear but a lot of employers still have concerns about the UK’s economic future. They are reluctant to commit to hiring permanent members of staff until conditions improve, so instead they will need to rely on the UK’s flexible workforce.

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Interim managers who work through an umbrella company should have noticed an increase in demand for their services towards the end of last year, mainly from the financial services and banking sectors.

The Interim Management Association commissioned an Ipsos-MORI poll and the results revealed that 562 new interim management assignments emerged in the quarter ending 30^th September last year. In the second quarter of 2011, only 431 new assignments appeared.

Umbrella company contractors will know that experienced interim managers are taken into a company on a temporary basis to manage complex tasks. They are classed as senior executives and as such can command as much as £2,000 per day.

Banks and other companies in the financial sector are still reluctant to make permanent appointments at management level and this situation is set to carry on as the Eurozone crisis continues.

Doug Baird, the MD of Interim Partners, said the reluctance in hiring on behalf of financial institutions is fuelling demand for interims that have experience of removing non-essential costs with the least impact on customers and employee morale.

Banks are also looking for help restructuring their portfolios of distressed debt. Interims are helping banks sell their books of loans and assisting them to recover as much as they can from a borrower that has defaulted.

Limited company contractors working in the manufacturing sector may also benefit from the newly launched Manufacturing Advisory Consortium.

Mark Prisk, the business minister, said that manufacturing has a big part to play in bolstering the UK economy. It is hoped that MAC will help SMEs generate an additional £1.5 billion for the economy, as well as creating up to 23,000 new jobs and safeguarding a further 50,000.

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A recent survey by the PCG found that most limited company contractors think the UK’s economic landscape will not improve next year.

39.4% of those surveyed said they expected the same challenges will still be with us next year, while 37.4% took a more pessimistic view and said things would get worse in 2012.

However, 23.2% of contractors took a more optimistic view of the situation saying they expect the economy will expand next year. Obviously if that were true, it would spell good news for umbrella contractors as their services would be in greater demand.

The PCG remarked that contractors have faced a number of challenges in 2011, but the majority of them have managed to stay in work for the best part of the year. Contractors have had to contend with the implementation of AWR, continued uncertainty over the future of IR35, and a lot of those who had been working in the public sector have had to get used to life in the private sector.

Despite all these problems, the PCG says 75% of its membership remained in work for at least 11 out of the 12 months leading up to July this year.

Employers are likely to remain wary about permanent hiring as we enter 2012. However, a lot of companies will still want to plough ahead with some of their projects and contractors should be able to find plenty of opportunities.

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Private sector suppliers, including limited company contractors, are focusing increasingly on their cashflow and threatening clients with legal action if they do not settle their invoices in a timely manner.

Lovetts, a debt recovery firm, reported recently that the average timespan from invoice date to ‘letter before action’ is now 68 days; down from 72. Suppliers’ willingness to wait for payment has now been decreasing for the last three consecutive quarters.

Lovetts’ MD, Charles Wilson, said that suppliers have adopted an attitude of debt is debt and it makes no difference who the customer is. He suggests that last year’s forbearance has now run its course and suppliers are getting tough on any late payers.

He went on to explain that last year, businesses gave customers much more leeway before threatening legal action in order to maintain a good working relationship.

However, companies must make sure they carry out their threats and pursue a legal claim. If they don’t follow up, they will be accused of crying wolf.

80% of businesses that send letters warning debtors of recovery action do secure payment, so they are an effective deterrent. But with debts to SMEs totalling a record £33.6 billion, suppliers must demonstrate that they mean business when it comes to chasing overdue invoices.

Bad debts are not the only problem facing UK SMEs at the moment.

Global recruiter Hays conducted research that discovered that 55% of jobseekers think they could get better benefits working for a larger organisation, and 52% are concerned that smaller firms lack stability.

Small businesses need to attract skilled and talents personnel in order to remain competitive and employers should take the time to explain the direction the business is heading and future growth opportunities to potential recruits, Hays director Charles Logan said.

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A new survey has revealed that although most employers have a high regard for PAYE umbrella company contractors, a significant number have an antediluvian opinion of them.

Hudson recruitment agency researched 700 employers and discovered that 14% thought contractors were less loyal than their permanent counterparts. On the positive side, the recruiter found that 28% of employers believed umbrella and limited company contractors were more productive than full-time members of staff.

The survey also polled contractors and found that 77% said they exhibited high levels of loyalty, regardless of the length of their placement. More than 50% thought their permanent counterparts were on a par with them when it came to productivity.

As far as demonstrating a willingness to participate in work-related social activities goes, there appears to be no difference between contractors and permanent staff. Interestingly, 10% of contractors would be happy to take on a role with less money if the work was more interesting.

Mike Game, the CEO of Hudson Europe, said employers could take heart from the survey results. Bosses are relying more and more on contractors during these turbulent times and the research findings show that they are more than just a productivity asset.

Despite the new Agency Worker Regulations, contractors demonstrate strong motivation from day one and are keen to fit in with the social fabric of the organisation. Game also pointed out that employers appear to be underestimating the commitment and loyalty of their temporary workforce.

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Despite high unemployment in the UK, 75% of businesses are struggling to recruit the top talent they need. This could spell good news for contractors.

The Curve Group, a human resource specialist, recently published data showing that three quarters of firms are facing difficulties recruiting.  However, only 10% plan to offer more money in a bid to entice applicants.

Lyndsey Simpson, a co-owner of the Group, said the figures show employers continue to face challenges in the current uncertain economic climate.

The research also discovered that 62% of the survey’s respondents said stress related absenteeism has increased over the past two years. Ms Simpson attributes this in part to the pressure caused by redundancies and headcount freezes.

Meanwhile, R3, the insolvency trade body, claims that a lot of firms are still showing signs of distress.

The UK economy did expand in the quarter to October, but with growth at only 0.5%, many companies still face tough times. Businesses will need to maintain their workloads, but permanent employees could find themselves made redundant and replaced by limited company contractors.

Frances Coulson, the president of R3, explained that the latest GDP figures contrast starkly with the reality on the ground. He expressed his concern that firms are not rebuilding their reserves and signs of distress will probably remain, even though GDP is increasing.

A lot of businesses also appear to be relying heavily on their overdraft facility, according to R3’s data. In fact 22% frequently take advantage of their maximum facility.

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Limited company contractors could be set to benefit after the government announced it was to inject £950 million into the Regional Growth Fund.

Earlier this week, Nick Clegg, the deputy prime minister, announced the cash injection as part of the coalition’s pledge to stimulate the jobs market. The funding should help to directly create about 37,000 jobs and protect or create around 164,000 jobs in the UK’s supply chain. 119 firms will be able to expand, thanks to the funding, and another 10 enterprises are bidding for funds at the moment.

Clegg said he was delighted to announce this boost for businesses, which will kick start growth and create lasting employment opportunities in areas that need them. As well as enabling businesses to expand, this support will unlock private sector investment.

As more firms expand, highly skilled freelancers could find themselves in demand as projects that have been on the back burner are eventually given the green light to proceed.

Pharmaceutical research contractors based in the Nottingham area, could be one such group to benefit from the funding. Molecular Profiles has received £1.6 million to help it create 62 new high-quality jobs.

However, Ed Miliband, the Labour party leader, does not appear to share Clegg’s enthusiasm. He said this funding was “too little, too late”, saying the £1.4 billion Regional Growth Fund’s three year budget was only 33% of the money made available to the Regional Development Agencies the coalition have scrapped.

He went on to explain that the new funding comes at a time when ministers are withdrawing the capital allowances for companies investing in plant and machinery.

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Limited company contractors working in the aerospace industry could benefit from a new government service.

 The coalition recently launched the Manufacturing Advisory Service, which it hopes will help firms grow and create as many as 23,000 new positions in aerospace and other high-value industries. Some of these jobs will undoubtedly go to freelancers and contractors working through an umbrella company. The government hopes MAS will help safeguard another 50,000 jobs and contribute about £1.5 billion to the UK economy.

Mark Prisk, the business minister, explained that we have world class manufacturers in the UK and MAS will not only help them grow, but also create more exceptional firms. Furthermore, the scheme will focus on helping smaller enterprises to flourish.

The Minister recently visited Arrowsmith Engineering, a firm of precision engineers based in Coventry. Arrowsmith supply the aerospace and motorsport industries and Prisk said the company has been able to grow by 20% after receiving support from MAS.

As well as offering technical support to manufacturing firms, MAS links them to apprenticeship programmes.

Meanwhile, a further three banks has cut their IT contractor rates by 10%. It would appear that UBS, Deutsche Bank and BAML have all followed the lead of RBS and Lloyds in implementing across the board pay cuts.

Cutting contractor rates seems to be something of a growing trend as companies tighten their belts again due to the continuing global economic uncertainty. Understandably, some contractors are feeling aggrieved because these cuts are instantaneous rather than being implemented at the contract renewal stage. Could we be about to see vast numbers of IT contractors looking for pastures new?

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The PCG recently surveyed the freelance marketplace and discovered that there are currently around 1.4 million contractors in the UK; 41% or 574,000 of them are IT contractors.

Approximately 200,000 of the UK’s contractors work through an umbrella company, 406,000 are limited company contractors, a similar amount are agency PAYE and the remaining 294,000 are sole traders.

Back in 2002, the contracting market was doing exactly that and people thought contractors were finished. And yet here we are 9 years later and the freelance workforce keeps on going from strength to strength. Companies, especially in financial services, now appear to rely a lot more on IT contractors as a way of cutting costs.

Hot on the heels of news that RBS is cutting their IT contractor’s hourly rates by 10%, comes the news that Lloyds and Nomura are taking similar action.

Lloyds have cut the rate they pay agencies by between 10% and 15%. However, contractors who have been with them for at least six months will not feel the effects until their contract comes up for renewal. Nomura, on the other hand, have followed suit with RBS and last month cut contractor rates by 10%.

However, there are plenty of opportunities for skilled IT contractors outside the financial services sector. Cloud computing and security are still top of the corporate agenda and people skilled in developing bespoke mobile applications are likely to be in demand for many years to come. Individuals with SAP and .Net skills should also have no problem securing a contract.

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UK limited company contractors may want to seek the advice of an accountant now that the coalition has struck a deal with the Swiss government in a bid to win the battle against offshore tax evasion.

The ground-breaking deal was signed last week and HMRC hopes it will raise billions of pounds for the Treasury.

Umbrella company contractors will be keen to get their tax affairs in order and this could lead to more work for contractor accountants. Brits found to have been salting away their cash in Swiss bank accounts will face a one-off penalty of between 19% and 34%to settle their past tax liabilities.

The permanent secretary for tax at HMRC, Dave Hartnett, said the world is closing in around tax evaders. He also warned that the Revenue will be chasing people who remove their funds from Switzerland in the hope of finding another tax haven elsewhere.

David Gauke, the exchequer secretary, said the Anglo-Swiss agreement is an excellent one and it tackles a problem that a lot of people thought would go unsolved. By working in harmony with the government of Switzerland, we have come up with an effective solution that will reap benefits for both countries as well as recovering billions of pounds in previously unpaid income tax.

However, some experts have suggested that tax evaders who want to come clean would be better off taking advantage of the Liechtenstein Disclosure Facility which covers all of a person’s global assets and offers immunity against prosecution for offences relating to tax.

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