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Tag: IR35

IR35

  • Coronavirus – Loans, Grants & Tax – Small Businesses

    Here’s a quick summary of the sort of practical help notified this afternoon by the Chancellor. Together with a reminder of some useful tax rules which may also help with your cashflow.

    Business Rates:

    • No rates payable for 12 months for any business in the retail, hospitality or leisure sectors.
    • In those sectors, if your rateable value is less than £51k, you’ll also receive a cash grant of up to £25,000.
    • Any business which gets small business rates relief, will receive a cash grant of £10,000 (increased from £3,000 announced in the Budget).

    Government Backed Loans:

    • These should be available from your bank early next week starting 23 March and further details will be issued shortly. 
    • The government guarantee is for 80% of the loan, so your bank is likely to need some security for the other 20%.
    • No interest will be charged for the first 6 months.
    • The interest rate will be favourable and the term from 3 months to 10 years.
    • If you expect your business to recover from the disruption because you have a sound business, you may wish to take a loan out.

    Mortgage Holiday:

    • At least a 3 month mortgage holiday for those in difficulty, from your lender.

    Insurance Claims:

    • Insurers will pay out against policies that cover pandemics.

    Universal Credit:

    • If your income has dropped you may wish to access the benefit system.
    • This was made easier as announced in the Budget.

    Statutory Sick Pay (SSP):

    • If you’re a director of your limited company, you can pay 2 weeks if you need to self isolate.
    • The government will refund this £94 per week, maximum £188, to your company.
    • It will also refund SSP for your staff for up to 2 weeks to your business or your company.

    Using Existing Income Tax and Corporation Tax Rules:

    • As we’re near the end of the tax year, get your income tax return in as soon as possible from 6 April 2020, for a possible refund of some of your January 2020 tax payment. And know the exact amount due in July.
    • If you make a sole trader or partnership tax loss to 5 April 2020, generate a tax refund by carrying the loss back to 2019.
    • If you’re a start up sole trader or partnership, this loss can be carried back 3 years to generate a tax refund from your previous PAYE job or even from rental income.
    • If you’re a limited company and make a loss in your current year end, carry it back by a year to generate a tax refund.
    • If you’re working from home more than usual, claim more costs against your taxable income for your home office.
    • The sooner you get tax returns sent in, the sooner you can benefit from the above.
    • Getting your return in early, doesn’t bring forward any tax payment dates, but it does bring forward tax refunds.
    • A return of Time To Pay help from HMRC, where you phone HMRC to agree a delay in paying your tax. Have a realistic proposal ready that you expect to adhere to.

    Off-Payroll Working (IR35) Delay:

    • Freelancers and consultants worried about getting taxed as an employee from 6 April 2020, have a year’s reprieve until 6 April 2021.

    Thank you and stay well.

  • Springing Tax Changes On Us From April 2020

    With the spring Budget less than two weeks away, it’s easy to forget some major changes due to come in this spring unlikely to be changed by the Chancellor. 

    Property Interest Tax Relief – Full restriction

    Four years ago this seemed a long way off, but we’re now here. From April, there will be no tax deduction for interest on your buy-to-let mortgage. You’ll get a calculated tax credit at 20% offset against your tax bill, but your taxable income is reduced only by repairs, professional fees, void period costs, etc.

    This means you’re more likely to find yourself in the higher rate tax band than before or having to pay back child benefit. Or even at the £100k threshold where your tax free personal allowance starts to get taken away. 

    Property Sales – Reporting and paying capital gains tax within 30 days of completion

    A major change for UK resident taxpayers requiring taxpayers and their conveyancing solicitors to take action early on in the sales process. Your accountant will need to know of the sale and complete an online form to calculate the capital gains tax due and advise you how much tax to pay within 30 days of completion. A payment reference is required, so the practical dealdine is a few days before that.  

    Your home where no capital gains tax is due is exempt, as are small gains under £12k, or where you have sufficient capital losses to offset the gain.

    Property Sales – Reduced reliefs available

    Unfortunately, at the same time, presumably deliberately(?), there will be higher property taxable gains due to changes in the calculation of capital gains tax on the sale of a home in which you lived and subsequently rented out.

    The valuable ‘lettings relief’ is going completely and the deemed tax free period before sale is being reduced from 18 months to 9 months. Apparently, 9 months is plenty of time to sell a property. I’m not sure many estate agents would agree with you in this market. 

    IR35 and Off-Payroll Working – Your client will determine your status

    Getting a lot of publicity already, the Chancellor has said this will receive a soft landing. However, it has spooked many large businesses into cancelling all freelancers and consultants, reducing the work available in this sector despite suiting both parties very well and where significant amounts of tax are still paid. 

    Try to agree with your client that you are independent and shouldn’t be treated like an employee. If this doesn’t work, you should become an employee ‘proper’ and receive all the benefits associated with it. IR35 is the worst of both worlds!

    Research and Development – R&D – Restriction to payable tax credits

    The cash refund part of R&D paid to loss making SMEs will be restricted to 3x their PAYE bill. As many SMEs don’t have much of a PAYE bill, for all practical purposes this is being taken away. It has been a useful cash injection for many start ups who will now need to fill the gap from other sources such as external investors, crowdfunding or owner loans.

    At least when they take on a freelancer, SMEs aren’t affected by the new IR35 rules mentioned above and can carry on as before. 

    Electric Cars (EV) – Super Charged Tax Reliefs

    To end on a positive note, non ICE cars are really worth a look at for the business owner. Where your company buys a 100% EV, there are 100% capital allowances to reduce your taxable profits and no taxable benefit on you, with minimal increases over the next few years.

    Keep an eye on the rules after that, but, for now, you may want to take advantage of some good tax news amongst the less-appealing other tax news referred to above.

  • Don’t Be Dwarfed By The Tax System – Seven Ways To Make Tax Less Taxing

     

    Dear Sajid Javid

    Following your ambition to simplify the tax system and as we approach your 1st Budget, may I pass on a few things that will make a difference to business’ actual experience of the tax system.

    Many good people looking at simplification tend to make changes from a macro viewpoint. Here, we’re looking at the micro level. The things that make people scratch their heads every day of the week.

    1. How many tax references do you need?

    A VAT registered owner-managed limited company with even only one shareholder-director has to obtain SIX different tax references, which arrive in different formats from different departments: 

    1. Government gateway
    2. Corporation tax
    3. VAT
    4. PAYE
    5. PAYE accounts office
    6. Income tax

    Not forgetting if there’s overseas trading, they’ll need a further VAT reference and in the construction trade, another reference. In the confusion they often end up setting up numerous government gateways. 

    There are attempts to make the system look combined but it soon breaks down into the same old silos once you scratch under the service. Please do not believe this is getting better.

    1. Names given to tax reliefs

    Please revisit the names of the following reliefs: 

    Substantial Shareholdings Relief – Part of the government’s business friendly agenda, to qualify and save capital gains tax, a company needs to own only 10% of shares in another company, hardly ‘Substantial’. Companies and many accountants miss out on this relief. 

    Adjusted Net Income – Affecting high earners and the amount of pension they can pay with tax relief, this is NOT net of tax. This is GROSS income and easily misunderstood so that unexpected tax bills arise. 

    Reinvestment Relief – This applies to SEIS capital gains tax savings when a gain is reinvested into SEIS shares. EIS also offers capital gains tax relief when a gain is reinvested into EIS shares. It’s not the same outcome (delay instead of reduction) but with both requiring a reinvestment into new shares, it’s endlessly confusing.

    1. Van tax

    What is a van? 3 different things according to the tax system depending on whether it’s:

    1. VAT
    2. Benefit in kind
    3. Capital allowances 

    Get this wrong and even taxpayers who run a simple van-based business, might get caught out and suffer financial hardship later.

    1. Change of company address

    With over 70% of limited companies registered at a home address, it’s quite common for the address to be changed. However, you can’t do this direct with HMRC. You change it with companies house and wait forever for that simple bit of information to be sent and/or dealt with by HMRC.

    If there needs to be the link, please ensure the information is acted upon. With electronic communication surely this should be almost immediate?

    There’s no point even trying to get the year end changed with HMRC via companies house. An accountant just has to do a workaround. If clients haven’t used an accountant before, they tend to appear at this point.

    1. CT61s

    Often needed when paying interest on a loan, perhaps to a shareholder-director for lending money to his/her company to help get it off the ground or expand.

    These forms record the income tax which still needs to be deducted despite the new £1k ‘simplification’. If tax still has to be deducted, surely the form should be available online? It’s about the only one that isn’t.

    Why the added administration for a busy start up who is responsibly lending money to ensure his/her company can pay its creditors. What’s so bad about that?

    1. IR35 and off-payroll working

    This gets more and more confusing. Recent Tribunal cases turn on a single judge’s casting vote, so how is anyone else supposed to decide?

    Surely the definition needs to either be very simple, such as after 2 years working for the same single client, you’re deemed an employee. Or people weigh up the pros and cons of being an employee and decide for themselves. With the new dividend tax, the government is now receiving some NI ‘replacement’.

    1. Agent Authorisation

    Due to the above, businesses need to use qualified accountants, who have to navigate HMRC’s agent gateway. To become an agent for a company the only box that works is the postcode and don’t forget to put the space in the right part of the postcode! No other website is so sensitive in this and other areas.

  • #Budget2018 – IR35 – What yesterday’s press release should have said

    If your clients are medium or large businesses, they’ll be deciding whether you’re self employed or an employee for tax deduction purposes only. Or put it another way, if they are a small company, the rules don’t apply and you may be able to continue as normal.

    If your client decides that you’re effectively an employee, then your client (or its agency) will need to deduct income tax, employee NIC and pay employer NIC without any associated employment rights.

    This means:

    1. Consultants, you are likely to suffer the employer’s NIC because your clients won’t be willing to pay it. If they’d needed and budgeted for a permanent employee you or someone else would presumably be on an employment contract, with all the benefits of that.
    2. This leads us on to the very uncomfortable outcome that a Consultant may pay full PAYE income tax and NIC, but without any employment rights at all.
    3. The mechanics of this are predictably complicated and involve a payslip being issued to your limited company, although your company’s accounts will show it has paid you dividends.
    4. Issuing invoices and being VAT registered makes no difference. Your clients work with the net of VAT invoiced amount and deduct tax from that, regardless of how you’ve taken the money out of your company.
    5. Regarding whether your client is a small business, if the usual Companies Act definition is used, your client should be under at least two of the following:
      • Turnover < £10.2m
      • Gross assets < £5.1m
      • Number of employees < 50
    6. How will you be able to check if a prospective client is small or not? You could look at filed accounts at Companies House, but these don’t have to be filed until 9 months after the year end.
    7. Will you have to trust your prospective client to get this right? Will procurement managers have this information? What if it changes mid-contract? Who will pass on this information to you, the procurement department or an agency? Does the definition of small also apply to the agency?

    What can you do about this?

    1. You may decide to work only for small companies! You’ll need to ask for written confirmation that your clients are small and are therefore not applying these rules. Try to have contract terms that your clients will pay any tax due if they make an incorrect assessment. Commercially, however, this may be unlikely!
    2. On the other hand, if your clients are medium or large, you’ll need reassurance they still regard you as self employed. HMRC has a ‘CEST’ tool (Check Employment Status for Tax) but it has its limitations.
    3. Your clients are expected to use the CEST tool to determine whether you are self employed or an employee. If they get a favourable result, ask for a copy and keep it on file in case of a future enquiry. If they get an unfavourable result, ask to look at it in case it’s been used incorrectly.
    4. HMRC recently admitted that the tool isn’t required if there’s no Mutuality of Obligation (‘MOO’) to offer and accept work. Tribunal cases have confirmed this point. If this stands, then being self employed might simply be determined by that point, if it’s clear.
    5. If your clients insist they need to apply these rules and they have assessed you as an employee, have contractual terms that mean they pay the employer’s NI if, commercially, this is available to you.
    6. Consider whether you can increase your fees to offset the increased tax burden. Again, commercially, this may not be available to you.
    7. If you do have one longstanding client, you may decide that now is the time to end your contract and apply for a different employment with them or another business. We’ve seen this to some extent with the public sector version. At least you won’t pay employer’s NI and you’ll get employment rights in return for paying PAYE.

    There is a consultation period and we expect many comments will be given resulting in clarifications or even improvements to the above! 

     

  • Uber reaction – How should businesses react to recent employment law cases?

    Why does it matter?

    As a business owner, HMRC may decide that your longstanding sub-contractors are actually your workers or employees for tax purposes and should be subject to higher rates of national insurance. This is in addition to providing workers’ rights under employment law.

    How can you be self-employed, a worker or an employee?

    It used to be simpler to know whether you’re taking on an employee or a self-employed sub-contractor or supplier. The EU introduced a new definition of worker, a sort of hybrid between the two, which has caused some confusion. 

    What’s the point of being a worker?

    A worker enjoys many rights, just not quite as many as an employee. For example: 

    • Statutory maternity pay but NOT statutory maternity leave
    • Statutory paid holiday but NOT the right to time off for emergencies
    • Protection against unlawful discrimination but NOT protection against unfair dismissal

    So my self employed sub-contractors could win an employment law case, be classed as a worker, enjoy all the benefits but not necessarily pay any additional national insurance?

    Yes. In addition, you’d be required to include workers in pensions auto-enrolment paying up to 3% employer pensions contributions.

    HMRC might also require me to pay employer’s national insurance (13.8%) and deduct employee national insurance (12%) and income tax from the payments I make? 

    Yes.

    Does this additional national insurance buy the worker any more benefits?

    Not much. Assuming the worker already paid self employed Class 2 national insurance, the additional benefit is an enhanced job seeker’s allowance, if he needs it.

    That doesn’t make much sense.  I thought national insurance was a system you paid into to buy extra benefits.

    The state pension will usually be the most valuable benefit, but this is currently available anyway by paying £153.40 per year self employed Class 2 national insurance. 

    What should I do?

    1. Review all your contracts and practices with your self employed sub-contractors and suppliers to establish whether in the light of these recent tax cases they may be seen as workers or employees. 
    2. Use HMRC’s new Employment Status Tool to see whether HMRC agrees that your sub-contractors are self employed or not.
    3. If not, don’t necessarily rely on HMRC’s conclusion which ignores a vital Mutuality of Obligations (MOO) test. 
    4. Decide whether your contracts need to be amended to reflect your business arrangements more accurately or if you need to set up new employment contracts. 

    How does this apply to my limited company which provides services to my clients?

    If, through similar tests, you were found to be an employee of your client and caught within the ‘IR35’ rules, your company is obliged to pay PAYE and Class 1 employee and employer national insurance. As this wouldn’t have been factored into your pricing, this will make a big dent in your profits. 

    What should limited company contractors do?

    You can follow similar advice to above checking the details of your contracts and practices with your clients, as the points at issue are the essentially the same.

    This is a developing area of tax and employment law, so please check with your advisers before making any decisions.