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Hartnett and HMRC laid bare.

Another back door tax hike?

What’s the next big thing for freelancers?

Don’t sweat it, you’re in IT!

Is HMRC too easy on big business? What’s the real scale of the UK tax gap? And is the Revenue really equipped to do their bit in digging us out of recession? Only one man knows for sure: HMRC supremo, Dave Hartnett. And in a revealing interview with The Guardian, he comes clean on everything from HMRC intimidation tactics to his love of Roman oratory. In other words, everything you never knew you wanted to know about HMRC and Hartnett – and a bit more besides! Hartnett certainly comes across as a bit of a hardliner. Combative, committed to the cause and not afraid to pull his punches. But a puppet of big business? Not a bit of it, he says. Just last year he told a high profile Chairman that he was bringing the tax men in en masse – simply in an effort to raise the HMRC profile as a force to be reckoned with. But did it work? Well, in the event, the oft cited figure of 150 tax inspectors was really more like 150 HMRC staff – inspectors among them. Less of a dawn raid and more of a gentle wake up call for corporate avoiders. Hartnett talks a good fight. Perhaps he’s picked up a trick or two from the wit and wisdom of acclaimed orator, Marcus Tullius Cicero – a man and a mind Hartnett greatly admires.

The H Factor
But broadly speaking, has Hartnet really made much of a difference? Or is it, to all intents and purposes status quo in tax land? Opponents claim Hartnett’s had his wings clipped and that HMRC is complicit in hiding the real scale of the tax gap problem. Gordon Brown always spoke of applying the lightest
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of light touches to taxing big business with just 600 staff trying to keep on top of the tax affairs of around 700 of the biggest British businesses. And that sounds like even more of a stretch when you consider how many hundreds of advisers those big boys of the business world can call upon to reduce their tax bills infinitesimally! Stacked up against all this, Hartnett is, we’re told, our man on the inside – the one who chips away at big business on behalf of hard working taxpayers everywhere. Inside the shadowy environs of the Treasury Head Office, he’s at the front of the thin grey line. And to hear him talk, you’d certainly think it was a war zone out there. An Olympian struggle between the forces of order and chaos – HMRC against the hordes of corporate accountants stacking the deck in their fat cat employers' favours. But he’s not phased by it. HMRC does the best it can with the resources at its disposal. It’s not a perfect system, but, as he says, wouldn’t every organisation like to have more resources? And HMRC will tell you that that under-resourcing hasn’t had too big an impact on results. Their special ops section – responsible for the trickiest tax issues around managed to bring in 450 times its costs in recovered revenue. But that still doesn’t hide the fact that some experienced inspectors are retiring, some are being poached by some of the bigger accountancy firms; either way, there just aren’t that many suitably qualified individuals lined up to replace them. Certainly none with the particular skill sets and sheer brass neck to take on the big boys of the business world. And there’s worse to come – some 25,000 job cuts on the cards across the Revenue.

Too cosy by half?
Underpinning it all is the sense that HMRC’s relationship with big business is still just a bit too cosy. And isn’t it fair to say that as HMRC weakens, so industry only ever gets more resistant to their meagre advances? Hartnett disagrees, pointing out that, by HMRC reckoning, there are really only a few companies who consistently rely on an aggressive tax planning strategies. And really, it was the means by which they plied their avoidance trade that HMRC (then under the purview of Hartnett’s predecessor David Varney) had to clamp down on... So it clearly came as a bit of shock when they uncovered nearly 14,000 unique avoidance schemes being sold to companies, all eager to reduce their tax burdens. Big business complained that HMRC was crushing the competitive life out of Britain – so Gordon Brown commissioned a review. A panel was assembled – not entirely whiter than white – some big scale avoiders among them. And the upshot was a promise of higher HMRC standards, which does rather call into question their choice of buyer for the HMRC offices a couple of years back. In choosing Mapeley – a Bermuda registered company and inveterate tax avoider – they left themselves open to all sorts of criticism. It certainly didn’t sit well with Parliament, and left HMRC looking a bit shamefaced.
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So incoming Head, Hartnett had to get tough. And he had to talk a good fight. Hence the thinly veiled threats of mass raids by crack accountants. But he had to make some pretty direct entreaties to the Directors themselves. On the one hand, HMRC offered softer terms to low risk companies, while recalcitrant avoiders faced a barrage of more investigating staff and a very direct tactic of intimidation. It might not sound tough, but Hartnett took the bull by the horns by whisking his biggest offenders off to dinner! On the menu: a banquet of moral rectitude and economic piety. There’s a lot to be said for the transformative power of embarrassment, and some of the biggest tax holdouts have been made to squirm over the dinner table and cough up a pretty big tax bill. (While Hartnett takes care of the check.) It’s a step too far for some. And an unpalatable ‘afters’ for others. And given that Directors typically enjoy big bonus payouts that are commensurate with the earnings per company share, you can see how that could be a problem. Then there’s the sheer bloody mindedness factor. For many, avoidance isn’t an issue, so long as there are legitimate schemes they can call upon to facilitate it. Up to now, Hartnett’s wining and dining offensive has had some positive results. It’s said that 238 companies have become ‘low risk’ – meaning fewer investigations and an easier ride. And according to one insider they’re raking in “zillions.” That’s in spite of avoidance schemes still bubbling away under the surface.

Still getting away with it?
Hartnett’s war shows no signs of slowing down. But the fact remains that there are some big avoiders out there who are consistently getting away with it. And they always will. Bear in mind that in cases where the odds on wining are anything les than even, policy dictates HMRC drop it and find a safer bet prosecution. And that’s probably as good a summary as you’ll ever get. HMRC continues to work on several fronts. But they don’t always seem to fight the right battles. Restrictive legislation targeting the freelancing community hasn’t exactly won them a lot of love here. HMRC’s successes are tempered by a lack of resources and a lack of clout where it’s really needed. All of which suggests that: yes, they’re more than tough enough. (On us.) But yes, they really do need to toughen up too! (On top tier tax avoiders.)

Still on the subject of tax. On April 1st, a new directive comes into effect that abolishes a concession that, since the late nineties has allowed employers seeking freelancers to just pay VAT on their recruiter's fee. This concession has been a good way to keep the freelance trade flowing freely. And it’s helping to prop up the economy too – keeping freelancers gainfully employed and out of the job
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centres. Unsurprisingly, the move has elicited complaints from many of the country’s largest recruitment firms; all voicing the fear that their clients will cut back on freelancers – and may stop using them altogether. And it goes deeper. Look at the state of the economy and you’ll see that it’s those industries most firmly mired in recession that really need this little tax break: insurance companies and banks most of all.

Tax on jobs
If the concessionary abolition goes through it will mean big bills for recruiters. Agents will be forced to charge VAT on the whole placement package, wages and all. Suddenly recruiting a freelancer through a recruitment agency might not seem like such a cost effective option. Even the CBI has questioned its effectiveness at a time when the government is trying to get people back into work. The timing certainly couldn’t be much worse. And that is why, recruiters are asking for a stay of execution, until at least 2011, by which the time, the economy may have shown some signs of recovery. Unfortunately this has the stench of another back door tax hike – and one that could do the economy more harm than good. Of course umbrella companies will be absolutely unaffected, but that’s not the point. We’re committed to keeping freelancers in work, whatever their preferred means of representation. The suggestion has been made that this is another in a long line of back door tax hikes – and what the government gives with one hand (in the form of proposed new jobs) they take away with the other (in the form of rising costs for freelance friendly employers). We’ll wait and see what April Fool’s Day brings…

Back in January, we brought you news on the emerging markets for freelancers looking to banish the recessionary blues. And next on the hot list for 2009 – information security. According to Institute of Information Security Professionals CEO Gerry O’Neill, there is now “A record number of vacancies in the IT security sector” – and plenty of promotion prospects to boot. And to meet this growth in opportunity, O’Neill is pointing organisations in freelancers' direction. The message is clear: there’s a vast talent pool in the freelancing community, and information security recruiters can make considerable use of freelancers’ experience and expertise. This is one industry that is clearly making the most of the downturn. That old corollary between desperate times and desperate measures is looking relevant again. But it’s not just breaking and entering we have to worry about – fraud is big business. Particularly among disenfranchised, soon-to-be-released members of staff; recession casualties who are targeted by unscrupulous types looking to siphon off a few secrets.

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So information security experts are going to be in big demand, as companies work harder to keep their secrets safe. They’ll be taking other measures too – a downturn is always a good excuse for a bit of organisational rationalisation. As organisations look for bigger savings and better security, the opportunities for freelancers are there for the taking.

Is it a tough time to be in IT? Well, you might think you’ve got it tough; you might even think you’re stressed, but apparently, you’re not. That’s according to new research that puts the stress rates of IT careers on a par with that of historians and dieticians! The research comes courtesy of the US based CareerCast organisation, who looked at 200 different job roles and assigned relative stress levels according to job requirements like competitiveness, energy, income and outlook (Wonder where their jobs came on the list?) At the top of the list: surgeons and airline pilots, whose life or death decisions keep their scores (and their stress levels) sky high. But it’s not all good news for IT workers. In fact there are even some points on which they score almost as highly as the stressed out surgeons and pilots. Their working schedules are prone to eleventh hour changes, and they’re often required to work for long periods away from home. Then there’s the relentless competition for places – not something a surgeon has to contend with. Add in a variable jobs market and time sensitive performance indicators and you’ll see the relative stress scales balance out a little bit more. Of course US results don’t translate that accurately into the UK economy; the IT sector continues to do well on both sides of the Atlantic, but the downturn’s compromising the British IT industry that little bit more. Nevertheless, it’s interesting to note that by their reckoning, most of the least stressful jobs are also among the very best (and most highly prized) jobs in America as well. Indeed software engineer ranks fifth best. So, all in all, it’s not so tough. Content yourself with the knowledge that, while there may indeed be more troubles ahead - both for the economy at large, and for the IT sector specifically, you can face the future with equanimity.

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