Speaking to the House of Commons, Austin Mitchell MP declared a need to stop consultancy and IT suppliers targeting the public purse as a source of easy profits.

He explained that, since 1997, such consultancies have “grown fat” off the taxpayer, partly thanks to “impulsive gestures” and “idealistic” thinking by the government.

But the member of the Public Accounts Committee said the other cause was state officials being taken in too easily by the IT sector’s sales and marketing teams.

“All too often, departments seem incapable of dealing with the wily stratagems and sales patter of consultancy salesmen,” the Labour MP for Grimsby said last week.

These salesmen, particularly those at the big IT consultancies, “over-praise” their product or service and “forecast that it can do more than it actually can,” he said.

It is not the first attack on IT’s drive for business by a Labour MP. Targeting EDS for its C-Nomis project, Jack Straw said officials were victim to “snake oil salesmen.”

But Mitchell believes the “failure” is actually on both sides of the contract – on the part of the IT supplier’s sales team and the government body engaging that supplier.

He said: “Departments…try to set too many objectives to be accomplished, which always leads to failure in IT contracts. When we try to do more with an IT system than it can bear, it inevitably breaks down and performs inadequately.”

To evidence his claim, he pointed out that the MoD’s defence information infrastructure programme was running 18 months late, and that the NHS care records system was also behind schedule, by four years.

He believes government departments need better advice to “put them on a more secure and effective platform for controlling the suppliers of IT systems they deal with.”

He added: “No taxpayer pound should be the source of easy profit. That is an absolute maxim. However, in consultancy and IT services, the taxpayer pound has been a source of far-too-easy profits.

“We need to control that, exact penalties where necessary and blacklist firms that are over-selling in that fashion to see that they do not make the same profits and mistakes in future.”

Part of Mitchell’s vision includes giving the Office of Government Commerce a stronger and more effective role than that of an advice service, allowing it to push its choices for IT contracts.

“It should have an audit and control role over those contracts, and it should ensure that performance is adequate,” he said. “If it is not, it should demand sanctions and penalties.”

Contractor UK

How does the new allowance work?
ISA’s come in many shapes and sizes; there are cash deposit based accounts or those that invest in a myriad of different assets including stocks and shares, corporate bonds, government debt and property.

You are currently free to invest up to £7200 pa across both ISA types which includes a maximum £3600 in cash but with the new annual subscription limit, over 50’s will soon be able to invest £5,100 in cash and up to £10,200 overall.

Clients need to be aware that you are allowed to open only one cash ISA and one stocks and shares ISA each tax year so if you haven’t already opened one then you can invest up to the new limit. If you have an existing ISA then you may need to take care not to disrupt your existing investment. Some cash ISA providers limit the amount that you can invest in your ISA in a given period of time and if you have already reached that limit then they may not now allow you to take advantage of the new allowance. Some institutions may also decide not to allow their investors the opportunity to benefit from the increased allowance at all but if either scenario applies to you all is not lost.

It is possible to transfer your ISA to another provider to take advantage of the increase, but it is vital that you do not simply close your existing ISA account to open another. Simply closing an existing account without formally transferring your balance in the old ISA will mean that the existing funds are looked on as new money and reinvestment will be counted against your allowance for this year.

This means that if, for example, you have built up a substantial savings pot in your exiting cash ISA of what could be as much as £30,000 and then close this account trying to re-invest in a new cash ISA, you will only be able to receive the tax benefits on £5100 of this money. Instead, you must transfer the balance using an ISA transfer form so that any pre-existing investment remains protected by the tax wrapper.

It is also important to check the terms and conditions that your ISA provider is offering on investment up to the new limit. It may be that a different rate or charges apply to investments over the existing limit of £7,200 and up to the new £10,200 limit and you should be especially wary of this if you have a fixed rate ISA.

How can I best take advantage of the increased allowance?
It’s all about risk versus reward. The cash ISA option carries less risk than a stocks and shares ISA but interest rates on deposits are currently low whilst equities have bounced back very strongly of late.

If you are tempted to invest in stocks and shares but you are put off by the risk then you could consider drip feeding money into your ISA to spread the risk. This is advisable for any form of investment but is especially useful for Stocks and Shares ISA savers as it allows you to minimise the effects of short term fluctuations in the stock market.

The advisers at RedegoFinancials can help you to maximise your investment potential by advising you on the best ISA for your needs. If you decide to opt for a stocks and shares ISA then our adviser will recommend a suitable spread of stocks and shares to suit your attitude to risk and they are on hand to help you transfer your ISA if your current provider won’t allow you to take advantage of the new limit.

Contractor Financials

4. DON’T LIE TO HMRC
This is the simplest and most reliable way of avoiding that jail sentence!

HM Revenue & Customs (HMRC) have been exasperated for many years by the way the construction industry behave as if the rules on paying workers gross don’t apply to them.

They published a new consultation (July 2009) that has the look and feel of the finished article, so its more than likely to become legislation before the end of 2010.

Reading between the lines, HMRC see this as the final attempt to align the construction industry with other sectors and get 300,000 ‘false’ self-employed subbies on to PAYE. Genuine self-employed workers will be able to continue trading by passing a simple 3 criteria test.  To qualify, sub-contractors would have to either:

• provide their own plant & equipment (normal tools of the trade do not count!)
• provide all the materials for a contract OR
• provide other workers

So, how will the construction industry respond?  To be fair to the industry, they have always had to balance between being ‘compliant’ with competing with other contractors who pay workers on a ’self-employed’ basis.  To make matters worse, the test for employment status has always been complex, based on case law and constantly changing, so they could genuinely say they didn’t know whether a worker was self-employed or not.

Now there is a workable status test, and the Treasury’s intention has been clearly stated, most contractors will probably decide that the risk of non-compliance is too great and make arrangements to pay their workers through PAYE.  They can do this through their own payroll or outsource to a compliant PAYE umbrella company, which will give workers the opportunity to claim legitimate expenses

The UK minimum wage will rise by 7p to £5.80 an hour from 1st October, the government has announced.

The rate for 18 to 21-year-olds will increase by 6p to £4.83 and for 16 and 17-year-olds will go up by 4p to £3.57.

The change will come a year after the statutory hourly rate was increased by 21p an hour.
Business leaders had recently called for the minimum wage to be left at the current levels in 2009 amid the economic downturn.

The government said that nearly one million people would benefit from October’s increase.

It also announced that, from October 2010, the adult statutory minimum rate would apply to 21-year-olds. At present their minimum wage is set – together with workers aged 18, 19 and 20 – at a lower rate.

Review

“The Low Pay Commission (LPC) has carefully examined the latest economic data before making their recommendations on the minimum wage rate, balancing the needs of workers and businesses in the current economic climate,” said Business Secretary Lord Mandelson.

“The government agrees with this assessment and has accepted the recommendations for these new rates to take effect in October.”

The chairman of the LPC, George Bain, said: “These are very challenging times for the UK and unprecedented economic circumstances for the minimum wage.

“We believe that the Low Pay Commission’s recommendations are appropriate for this economic climate. They reflect the need to protect low-paid workers’ jobs as well as their earnings.”

David Frost, director general of the BCC, said: “We pressed for a freeze to the minimum wage because of the severity of the downturn and the daily loss of jobs.

“We are pleased that the increase is only a modest one, and it shows that the Low Pay Commission and the government have largely understood the seriousness of the situation. However, a freeze would have been more help to business.”

‘Sensible’ approach

Dave Prentis, general secretary of the union Unison, said he was pleased the government had ruled out business leaders’ suggestions that the minimum wage be frozen.

“We think it should be increased by more than 7p an hour because it is hardly going to help low-paid workers pay the bills,” he added.

John Cridland, deputy director general of the CBI, said: “This moderate increase recognises that many businesses are struggling, and helps protect jobs at a time of rising unemployment.

“The inflation-busting rise some unions had called for would have hit firms hard and put many lower paid workers on the dole.

“Over the past decade, the minimum wage has risen faster than average earnings and inflation, and a sensible, cautious approach now will help ensure this landmark piece of legislation continues to improve the lives of low paid workers for many years to come.”

The news of the increase in the minimum wage comes shortly after the government said that, from October, employers would be banned from using tips and service charges to “top up” staff pay to meet the minimum wage.

However, tips not left in cash can still be used to pay restaurant’s other expenses and may not mean any more money for staff.

The government also said that it would draw up plans based on the LPC recommendation that employers who show “wilful disregard for minimum wage laws” should be named and shamed.

It is clearly an attempt to extract more money out of the industry. They have estimated that of the 860,000 self employed subcontractors in the UK 300,000 have been wrongly described as self employed and if these workers were re-classified as employees the Treasury would benefit to the sum of £350 million per year.

The proposals are that to be classified as self employed the workers should meet one or more of three criteria:

1. The worker must provide plant and equipment, not just the tools of his trade.
2. The worker must provide all materials.
3. The worker must employ other workers. He will be responsible for ensuring the correct criteria are met for his workers.

The problems that these criteria create are wide ranging and as usual provide more questions than answers.

Most small contractors would like to have their own plant and machinery but do not have the finance to fund their purchase. What would HMRC’s view be if for a few days per year the subcontractor hired a machine to assist him in his work?

Materials are often purchased by the main contractor where possible because of the financial benefits of bulk purchases. So if each subcontractor purchased his own materials the costs would escalate. Again we wonder how HMRC will react to the contractor charging the subcontractor for the material used and for the subcontractor to add this on to his own invoice.

The third criteria seems to penalise small businesses but we wonder how HMRC will react to partnerships?
On a positive note the subcontractor would only have to satisfy ONE of these new criteria. The subcontractor therefore may have to make some small adjustments’ to his working practices to achieve compliance with just one of these criteria.

There are also other proposals to include in the new system all workers who provide their services through Managed Service Companies and Employment Agencies. Even workers operating through their own Limited Companies are not exempt as they will be required to operate PAYE on themselves if they do not meet one of the three criteria.

The Treasury have not given a date for the implementation of the new system but enigmatically say that the timing of the introduction of the new rules is critical which probably means as soon as possible. There is a consultation period up to 12 October 2009 and so it could be as soon as next April when these new rules come into effect.

The proposals will also have a VAT impact. Labour only sub-contractors at present are unlikely to be VAT registered but the requirement for one of the three criteria to be met, will undoubtedly increase the turnover so that it could easily reach the VAT Registration threshold thus creating a liability for them to register.

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