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The Cost Of Doing Business

And why not to refer to customers as Bastards.

Following the recent Volcanic Ash induced airspace closures in Europe a lot has been made, particularly by the low cost carriers, of the effects of the EU261 regulation about passengers refund rights. As to be expected Ryanair was the most vocal of these, and its enigmatic CEO Michael O’Leary initially refused to pay any claims arising under EU261 as a result of the grounding of his aircraft.  He later had to back track on this (presumably after advice from his lawyers).

Well, it seems that he is back on the offensive about the compensation, and this Guardian article really got my back up.  I should say I have no personal claim from Ryanair (or any other airline), and I have flown with Ryanair a couple of times and found their aircraft and crew to be exemplary.

EU261

I actually have mixed feelings on EU261; I think it is right that airlines should look after passengers when they let them down (on which note:  Never fly with Delta!), however you also have to have responsibility for sorting yourself out.  You can’t rely on other people your whole life.

However it is not a retrospective regulation which either the EU or national governments have introduced since the ash cloud airspace closures, it was introduced in 2004 and came in to force in February 2005 – or 5 years ago.  So the airlines have known about it since 2004, and should be factoring it in to the cost of doing business.  Its a regulation like any other and compliance with it has a cost attached which has to be factored into your business plan.  It is non negotiable, a condition of operating passenger flights in Europe.  No one  is forcing Mr O’Leary to operate in Europe.

Ryanair Aircraft
Ryanair Aircraft

Volcano’s have been around a little while too, and the danger of volcanic ash to commercial jet engines has been well documented since the incident involving British Airways flight 9 in 1982.  Add these three bits of information together and you would have thought any business with the clear commercial aptitude of Ryanair would have allowed for this possibility, albeit remotely.

Weather is most probably the biggest factor to consider when flying, and the likelihood of snow / fog / rain closing airports is factored into business plans as a potential cost.  This should have been too.

You can’t simply pick and choose which laws you want to comply with, although Mr. O’Leary thinks he can.  If he wants to challenge those laws, or lobby for amendments or new laws then that is his & the airlines right.  For the record I think there should be some upper limits on EU261.

Own Worst Enemy.

Most airlines graciously accepted that the grounding of flights was not the fault of the passengers, could not reasonably have been foreseen and was part of their commercial risk (aviation is full of risks which have to be managed); and arranged accommodation, food and transportation for their passengers.  In doing so they undoubtedly managed to secure bulk discounts on hotels, food etc.  I have a friend who was stranded in Mexico at the time, and this is precisely what Thomas Cook did for him.

Ryanair didn’t do this though, in their inevitable style they left people to fend for themselves.  So people did.  And they paid “rack rate” for hotels during a period of peak demand, tourist rate for goods and services and Ryanair could exercise no control over this!  They made it worse for themselves; and then refer to their customers as “bastards using a cheaters charter.”

What a charming company. The Italian authorities have already caught up with Ryanair and fined them €3m, but I personally hope their failure to account for the cost of doing business costs them more in lost customers.  I won’t fly with them again.

IR35 to be repealed?

Britain has a new government, a coalition between The Conservative Party and The Liberal Democratic Party, and as a result of the coalition the two parties have had to decide what policies from their manifestos they would like to persue as a government.  They published this today as Coalition Agreement.  It contains a whole series of promises, but one in particular interests me – the one about IR35.

IR35.

IR35 is a piece of UK tax legislation which was introduced to prevent “disguised employment” being used to reduce a persons tax burden.  Essentially by working for a company through an intermediary it was possible to reduce your tax liability while doing the same job under the same terms – a process which became known as “Friday to Monday”; someone would leave on Friday and come back on Monday to do the same job but pay less tax.

Clearly, for any tax system to be fair two people doing the same job with the same terms and conditions should pay the same amount of tax; and so IR35 was announced in the 1999 budget.  It essentially means that Her Majesty’s Revenue & Customs can decide some or all of your work is effectively that of a “disguised employee” and therefore full PAYE and NI contributions are due.

Why I feel its unfair.

IR35 has come in for a lot of criticism, much in the public domain, but here is why I think its unfair.  I do a high proportion of work for one main client (there only being many hours in the day), and it could be argued I might be classed as a disguised employee as I mainly sit at a desk alongside permanent employees of the client, and do similar work.

However, I am not an employee of the client and so don’t get the generous paid holiday, contributory pension, access to the very generous company car scheme, paid sick leave and most importantly:  employment rights.  The client can terminate my contract at any point, with a four week notice period.  I have no right of appeal, no redundancy rights, no manager to air grievances with – because I am not an employee.  (In fact the client has done this, they cancelled my contract last year and offered me a new one with a rate cut of  7.5% – take it or leave it.  Couldn’t do that to employees!).

I am fortunate because this client keeps renewing my contract (touch wood), hopefully because they are satisfied with the work I do.  There is no obligation on them to renew, and many of my friends work on short fixed term contracts; and also find themselves potentially up against IR35.  If my main client did not renew though I have other income from other activities which would keep me going, because I am a genuine small business, and pay tax as such; yet IR35 is always on my mind.

So, if I were to fall foul of IR35 (and my current understanding is my contract is outside of its scope) then would they retrospectively give me all of the benefits which come along with being an employee?  Of course they wouldn’t – they’d just take the tax.  Seems a little unfair.

Semantics.

Coalition Agreement on IR35
The Exact Text

There has been a lot of “noise” today amongst the contracting community about the repeal of IR35 which has been promised in the coalition agreement.  I would strongly urge caution… read the wording carefully.  It promises to “review” it; this does not mean that it will be repealed.  It could be replaced by something even more draconian (although that seems unlikely), it could be left alone entirely, or it could be tweaked.

That said, the general tone of the paragraph concerned can only be considered as a positive statement.  It pains me to say that, as politically I support neither of the two coalition parties… but a fair tax system is something I really think we should have.  If I have to pay the same tax as an employee then it should be on the basis of the same terms and conditions – thats fair!

My personal hope is that they find a way to simplify the implementation of IR35; I think its overall aim is fair – two people doing the same job, on same T&C’s should pay the same tax.

Interesting Links for May 5th.

These are my interesting links for May 5th:

Interesting Links for April 20th.

These are my interesting links for April 20th:

Interesting Links for March 31st.

These are my interesting links for March 31st:

  • Ford To Save $1.2m by turning off PC’s. – Ford have developed software which they claim will save them $1.2m annually by turning off unattended PCs at night and the weekends. I wonder if they have accounted for the time spent re-doing work the software doesn't manage to save?
  • Tories may scrap IR35 tax rules for contractors – A suggestion from the Conservative party that they may scrap the onerous IR35 rules which apply to me and many friends. Its not enough for me to vote Tory though!