Since the Agency Workers Regulations came into force at the end of last year, many businesses have become wary of hiring freelancers and contractors from agencies and umbrella companies. AWR basically gives agency workers the same rights and working conditions as permanent staff after they have worked for a company for 12 weeks. This means they must be given the same pay, the same holidays, working hours, breaks and overtime as well as things such as maternity leave. This increases the cost to the company of hiring these workers which makes them less attractive to companies, and if it isn’t to increase the cost for the company it will decrease the take home pay of the employee as the umbrella company pass on the extra cost.

For businesses who preferred booking agency workers because it meant getting the work done efficiently and paying just the freelancer’s rate, they are starting to want to cut back on the amount of time these workers work for them. With only very short term contracts becoming available for agency workers, the best situation to be in for those who want to have work with some degree of longevity is to look for contract work as part of a limited company.

Another option is always to work as a sole trader, which will mean you have to pay more tax on your earnings but does save some of the legal wrangling involved with going limited and dealing with Companies House. Either way, working for yourself is looking like the best option for most contractors this year.

A good way of getting a company to pay up faster is to start adding interest on unpaid invoices, but very few businesses actually know if they are able to do this and even if they are how to go about it. If an invoice has gone unpaid, you are protected by UK legislature which implies late payment terms into any business contracts. This means that even if your contract did not explicitly state your payment terms, you should still be able to charge late payment interest.

The late payment rate is charged according to the Bank of England Base Rate and will go up and down according to this, but currently stands at around 8.5%. You are also entitled to charge one off penalties depending on the amount of the debt and how long it has gone unpaid. You can start charging interest from one day after the agreed date of payment. If you haven’t agreed a date of payment then standard practice is to start running interest as of 30 days from the invoice date.

Once you have started to add interest you should inform your client immediately that this is the case so they are aware of the situation, and then just continue to add interest until the debt is paid. Bear in mind that the one rule that will get the client out of paying any interest or the debt itself is if you have breached the terms of the contract. So make sure you have stuck to the rules before you start charging the client for breaking their end of the bargain.

If your client will still not pay their debt you can look into debt recovery services which may lead to court action.

The idea behind business record checks was that HMRC would be allowed to make random checks into the accounting and record keeping of small businesses, contractors and freelancers to ensure that all of their book-keeping was up to date and comprehensive. They proposed to impose hefty fines to those companies found not to have satisfactory records and many small businesses found the system threatening and stressful as it was demanded that businesses have at least six years of accounts which needed to include a wide range of details about the company’s workings. As mistakes are not uncommon and often do not actually affect the workings of the company many felt this was unfair.

Amongst other things, companies were expected to show records of all accounting (including assets and liabilities income and expenditure), business records, VAT workings and PAYE records in at least electronic form and these needed to be easily accessible should a random check be made and the company asked to provide their records.

A pilot scheme has been running since April 2011, during which HMRC found that 28% of companies investigated had a problem with their book-keeping, and a further 11% had serious issues needing attention. Although HMRC have concluded that business record checks have worked effectively in pin-pointing trouble record keeping and in ensuring that small businesses keep their books up to date they have decided to relax the rules a little and change their focus to freelancers and contractors who are more at risk of not keeping up to date records.

In the meantime, HMRC have decided to put the scheme on ice while they work out the details of the revamped scheme, giving all freelancer, contractors and small businesses a chance to breathe and make sure they get all of their records in order for when the scheme is reinstated.

There should not be a problem for any contractors or small businesses if their books are in order and if they have records which are not up to date this break can give them a chance to get everything in order and make sure everything stays that way.

Banks such as Barclays, Lloyds and HSBC promised to set aside £190 billion for business loans, with almost half of this meant to go out to small businesses. However, a recent survey showed that banks have not only consistently missed their targets when it comes to lending to the self employed, but that small businesses are still finding it as hard as ever to secure a bank loan for business purposes.

Some banks have now stated that they have begun to meet their targets but small businesses still fail to see the benefits from this, with a third being refused credit because of strict regulations that make it too difficult for them to meet the criteria.
The idea behind more lending to smaller businesses is a good one, as it encourages new business ventures to start up in a time when larger companies are struggling and having to make more and more people unemployed. It gives those who would otherwise be forced into Government benefits the opportunity to start out on their own and begin to make their own money as part of a successful business. This should eventually make for more employment opportunities and a much wider market business wise, taking the monopoly away from some of the larger conglomerates.

However, banks are still nervous about lending to small businesses and freelancers, with concerns that should the businesses fail or the freelancer not earn enough money that the loan will not be able to be paid off, leaving both freelancer and lender out of pocket.
Another reason that the banks may have missed their targets is a lack of promotion of the available funds for freelancers and small businesses. If larger banks are rejecting loans for small businesses there are a number of other options available but these borrowers just aren’t aware of them. A stronger advertising campaign for Project Merlin and other schemes like it may cause freelancers and small businesses to apply for more loans rather than trying to fund their business on their own.

Of course, you could always decide not to work with the client and look for other work but as a contractor it is more difficult to decide not to work with someone as you cannot be entirely sure where you will find your next job. So it seems better to persevere with difficult clients and get them to agree with your terms.

When you present a client with your contract and terms it will generally state how long the work will take to be completed, your rate of pay and how you expect to be paid. You may want to put something in about how long you will accept for a client to pay an invoice and even that full rights to your work will not be released until payment has been made (a clause which prevents against non-payment for work done).

However, if your client will not accept your contract and want to make their own terms there are steps you can take to get them to work with you the way you wish to work. Firstly, you should stand your ground and refuse to back down. With a lot of clients this will be all it takes to get them to accept your contract if your terms are not out of the ordinary. In many cases a company or employer will simply be trying their luck to see if they can get you to agree to a situation that benefits them a little better than you and if you truly are the best person for the job they will not walk away simply because you demand to have your terms met. It will also save them the hassle of trying to find a new contractor, which is as difficult for them as it is for you to find new work.

If this does not work it is best to try to compromise before walking away. Perhaps there are things on your contract which are negotiable and some which aren’t. If you make the effort to negotiate on things which don’t mean that much to you (such as how you are paid) then change this but insist that you keep terms such as when you get paid. If you want to hold the rights to your work before you are paid but the client isn’t happy, why not ask for half of the money upfront, and the other half once the work has been sent to them?

But contractors need to be careful when agreeing to any client. A contract is all well and good but neither the contractor nor the client can be forced to stick to the terms and this is why there is a bond of trust between the employer and the worker. When an employer does not really care about the worker they are hiring, just that they will be cheap this raises a few concerns for the contractor.

Firstly, if a client is looking for someone cheap then it is likely that they are a new business or are having financial trouble. This means that even if the work is done to a fantastic level and handed in on time there is a possibility that the client will not be able to pay. During the contract anything could happen with a client financially, but those already in a good position are unlikely to run out of money to pay you. However a company that is already in trouble may go under whilst you are working, wasting your time and taking your money with them. If a client goes bankrupt then contract or no, there is nothing you can do to reclaim the money owed.

It is also somewhat unflattering to a contractor or freelancer to be hired because they are cheap rather than on the strength of their work, and says that perhaps the client is not going to be too bothered with the output presented to them. Often it is more important to a temporary worker that they get a good review from those they work with and with these sorts of clients it is unlikely. The other side of it is that the client may care a little too much about the project for the amount they are paying and try to force you as the freelancer into working more than you ought to for less money. If you are being paid very little you should not have to make hundreds of small changes taking a phenomenal amount of time as this is basically just working for free.

Either way, with a second job there are bound to be complications tied up with pay, tax and working hours and here are the best ways to work around them.

Firstly you need to either make sure you are not working more than 48 hours per week (as stated by the law) or sign an Opt-Out agreement with your employers who will then need to keep a close eye on the hours you work each week in order to make sure your extra work isn’t affecting your performance. It is worth it on your side, as well, to make sure that you do not overwork yourself. If you fee you need to work so many hours because you need the money, perhaps what you actually need to do is to look for a better paid main job, or look into benefits.

Check over your contract with your main job to ensure that you are not breaching the conditions of your main employment by taking a second job. You may find that you contract has regulations that could put your job into jeopardy if you breach them through your second job. Working for a competitor, or taking work away from your main company by working for clients as a freelancer for less money could cost you your main job which would cause you a lot more trouble than it would be worth getting the extra cash.

You will need to declare any second income to HMRC for tax purposes or risk getting into trouble with the law, as there is a higher tax rate when you take a second job. Although it may seem frustrating to have to pay more in tax when you are working for extra cash but if you do not declare it and get found out you may have to pay a fine or even worse.

For those new to freelancing and contracting, though, working from home can be a blessing and a curse, as although all of your good intentions may lead you to think you will work extra hours early in the week, distractions and no one to look over your shoulder can lead to very little work being done – and all freelancers know the dangers of missing a deadline.

In order to be as productive as possible when it comes to working in your own home you should first set up a dedicated office space and make sure you do all of your work there. On cold days or when you feel unwell it may be tempting to work from the sofa or even your bed but this can lead to you feeling less motivated or, on the flip side, end up making you associate your entire home with work.

At the end of the day you will still want to be able to walk away from work once you switch off your computer so setting aside a room (or even a corner of a room with a desk or table) that you always work at can keep your work and personal life separate.

Keep a dedicated work diary and folders to make sure you are organised. When work papers get mixed up with household bills you could waste hours each week trying to sort through everything just to find what you need to do your work. Similarly, social networking sites and even the television can make your personal life seep into your work life so try to keep all of these activities to breaks. Just because you work from home doesn’t mean you can’t take breaks each day, and an hour for lunch as well as a couple of 15 minute breaks throughout the day will keep you sane and allow you to get anything done around the house that you otherwise might have had to save for a weekend – essentially giving you more time for yourself in the long run.

The problem with missing this particular deadline is that the penalty is not just a reminder or a slap on the wrist, every person registered as self employed who misses the deadline faces an automatic penalty of £100 followed by repeated extra charges which could increase to £1000 if the return goes unpaid.

HMRC treats the tax return self assessment deadline very seriously as it is a way for the government to make sure every contractor and freelancer falls in line with members of permanent employment when it comes to tax. Without a tax return or the need to pay any missed tax, contractors would find themselves making far beyond what those in permanent jobs do which would be unfair.

The tax return basically asks for you to enter in all of your profits and balance it against any losses. There is a space to put in your expenses (although you will need receipts and proof of these for them to be considered legitimate) and the tax return runs for the previous year. For example this year’s tax return will cover April 2010 – April 2011 rather than bringing you up to January. Your amount owed (or due to be returned) will be worked out instantly and you will be given a total at the end of the return with details of how to pay any tax you owe.

If you have missed the deadline the official advice is to register and complete your return as soon as possible and ensure that next year you do not do the same thing. Remember that it takes 10 days to register to file your form online and leave plenty of time to do so.

Another thing that can save time in the future is keeping a record of your accounts close to hand and easy to find, with a bottom line clearly visible so that you do not have to go back through a year’s records to try to fill in your tax return come 2013.