CPM - The Umbrella Company - Supporting the Freelancer

May 2006 NEWSLETTER

CONTENTS:

THE ROUGH GUIDE TO SPANISH TAX LAWS (AND MORE)
HMRC GOING SOFT?
THE LUCK OF THE IRISH
HOW MUCH?! WHAT CAN AN IT CONTRACTOR REALLY EXPECT TO EARN?

THE ROUGH GUIDE TO SPANISH TAX LAWS (AND MORE)

Spain remains the biggest European destination for expatriate workers, retirees and, of course, holiday makers. The laid back lifestyle, and long, languorous days have attracted almost a million Britons to pack up and relocate; job seekers to the north, sun seekers to the south.

In addition to the obvious advantages, working in Spain is increasingly being seen as a smart move. Living costs are low; taxes are comparatively low; unemployment is getting lower by the month – and the economy is booming. As a result, employment opportunities are more readily available than ever; and they're the sort of opportunities you'll want to leave home for. Spanish employers are just as likely to scour the international talent pool as any other EU country; and they're always on the look-out for specialists in key areas.

Legality

As an EU national, you're fully entitled to live in Spain for up to 90 days without recourse to permits of any kind. Thereafter you'll have to apply for a residence card (visado de residence;) available from the local police station. If you’ve got more grandiose plans to start your own business, then you'd better add a tarjeta comunitaria and a licencia fiscal to your list!

Freelancers will need to register for a self employed work permit from the local council. Whatever work you're doing, you will of course need to register for tax and national insurance. Again you'll need to call on the local authorities and apply for an NIE number, which is issued exclusively to foreign workers. What used to be a painful, protracted process has been simplified to the nth degree: the forms are all pretty straightforward, and assuming you take your passport, you'll be issued with your NIE immediately.

Contracts

Spanish contracts are strict. But don't let that worry you. It's purely to protect workers, not straightjacket them. If you're working as a freelancer, you'll be glad of the adherence to codes of conduct on working rights and privileges, because it means whatever happens; you're covered.

A six month contract in Spain will entitle you to the same rights as a national. That includes health cover, sick pay and assorted employment benefits. An additional benefit, not covered by your contract, but no less welcome, is that foreign workers are made to feel very welcome.

As a further protection, employers are prevented from re-employing the same workers over again, ad infinitum at inferior temporary rates. Once you've worked through a temporary contract, e.g. 3-9 months, and your employer expresses interest in your continuing to work for them, you can only ever be re-employed under the terms and conditions of a long term contract.

Incidentally, don't ever be tempted to work ‘under the radar’ – non nationals found taking ‘cash in hand’ jobs can be deported. The contract is king.

Tax

Spanish tax law is legendarily complex! To make matters worse it's currently in a state of flux; and no-one is quite sure what's going to happen next!

To clarify: while the fundamental tenets of Spanish tax law are, as you’d expect, pretty much immutable, the EU have taken issue with one little piece of legislation. And, as luck would have it, it's the little piece of legislation that has the greatest bearing on non national employees! But the good news is that it's probably going to make living and working in Spain even easier and even cheaper.

Currently, there is a flat withholding tax rate of 25 per cent on employment income for non national residents, whereas Spanish nationals pay just 15 per cent. Resident status is awarded on the basis of how long you spend in the country, not whether you've got a residence card. (182 days is the figure to aim for.) Traditionally, many workers have expressed their reluctance to register as a resident of Spain, deterred by reams of red tape and official procedure. But as with most other EU countries, residence requirements are getting a lot less demanding.

Following Spain's refusal to alter their legislation to mitigate against the inequality, it looks like the European Commission is going to take a hand. If the Commission get their way, and they probably will, it'll make Spain a safe haven for the UK’s overtaxed emigres.

In the meantime, the day-to-day tax implications of living and working in Spain aren't too onerous, in spite of the reputation! The Spanish tax year runs from 1^st January – 31^st December, and residents have to complete their declarations in May or June of the following year. It's pretty straightforward for salaried workers earning less than 22.000 Euros per anum, from whom income tax declarations aren't normally required. Workers earning less than 8.000 Euros are automatically exempt. But assuming you earn more than 22.000 Euros, you'll be required to file your declaration and pay the appropriate taxes, as is the universal norm!

Of course you don't have to worry about any of it, you don’t have to. After all, at CPM we're here to make your life easier, wherever you’re working. While we can't necessarily recommend the finest Andalusian sea food restaurant, we can certainly help with your tax returns and state obligations! You'll never need to worry about conversion rates or completing declarations for joint earnings.

In fact, when we’ve got you to grips with the nitty-gritty, it just remains for you to get out there and enjoy yourself! Easier, cheaper living more than makes up for the comparative (small) dip in wages you might experience. And an altogether friendlier sort of working environment adds significant extra value!

If you have any questions about the financial implications of working in Spain, we'll be pleased to advise you.

HMRC GOING SOFT?

Can it be true? Are HMRC really going soft and getting ready to take a more laid back approach to tax returns? Don't you believe it! In spite of a recent spate of letters from HMRC claiming to want to do us a favour and write off our tedious tax returns, there’s more to this offer than meets the eye.

The idea is that if you're at the more ‘mundane’ end of the tax return scale, HMRC will effectivelygive you a free pardon; releasing you from the burden of ever having to complete another tax return. Ostensibly it might seem like an effective way of streamlining the administrative process and reducing HMRC man hours; but this scheme is definitely not in everyone's best interests, particularly for taxpayers who are entitled to annual repayments, and for whom disappearing off the HMRC radar would be a big mistake.

So if you are on the list and you receive an ‘attractive’ offer from HMRC, make very sure it really is in your best interests before you agree to anything! A life without tax returns sounds good – but the price might just be a little too high!

THE LUCK OF THE IRISH

Can cutting taxes ever really work? Or is it just an economist's pipe dream?

Is it even feasible to suppose that cutting taxes could have any kind of long term, positive impact on individual and corporate prosperity? That it could encourage business growth, greater foreign investment – and usher in a new golden age?!

Surely things are never that straightforward, least of all the UK economy! After all, a tax panacea, if it existed would have been seized upon by the chancellor, embraced by business and industry; welcomed by taxpayers and might, just have made the headlines before now. Has the renaissance been and gone? Did we miss the party? And just what happened to our golden age?

Perhaps we're just not ready for it. Current UK tax rates don’t exactly invite investment. Businesses bear the brunt of a tax burden that already outstrips the US and looks likely to exceed German and Dutch rates within the financial year. The CBI have warned that the tax cost to British businesses for the period 1997 – 2010 looks set to reach £80bn.

And yet, according to increasing numbers of economic analysts, by cutting tax to a flat rate 15 per cent, we could achieve the impossible dream! It sounds so simple. It couldn’t possibly work. Could it?

Professor Patrick Minford’s proposes that by introducing the flat rate 15 per cent tax rate across all income bands and commodities, we can encourage more people into work and discourage tax evasion. Further, by reducing the burden on the wealth creators, we can help to create more wealth; we can generate more public spending money; we can even begin to encourage uninhibited investment in UK business. For their part, business owners can take greater responsibility for their own investment; thereby reducing the need for government subsidies and profligate hand outs from the public purse.

And if you're still not convinced, we can even ‘cite precedent’! Case in point: the Republic of Ireland. Having benefited from low corporation taxes for over 18 years, the Republic of Ireland is increasingly seen as our better educated, better supported, all round better brother.

Eire currently enjoys a standard rate for all trading activities of just 12.5 per cent, compared with the UK's main rate of 30 per cent! No wonder it's the fastest growing economy in Europe. And it's self perpetuating. The entrepreneurial high fliers continue to take advantage of the favourable economy and continue to pay into the economy – writ large. The result is unprecedented business investment that extends to amenities, education and civic pride.

Could the UK do the same?

Tax doesn’t have to be a burden; and CPM will always help lighten the load, whatever the rate. Just imagine what we could accomplish with a flat rate 15 per cent. Mouth watering isn't it?

HOW MUCH?! WHAT CAN AN IT CONTRACTOR REALLY EXPECT TO EARN?

Following our report in March, we know that IT contractors are keen to earn more - and who can blame them? But just how much more can an IT contractor reasonably expect to earn per anum? Let's find out...

Of course it should come as no surprise that contractors have significantly better earnings potential than their permanent peers; even when they're performing an identical function. But increased earnings potential can come at a cost: there are fewer guarantees for contractors. Work, when it comes, may be lucrative, but short lived.

With more contractors than ever vying for the same jobs, it's an increasingly competitive life for most. But whilst the competition can keep contractors on edge, it does help keep their earnings up too.

Contract rates are subject to even more variables than permanent pay packages. Location remains one of the biggest determinants, but the requirements of the job and skills and experience of the contractor make up the other sides of the triangle.

The good news for contractors is that rates are almost always open to negotiation. It's easy enough to stay apprised of the going rates too; internet resources are a good day-to-day indicator of the value of the market - giving the contractor the market savvy to back up his/her other marketable qualities.

Needless to say, CPM can help too. We'll take responsibility for making sure you get paid on time. We can even advise you on the sort of rates that you might expect according to job specification and location.

So, just what can an IT contractor really expect to earn in 2006? Well, according to jobstats.co.uk, the market is healthy as of March/April 2006; very healthy. Earnings appear to have reverted to their best level for some five years. They report average hourly rates of £37, and average annual rates of £40,700. IT finance experts, consultants and java script specialists continue to command the highest earnings, and can all expect to secure rates of around £48 per hour, resulting in estimated annual earnings of £70,000!