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Dear Consultants FRIENDLY ADVICE Regardless of whether you are an existing client of Snowdon Consultants Ltd, a fulltime employee thinking of becoming a freelance contractor or an existing freelance IT Consultant simply reading these pages, you should all note the following; FREELANCE - EXPOSURE TO INVOICE PAYMENT PERIODS Many of you learned your respective skill-set after many years of being employed with a large company. You have become accustomed to monthly salaries with no input regarding timing or security of those salaries. Being freelance is the same as being self-employed, you have much more control over your work contracts and you exist as a business entity raising invoices periodically for work done. Those invoices may have 7, 14, 21, 30, 60 or even 90 days for payment depending on the agent / client contract negotiated. CHOICE OF RECRUITER OR CLIENT - FINANCIALLY STABLE In choosing an agent or client, thought should also be given to their financial stability as well as their service levels and prices. Some agencies receive the contract rate plus a mark-up of usually between 10% and 25%, but pay the freelance consultants monthly. Therefore the mark-up is to cover the timing difference between their obligation to pay you, the consultant, and when their invoice is paid by the end client. In this instance the agent is shielding you from the financial fluctuations of the contract arrangement with the end client. You are paying for that shielding with a reduced rate from the agency although the agency provides many more services included overall like CV circulation and assistance with interviews etc. PERSONAL FINANCES - PLAN B FOR BACKUP When considering a contract offered by an agency or end client direct, you must feel confident that your work, when invoiced, will actually get paid. You could have a fantastic rate and work for say 3 months, submitting monthly invoices payable after 90 days, only to find that the agency has gone bankrupt and you are just one in a long list of non-preferential creditors. 3 months work down the drain. There are hundreds of other reasons why invoices could be delayed for payment or never get paid, all of which leave you out of pocket either temporarily or permanently. That is why I want to talk about "Plan B'. You have to have one. None of you would implement a business system for a client without some sort of backup so why think any other way for your personal finances! As high income professionals, you IT Consultants are amongst the most intelligent clients that any business could have. SNOWDON CONSULTANTS LTD NOT EXPOSED Snowdon Consultants Ltd is firstly an administration service for international freelance Consultants. We deal with agents and end-clients but we do not have the above described timing difference between invoice payments. In short, we always receive money that is due before paying out, therefore we are never in negative cashflow and we never have to manage overdrafts, accordingly there is no possibility of bankruptcy due to financial mis-management. Snowdon Consultants Ltd has been in operation since 1995. IS BIG REALLY BEAUTIFUL? There is a tendency to think that big is safe such that if you are offered a contract by e.g. XYZ Agency Plc in the UK to work for e.g. ABC Intntl Plc in Europe, it feels exactly like when you worked for that big company where you trained and got your experience with the guaranteed monthly salary. Don't be lulled into a false sense of security, you are self-employed as freelance and as such exposed, there are no guarantees. CORPORATE LIABILITIES Contracting as a freelance consultant is very different to being an employee. Self-employed people do not get statutory sick pay, paid holidays or redundancy. For those reasons, the contract rate is much higher than a salary for the same job however, you need to think in terms of covering the sick days, holidays and redundancy from your earned income yourself. Not all the invoiced income is for immediate disposal, you need to implement measures to save a proportion of your income as "plan B' defence against unseen eventualities. Having a financial contingency plan is a must if you are to ensure your continuing ability to function as a freelance consultant and shield yourself and your family from hardship in the event of problems with obtaining payment of your invoice for whatever reason. WHAT IS AN INTERNATIONAL UMBRELLA? In order to be a freelance consultant, and to shield both the agent and end-client from either being seen as your employer, you need to either have your limited company or be represented by one. More and more countries are inserting personal services legislation into their domestic laws, like IR35 in the UK. Company law recognises the limited company as a "person", a separate entity just like an individual, thus a company exists in its own right and can hold contracts, employ staff, open a bank account, and pay tax. However, having a UK limited company and working in UK or anywhere in the EU is fraught with tax implications, like IR35 and cross-border VAT etc. The alternative for freelance consultants is to use an umbrella service instead of incorporating your own limited company. You pay a fee for the administration of your contract, invoicing etc so you only have timesheets to worry about. Using an umbrella service in the UK does not safeguard either you or the umbrella company from IR35, this personal services law sees through corporate veils, also partnerships etc. Best is to use an international umbrella service, i.e. a company incorporated outside the EU. EU SOCIALIST AGENDA In recent years we have seen the EU grow and introduce more tax legislation or restrictive practises. For example, see the newsletters on this website for EU Savings Tax Directive [parts 1, 2 and 3]as implemented on 1st July 2005. The implications of this new tax are that all EU citizens with savings should pay tax on those savings, and it's no good hiding your savings in some bank based outside EU because the EU have setup the OECD [based in Paris] who now maintain a blacklist of countries with banks not informing on their client's nationality and interest paid on savings deposited with them. Now, it appears that any corporation originating from a country outside the EU is having to jump through a whole series of hoops just to be able to work in the EU. Companies incorporated in one EU member country but supplying personnel to another EU member country are now being asked to register for tax in each country within the EU in which they work. No tax registration, no licence to work and no contracts. The large corporations in the EU that want to use freelance IT consultants on projects rather than hire employees, are following general guidelines of having a preferred supplier list comprising of only tax registered recruiters and personnel suppliers. CONTRACTING IN THE EU In my opinion, this situation will only get worse as the EU does not want tax competition and therefore seeks to outlaw and blacklist low-tax countries [often referred to as tax havens]. Their tactics are to monopolise and cartelise markets and avoid performance by competition. These type of people only have power by virtue of their position and not by merit, and with laws to reduce competition they are ensuring longevity of their position. BANKING INSIDE THE EU As many of you will know, opening bank accounts in the EU has become reasonably difficult with the interpretations of "know your customer" implemented by the banks under the guise of anti-money laundering legislation. Now try and imagine what it is like for an international company to operate a bank account inside the EU. Not easy, they want a copy of the account's authorised person's passport duly notarised and legalised with apostille. Furthermore, they want copies of business contracts, copies of invoices and by default they have a list of people being paid [straight off their system]. Snowdon Consultants Ltd is compliant with all of the above, including the annual renewal of corporate documents, though commercially speaking it is most unusual to reveal such business details to a 3rd party. BANKING OUTSIDE THE EU In my opinion, banking outside EU would probably just result in the alienation of the account holder with an inability to provide service. Snowdon Consultants Ltd has gone through the hoops to be able to continue on the 'inside'. Being the holder of a British passport doesn't help at all, it is no longer a trusted document and requires legalisation, such is the deterioration of standards in the UK. NOT UK RESIDENT, NT [NO TAX] TAX CODE Some of you no longer live in the UK and therefore, provided that you can demonstrate that you own or maintain a home abroad, you can obtain a tax code of NT. You may still have to submit Self Assessment tax returns annually but this can be done online now. Being a Certified Accountant from the UK, I have been able to assist with this in the past. FINANCIAL PLANNING, USE YOUR INTELLECT You should all know that you are saving a lot of tax and / or other costs with every invoice, you should all also know that there are inherent risks. Shit happens. Implement a contingency plan even if it is only a separate savings account. Too many of the Consultants that I know are working as freelance but treating their payments as a salary. Now that you are freelance, you have to adapt to the insecurity and irregularity of the business world. Also, don't lose sight of the political agendas of the various countries, especially in the EU because the net is tightening. You are collectively the biggest earners amongst the working public and consequently the biggest target for tax euros. HELPING YOU TO HELP YOURSELF Not all of you are British, or even EU, nationals but the question of paying tax in the EU does feature. Basically, if you're working for more than 6 months in any one tax year [dates vary according to country], then you may be tax resident in that country and the onus is usually on you the tax payer to make a declaration of what your taxable earnings are. Most countries observe gross self employed income less business expenses as being the taxable income. Naturally, payments to you, arising from invoices prepared by Snowdon Consultants Ltd on your behalf, include living away allowances and / or travel expenses. This is always noted as a reference on transfers to your respective bank accounts. Some of you require that the expenses part be paid into a separate bank account - not a problem for us and we ask only the extra bank charge for so doing. This enables you to keep track of your expenses, conveniently having the reimbursements paid into the same account e.g. where your credit card payments come from. Therefore your "travel" account has everything grouped together and none of it is taxable as it relates to travel and other allowable expenses, e.g. professional subscriptions. The travel account can be anywhere, Luxembourg and Switzerland are still relatively good within the EU but keep in mind that the Savings Tax Directive may affect your savings - check with your bank to see what their policy is. As for the earned income, you may want to receive that into a local bank account for ease, where you live and / or work. This will likely be the account from which you take bank statements in preparing your business taxable income statement. CONCLUSION Fore-warned is fore-armed. The above is my opinion based on what I know, what I have experienced and an extrapolation of the facts as I see them. I have many years experience in Accountancy, multi-national business management, ISO9000 for small businesses, remote management, international tax, incorporations of international companies and trusts. Best regards Phil Marsh Principal Consultant
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