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IR35 compliance: how retaining your contractor talent should come before risk-aversion

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IR35 compliance: how retaining your contractor talent should come before risk-aversion

By Hannah Robinson, Digital Marketing Manager

The way we work in the UK is set to change drastically over the coming years. From Brexit and near-constant shifts in government to a trend towards contracting and gig work, the generally accepted forecast is that our current methods of doing business will be entirely different in a decade – maybe less. The IR35 reform is one of these changes.

Hannah Robinson

Hannah Robinson

The reform was applied to the public sector back in April 2017 to widespread criticism; despite this, it’s due to come to the private sector on 6th April 2020. Industry experts are anticipating it to impact contracting significantly and, in certain ways, it already has.

What is IR35?

IR35 is known by a few names. The term IR35 itself is shorthand for ‘Intermediaries Legislation’, as coined by then-Chancellor Gordon Brown back in 1999, and is sometimes referred to as the ‘Off-Payroll Working Rules’.

Let’s start with some context:

A financial consultant is contracted by BusinessCo. They are engaged and paid through their own limited company. This limited company is the intermediary between the financial consultant and BusinessCo, the client, and means that they aren’t providing their services directly. They have a contract for services, as opposed to a contract of employment, and are therefore exempt from paying income tax or National Insurance Contributions (NICs). However, they don’t receive employee benefits like holiday or sick pay and must cover their own overheads, like equipment and travel. This tax relief allows them to set aside enough money to pay for said overheads, as well as save for time off and retirement.

The purpose of IR35 is to identify individuals that are abusing the above system to avoid paying tax. IR35 targets contractors, freelancers, and any self-employed person that is engaged by a medium-large company and is perceived to be taking part in such tax avoidance through the use of a limited company or PSC.

If you’re found to be inside IR35, or are ‘caught’, then HMRC has determined that you are indeed partaking in the tax avoidance outlined above, and that you’re therefore a ‘disguised employee’ and should be paying income tax and NICs.

How is IR35 being reformed?

Although IR35 has been through a few iterations since its inception, contractors were always in control of their own employment status determinations – i.e. it was up to them to class themselves as inside or outside the legislation, and they alone were responsible for paying the extra NICs and income tax if they were ‘caught’.

However, in 2017 the government decided to shift the liability for deciding employment status from the contractor to the fee-payer, meaning it’s now up to the end-client or recruiter to decide which side of IR35 the contractor sits. The public sector reform, which came into effect in April 2017, also saw the fee-paying party in the supply chain pick up the IR35 liability from the contractor. From 6th April 2020, the IR35 reform will be extended to the private sector, with medium and large businesses set to determine IR35 status with fee-paying companies liable for any mistakes.

How has IR35 affected contracting so far?

You might have heard the term ‘blanket determinations’, which somewhat defined the 2017 public sector reform. A blanket determination is when a company places all contractors inside or outside (but usually inside) IR35, without taking any of the details of a worker’s contract or working practices into consideration.

HMRC has stated that ‘blanketing’ is not compliant, but this hasn’t appeared to prevent it from happening in the public sector. This resulted in thousands of genuinely self-employed contractors being placed inside IR35 and paying tax at a similar rate to an employee.

In 2018, the government confirmed that IR35 changes would be extended to the private sector in April 2020. Many expect the same blanketing from the private sector and to a certain extent, it’s already started; large corporations like Barclays, HSBC, RBS, Morgan Stanley, and Lloyds have announced that they’re pushing all contractors to PAYE or approved umbrella companies, or simply culling self-employed workers to avoid the off-payroll rules altogether.

 Why culling contractors isn’t a risk-free way to deal with IR35 

Those companies that’ve announced a limited company contractor cull could well be shooting themselves in the foot. By taking such a stance, they’re ultimately directing highly skilled contractors to competitors who are willing to embrace the IR35 reform. The medium-large companies that are willing to work with contractors to legitimately preserve their self-employed status will enjoy the cream of the crop with little competition, resulting in coups that could prove business-defining for certain underdogs in the financial and pharma world.

“Rumours of a contractor mass-exodus had been circulating even before HSBC officially announced its IR35 position,” says Andy VesseyATT, Head of Tax and IR35 Specialist at Larsen Howie. “Experienced, talented contractors will have little problem taking their services elsewhere. Many of these contractors will have worked with the banks for several years, taking with them in-depth technical knowledge of programmes and processes. Not only will this be difficult to replace but it could prove a threat to the likes of Lloyds, Barclays, and HSBC as a business – particularly if those same contractors are approached by a similar business willing to apply the off-payroll rules correctly.”

HSBC, in particular, retracted some of their badly-worded initial statement. They suggested instead that they were looking into alternative routes around IR35 like service providers, which would effectively shift the liability down the supply chain. Vessey doesn’t think this method will be the shortcut the banks are looking for, though.

“If the banks do point contractors in the direction of a contracted-out services provider, then they will have to be certain that they are happy to relinquish control of project work to that third party and that the contingent workers are not personally providing their services to HSBC,” he says. “If not, they will find they still need to consider the off-payroll rules anyway.”

What can businesses do to prepare for IR35 without blanketing? 

There are many routes that businesses can take to proactively prepare for the IR35 reform, however, including identifying the number of workers who currently operate via a PSC or limited company, determining if IR35 applies to any contracts and working practices that extend past April 2020, and assessing arrangements involving complex labour supply chains. Talking to contractors about where they feel they sit in accordance with IR35 is also something that shouldn’t be overlooked; developing a communications plan is crucial for making sure everyone involved understands the legislation and its implications.

The most important thing to remember when preparing for IR35 is that collaboration is key. Make sure to maintain good communication during the whole process and encourage openness throughout the supply chain to minimise the potential for any nasty surprises while maintaining – or even building on – trusting business relationships.

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How to lead a high-performing team

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How to lead a high-performing team 1

By Matthew Emerson, Founder and Managing Director, Blackmore Four

When we think about a great team, the image we conjure up almost always includes a superstar leader.  A smiling Sir Alex Ferguson guiding Manchester United to countless domestic and European successes year after year. The conductor of an orchestra, drenched in sweat, turning to take rapturous applause from an appreciative audience.  The self-styled entrepreneur-turned-CEO who has steered their company’s share price, profit margins and brand recognition to levels of international envy.  Our bias to assign the leader credit or blame for successes or failures that are actually outcomes of a team effort is strong and widespread, and results in both positive and negative outcomes for individual leaders that often overlook any team-based root causes.

Clearly, some people are better at leading teams than others. It is quite reasonable, therefore, to try and identify the traits that distinguish effective leaders from those who consistently fail to get the best out of people they work with. Literally hundreds of research studies have attempted to see which traits predict leadership effectiveness. However, none have succeeded in identifying any set of universal traits that could reliably distinguish and predict effective leadership from the rest.

For one thing, research has shown that there is no one leadership style that works well across all situations.  A style that may be just what is needed when working with skilled and trusted colleagues to develop a team may fail badly when a newly-formed team encounters a challenging situation that requires a quick, decisive team response.

A second problem with leadership styles stems from our assumption that leader behaviour is the cause of member behaviour and team dynamics. In fact, a leader’s style may, in many circumstances, be as much a consequence of members’ behaviours as it is a cause of that behaviour.  For example, if a leader is charged with managing a team of subordinates who are both competent and cooperative, the leader is likely to be more effective responding with a considerate, participative leadership style.  However, if team members are obviously not capable in carrying out the work and, moreover, demonstrate aggression in their dealings with the leader, a much more structured, directive and autocratic style is likely to be exhibited, to varying degrees of effectiveness.  Excellent team leaders are aware of their natural styles—they know what they like to do, what they can do easily and well, and what they can accomplish.

Effective leadership

On the one hand, we tend to overattribute responsibility for collective outcomes to the team leader. Although that tendency is often exaggerated there is no doubt that what a team leader does (and doesn’t do) is highly consequential for team performance.  Instead of focusing on a leader’s generalised behaviour (style) and who they are (character, superhero), the focus should be shifted onto what it is they actually do (action).

Effective leaders focus on the four basic factors we discussed in the previous articles in this series, starting with a compelling direction and clear accountability.  The team need to know that they are a real, interdependent team and that normalised behaviours, high expectations and trusting relationships are agreed across the group.

Sometimes most of these conditions will already be in place when a team is formed and fine-tuning them will not pose much of a leadership challenge. Other times, when the focus has been on individual work not teamwork, it will take great effort to establish these four basic factors.

Behavioural leadership skills

Matthew Emerson

Matthew Emerson

Great team leaders do not rely on any single strategy for promoting high team performance. Instead, they work hard in getting all of the factors we have been discussing aligned and pulling in the same direction. However, it’s not sufficient for those who lead teams merely to know about the factors for high performance; they also need to know how to create and maintain those factors—in a word, they need to be skilled in leading teams.

Effective team leaders are skilled in executing actions that narrow the gap between what is happening in the group or its context, compared with what the leader believes should be happening.  They are also skilled at managing their emotional response, resisting the impulses of acting too quickly and dealing with one’s anxieties.

Effective leaders demonstrate their ability to tap into the collective resources and coach teams in order to exploit potential to the fullest extent.  Being able to exploit those special moments at the beginning, middle and end of task and team life cycles can prevent future breakdowns or factors that hinder high performance.

The ability to inspire others is another commonly identified, essential behavioural skill for leaders of high-performing teams.  The is no single best way to provide it, but the key is to identify which of your skills and styles can best be used to create in others the passion you feel for your work and then to hone and develop those resources as one core element in your personal repertoire of team leadership skills.

Leading high-performing teams

There is no way to “make” a team perform well, let alone sustain outstanding high performance.  Teams create their own destinies to a great extent.  After a team has launched itself on a particular path, its own actions create additional experiences which then guide members’ subsequent behaviour, which can set in motion either a cycle of ever-increasing competence and commitment or a downward spiral that ends in collective failure.

Once members have established their shared view of the world and settled into a set of behavioural routines, there is not a great deal that leaders can do to change the team’s basic direction or momentum. What leaders can do is make sure the team is set up right in the first place, action the four factors and then constantly hone and learn to develop a number of key skills specific to team leadership.

About Author:

Matthew Emerson is the Founder and Managing Director of Blackmore Four, an Essex based management consultancy working with leaders of ambitious businesses to achieve outstanding performance through periods of growth or significant change.

Starting his career at Ford Motor Company, Matthew has developed his expertise in Organisational Effectiveness in key senior HR, Organisational Development and Talent roles, predominantly in Financial Services (Credit Suisse, Barclays and DBS) and most recently as the Group Head of Talent and Performance at UBS AG.

Having worked in and across Asia for six years as well as having ‘global’ responsibility in a number of his roles, Matthew has an appreciation of international and multi-cultural working environments.  He also has a multi-sector perspective, having worked with organisations in Manufacturing, Healthcare, Education and Technology.

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Oil prices steady as lockdowns curb U.S. stimulus optimism

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Oil prices steady as lockdowns curb U.S. stimulus optimism 2

By Noah Browning

LONDON (Reuters) – Oil prices were steady on Monday as support from U.S. stimulus plans and jitters about supplies competed with worries about demand due to renewed lockdowns to prevent the coronavirus from spreading.

Brent crude futures for March rose 7 cents, or 0.1%, to $55.48 a barrel by 1210 GMT. U.S. West Texas Intermediate crude for March was up 5 cents, or 0.1%, at $52.32.

“Sentiment was buoyed by expectations for a blockbuster coronavirus relief package … (but) the tug of war between stimulus optimism and virus woes is set to continue,” said Stephen Brennock of broker PVM.

U.S. lawmakers are set to lock horns over the size of a $1.9 trillion pandemic relief package proposed by new President Joe Biden, financial stimulus that would support the economy and fuel demand.

European nations, major consumers, have imposed tough restrictions to halt the spread of the virus, while China reported a rise in new COVID-19 cases, casting a pall over demand prospects in the world’s largest energy consumer.

Barclays raised its 2021 oil price forecasts, but said rising cases in China could contribute to near-term pullbacks.

“Even though the pandemic is not yet slowing down, oil prices have good reasons to start the week with gains,” said Bjornar Tonhaugen from Rystad Energy.

Supply concerns have offered some support. Indonesia said its coast guard seized an Iranian-flagged tanker over suspected illegal fuel transfers, raising the prospect of more tensions in the oil-exporting Gulf.

“A development that always benefits prices is the market turbulence that conflicts create,” Tonhaugen added.

Libyan oil guards halted exports from several main ports in a pay dispute on Monday.

Output from Kazakhstan’s giant Tengiz field was disrupted by a power outage on Jan. 17.

(Editing by David Goodman and Edmund Blair)

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Dollar steadies; euro hurt by vaccine delays and German business morale slump

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Dollar steadies; euro hurt by vaccine delays and German business morale slump 3

By Elizabeth Howcroft

LONDON (Reuters) – The dollar steadied, the euro slipped and riskier currencies remained strong on Monday, as currency markets were torn between optimism about U.S. stimulus plans, and the reality of slow vaccine rollout and the economic impact of lockdowns in Europe.

Market sentiment had turned more cautious at the end of last week as European economic data showed that lockdown restrictions to limit the spread of the virus hurt business activity, dragging stocks lower.

The safe-haven dollar declined gradually overnight, and riskier currencies strengthened. It then recovered some losses after European markets opened, and was at 90.224 against a basket of currencies at 1152 GMT, flat on the day.

On one hand, market sentiment is supported by hopes for President Joe Biden’s $1.9 trillion fiscal stimulus plans, as well as the expectation that central banks will continue to provide liquidity.

But, in Europe, the extent of the risk appetite was limited by a lack of progress in rolling out the COVID-19 vaccine as well the economic impact of lockdown measures.

German business morale slumped to a six-month low in January, surprising market participants who had expected the survey to show a rise.

“It’s very much a case of hopes for the future against the reality of the first quarter of this year which is going to still prove to be fairly troubled,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.

“For now at least, the optimism that we’re hoping for has been somewhat delayed and that has taken a little bit of steam out of the euro and just put a little bit of support back in the dollar but ultimately I think it is still a case of those high-beta commodity currencies, reflation currencies, will continue to perform well,” he said.

Analysts expect a broad dollar decline during 2021. The net speculative short position on the dollar grew to its largest in ten years in the week to Jan. 19, according to weekly futures data from CFTC released on Friday.

The U.S. Federal Reserve meets on Wednesday and Fed Chair Jerome Powell is expected to signal that he has no plans to wind back the Fed’s massive stimulus any time soon – news which could push the dollar down further.

“The process of tapering QE is likely to be a gradual process which could last throughout 2022, and then potentially be followed by the first rate hikes later in 2023,” wrote MUFG currency analyst Lee Hardman.

“In these circumstances, we continue to believe that it is premature to expect the US dollar to rebound now in anticipation of policy tightening ahead, and still see scope for further weakness this year,” he said.

The euro was down around 0.1% against the dollar, at $1.2153 at 1207 GMT. At the European Central Bank meeting last week, President Christine Lagarde said the bank was closely watching the euro. The euro surged 9% last year versus the dollar and reached new two and a half year highs earlier in January.

But despite this verbal intervention, traders remain bullish on the euro, expecting the bar for a rate cut to be high.

Elsewhere, the Australian dollar, which is seen as a liquid proxy for risk, was up 0.2% at 0.7726 versus the U.S. dollar at 1208 GMT.

The New Zealand dollar was up 0.5%, while the commodity-driven Norwegian crown was up 0.2% the euro.

The safe-haven Japanese yen was flat on the day at 103.815 versus the U.S. dollar.

Graphic: USD, https://fingfx.thomsonreuters.com/gfx/mkt/qmypmyjdxpr/USD.png

(Reporting by Elizabeth Howcroft, editing by Ed Osmond and Chizu Nomiyama)

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