IR35 public sector changes

IR35 public sector changes

If you read our Autumn Statement predictions and review you’ll already have seen us talk a lot about proposed reforms to IR35 from April 2017. In the Autumn Statement, just two weeks ago, it was announced that reforms for contractors working in the public sector would be introduced on 6 April 2017. Yesterday, 5 December 2016, HMRC released their responses to the consultation earlier this year, additional guidance, and the draft legislation.

 

The changes will apply to all payments made on or after 6 April 2017. It’s important to note that this means all payments, even if the work was undertaken before 6 April or the contract agreed before that date.

 

HMRC have effectively created a completely new form of IR35, despite their assurances not to. Public sector work has been entirely excluded from the old IR35 and is now subject to its own specific “son of IR35”, called Chapter 10.

 

Although there is new legislation the actual basis for assessing “employment status” remains unchanged. Therefore if you were outside the old IR35 then you should expect to also be outside “son of IR35”.

 

The chain of supply

The draft legislation recognises the chain of supply, with the worker’s intermediary at the bottom and the end client at the top, defining the parties between in terms of whether they are higher or lower than one another. The party that pays the intermediary will be referred to as the Fee Payer (“FP”).

 

The FP’s responsibilities

Whilst the end client will be responsible for assessing whether conditions of employment are met, and for confirming the status to the FP, who will be responsible for determining how the new rules apply. To help them, the end client will be legally responsible for providing information on employment status to enable the FP to correctly apply the rules. If the end client fails to do so (within 31 days) they will be held accountable and forced to stand in the shoes of the FP.

 

Although the employment status test remains unchanged, there are fears that end clients will oversimplify the test, and alongside the FP take the line of least resistance, assessing many public sector workers as deemed employees subject to the new legislation.

 

Assessing working relationships

The legislation appears to suggest that the contract itself has a greater part to play in the assessment of working relationships. This is different to current thinking in the contracting industry, which suggests that day to day working practices have far more impact on one’s IR35 status than the contract itself.

 

It was also a surprise that the end client would play a major role in assessing whether the conditions of employment are met, or whether the FP will be able to reconsider the status applied.

 

The explanatory notes accompanying the legislation don’t explain this change, and whilst it does not appear there is any intention to rewrite the general employment test, the emphasis on the contract is still unclear.

 

What happens if you are caught within IR35?

The FP will deduct Income Tax and primary National Insurance from the payments made to your company. You may also find deductions from your normal contracted rate for Employers NI and the Apprenticeship Levy, as these will be liabilities the FP must also meet. Whatever happens, the FP won’t be meeting these costs and expect many contracts to be terminated or renegotiated between now and 6 April 2017.

 

In many respects the FP will account for you as an employee and will expect you to provide them with personal tax details. You are required to provide these under the new regulations.

 

The FP will report the income paid to you and the tax deductions alongside its own employees to HMRC. All very confusing because you will be taxed as an employee of the FP, whilst employed and paid by your company, but don’t for one minute expect that being taxed as an employee by the FP gives you any employment rights or rights to statutory payments or pension auto-enrollment. Government has been very careful to avoid assuming those responsibilities on behalf of the public sector.

 

At the end of the contract the FP will issue you a P45 and you will use that to declare your income on your personal tax return.

 

The worker’s responsibilities

The worker will be responsible for providing personal tax details to the FP, such as National Insurance number and tax code. This is particularly important because an emergency tax code would apply if a tax code is not provided.

 

Permitted deductions from the payment amount

The only permitted deductions by the FP will be:

 

  • VAT included in the payment made
  • Expenses incurred and recovered from the end client (and therefore included in the payment received)
  • Employment expenses incurred by the worker or intermediary

 

How this affects your company

Your company will not have to pay tax on the public sector income assessed as employment income under these new rules, and will be able to claim deductions for capital allowances and pension contributions not previously allowed by the FP.

 

Your company will not need to report any payments made to you personally that have previously been taxed by the FP, but will need to make a repayment claim for tax relief denied by the FP.

 

This is going to make your personal tax and that of the company not just messy but clearly at risk of double taxation. You will need to rely upon advisers that have a very clear understanding of the new legislation, otherwise tax relief may be lost or income taxed twice, especially where you have both public and private sector income.

 

Your company will deal with VAT in the normal way.

 

Intouch and what we are going to do

It’s time for legitimate contractors to have a voice. These proposals were intended to counter avoidance, but the draft legislation will most likely adversely affect legitimate Limited Company contractors. Whilst we have participated at various levels and engaged with HMRC, Government has not listened and has taken a very naïve path in the hope it will get them where they want to be.

 

Intouch will continue to argue the case on behalf of our clients and ensure its services to contractors help ensure their status is correctly assessed and taxed.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

5 reasons the IR35 public sector consultation is one small step for HMRC

5 reasons the IR35 public sector consultation is one small step for HMRC

(One giant leap for everyone else)

 

A play on a famous quote from the Apollo 11 mission (to land on the moon) is where the similarity with HMRC’s mission (to reform the intermediaries’ legislation) ends. Neil Armstrong’s 1969 moon landing was welcomed by all. Unfortunately, the same can’t be said for HMRC’s 2016 IR35 proposals.

 

From 26 May through 18 August – roughly 85 days – HMRC will be consulting with the great and the good about the proposed public sector changes to IR35, which take effect in April 2017. Draft legislation, which will only apply to public sector bodies, will probably follow suit in the autumn. The reforms aim to transfer the burden of determining IR35 applicability from the personal service company (PSC) to the public sector body, agency or third party paying the PSC.

 

Here are five reasons why this doesn’t strike us as a good idea at Intouch.

 

1. HMRC’s IR35 non-compliance statistics are unproven

HMRC claims that a whopping 90 per cent of PSCs (20,000) don’t play by IR35 rules (they incorrectly tax themselves as being outside rather than inside IR35). HMRC estimates that non-compliance will cost the Treasury circa £400m through 2016/17.

 

But Julia Kermode, CEO of the Freelancer and Contractor Services Association (FCSA), begs to differ. She observes that, “there does not appear to be any substantiated data to support HMRC’s 10 per cent compliance claim.

 

Incidentally, the Public Accounts Committee published a report stating that, in 2013/14, PSCs complied with IR35 almost 90 per cent of the time – a wholesale reversal of HMRC’s figures.

 

In light of these statistics, Kermode believes that, “it is inappropriate to persevere with a consultation which appears to have no supporting evidence and where the rationale seems fundamentally incorrect.

 

2. IR35 proposals are unfair, irrational and illegal

Under the IR35 proposals, recruitment firms will be responsible for ascertaining the IR35 status of a worker supplied to the public sector.

 

Bizarrely, they will be held liable despite not having sight of the daily operations of the PSC or its worker (and being unable to confirm the accuracy of the information provided by the worker or the client).

 

According to the Association of Professional Staffing Companies (APSCo), the proposals are “unworkable” because they fly in the face of Article 1, Protocol 1 of the European Convention on Human Rights, which provides that tax systems must be “proportionate, reasonable, public and predictable.”

 

On this note, Samantha Hurley, Operations Director at APSCo, argues that tax law principles dictate that it’s “not reasonable to give parties obligations when they have no means of obtaining the information to fulfil them.”

 

Hurley continues her reasoning (which has been echoed by the Institute of Chartered Accountants in England and Wales): “This is clearly unjust as [recruitment firms] could end up bearing penalties attributable to other people’s lack of disclosure and conduct over which they have no control. The typical recruiter will have to assume that the contractor is inside IR35. This will result in large numbers of contractors in ‘false employment.’”

 

3. HMRC’s IR35 status tool will be inaccurate (and potentially biased)

HMRC has grand plans to devise an ‘all-knowing’ online tool, which the client will use to input information about the assignment to conclusively determine IR35 status.

 

Referring to the online tool, Dave Chaplin, founder and CEO of ContractorCalculator, has this to say: “The finest legal minds in the last 17 years haven’t been able to boil down decades of employment case law into an IR35 questionnaire that provides a binary result. How HMRC is going to achieve this in time for April 2017 is anybody’s guess.”

 

Will the tool be comprehensive enough to cater for all roles, sectors and levels of seniority (à la the current IR35)? Will HMRC be prepared to hang its hat on the tool’s results? Will Joe Public have confidence in them? In reality, the tool will need to have the wisdom of Solomon, the patience of a saint and the trust of all – an unlikely combination!

 

Current thinking in the consultation proposals is that the tool will reach a conclusion in every case: Yes or NO. Intouch is firmly of the opinion that “I don’t know” will be a popular outcome and needs to be catered for.

 

Then, there’s the intractable issue of bias. More often than not, HMRC has lost many a hard-fought legal battle centred on what constitutes an ‘inside IR35’ assignment. It would hardly be a stretch of the imagination if HMRC’s tool toes its own line.

 

Chaplin makes this very point: “The likelihood is that those who are hovering anywhere between certain pass and fail will automatically be deemed within IR35.”

 

4. Contractors’ incomes will fall or contractors will face discrimination

The upshot of the online tool, coupled with HMRC’s inherent bias, is that contractors are likely to be incorrectly put on the payroll and taxed at a higher rate than they should be. According to Deloittecontractors’ average take home pay will drop by 13 per cent if the IR35 proposals go through.

 

Worse still, recruiters may even discriminate against contractors and seek alternatives to meet their staffing needs.

 

5. Contractors will be taxed as employees, but won’t be given employees’ rights

If contractors are taxed like employees, it isn’t unreasonable for them to expect employment rights.

 

FCSA CEO, Julia Kermode, describes the proposals as “unfair, unethical and fundamentally wrong.” Kermode’s is not a lone voice in the wilderness. Chris Bryce, CEO of the Association of Independent Professionals and the Self-Employed (IPSE), says the proposals are “exploitative.”

 

Public sector first, private sector next?

In our view, the IR35 public consultation is part of a much larger HMRC strategy to encourage ‘upstream compliance,’ where taxpayers are educated to get their tax payments right the first time around, which ultimately saves time, resources and increases the ‘tax-take.’

 

As things currently stand, the IR35 proposals are confined to the public sector. But there are growing concerns that, if the proposals are successfully implemented in the public sector, it won’t be long before the Government will venture into the private sector with the same idea (despite “general resistance” by the private and public sectors).

 

So, if there’s ever a time to challenge these IR35 proposals, the time is now. After all, if the system ain’t broke, don’t try to fix it!

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

IR35 consultation hot off the press

IR35 consultation

HMRC has now published the anticipated consultation on IR35 and the public sector, following closely on the heels of the announcement made in this year’s Budget and the discussion document in 2015.

 

The consultation centres on a new online test that HMRC expects engagers to use to determine a worker’s status and therefore the tax they will suffer at source. The reliability and acceptance of that test is critical to the fair application of the new rules. HMRC are inviting interested parties to offer to assist in the development of this test. Intouch has already registered its willingness to contribute to the development of a test that is appropriate, fair and consistent with the legislation and case law, and not just HMRC’s view of the world.

 

We will be submitting a response in defence of the genuine self-employed contractors and we urge everyone who has a vested interest to respond to the consultation. It is our chance to influence HMRC’s understanding of our market and attempt to contribute to the shape of the future of tax, not only for public sector contractors, but the wider freelance and contracting market.

 

The consultation can be found here and it invites all to respond, so let’s have our voices heard.

We’ve unpicked the consultation to see just how fair it is…and whether it really is a consultation. Read our findings in our blog posted on Contractor UK.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

10 facts contractors need to know from today’s Finance Bill

The Finance Bill 2016 – why it’s good news for genuine PSC contractors…bad news for Umbrella workers, their clients and agencies.

Are you a contractor worried about changes to tax relief on travel and subsistence (T&S)? Concerned that you will lose out financially? The Autumn Statement announced that changes were on the way that could affect contractors/ freelancers. Today we’ve found out more and share what the changes in the law mean for Umbrella and personal service company (PSC) contractors.

 

Intouch is at the forefront of tax for contractors and Managing Director Paul Gough, with over 30 years experience in accounting and tax, has completed an initial analysis find out what the draft Finance Bill means to you.

In summary

PSCs who are truly independent and are not “disguised employees” (outside IR35) can still claim tax relief on T&S after April 2016.

 

This will not be the case for many Umbrella workers.

The relevant detail

Today’s publication of the draft Finance Bill 2016 sets out the detailed legislation and now makes these changes clearer:

  • If you are currently an Umbrella worker under the (or right of) supervision, direction or control (SDC) of the client or any party related to them then you cannot claim tax relief on T&S expenses from April 2016.
  • You are automatically deemed to be subject to SDC by HMRC; the Umbrella must determine otherwise with the help of the client.
  • Clients and agencies will have to provide information to help Umbrellas decide on the existence of SDC.
  • The only exception is where all services are conducted at the client’s home (domestic workers for instance).
  • If your employer (the Umbrella) gets this decision wrong then the Umbrella or its directors may have to pay any underpaid tax.
  • If your Umbrella does not pay the tax or the client or agency provide poor information they too may be on the line.
  • If you are an Umbrella worker not under SDC then you can claim T&S relief after 6 April 2016 (but not at source) unless new untested models work when wages are paid.
  • If you are a PSC (Limited Company contractor) and are outside of IR35 then it’s business as usual.
  • PSC contractors can claim T&S relief on travel to the client, and where they are outside of IR35.
  • If you are outside of IR35 then the SDC test is not applied – happy days!

 

HMRC has listened to stakeholders have made it clear with this draft legislation that PSC contractors working outside IR35 are indeed “self employed” and not the same as Umbrella workers.

 

They do enjoy different risks and rewards and as a consequence can claim tax relief for T&S costs.

 

So this is good news for anyone already running their own Limited Company or thinking about going Limited. For any Umbrella workers, it’s a good idea to start asking questions and consider your options so you aren’t forced into unwanted working practices come April 2016. In our next blog we’ll unpick what the Finance Bill 2016 means for contractors and give you ideas on actions you should consider.

 

Does today’s Finance Bill leave you more confident in contracting, or are you a worried Umbrella worker? Share with us how today’s announcements will affect you.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

George the Builder! Can he fix it? George the Builder, yes he can!

George the Builder!

Autumn Statement 2015

Were you panicking before yesterday’s Autumn Statement? Are you a contractor still trying to work out if little news is good news? We’ve scoured the official documents and applied our vast experience in the contractor market to unpick what yesterday’s speech means for you – and we’re pleased that what transpired was far less than was feared. So what did we actually learn from the Chancellor?

 

At 12:30 we, along with the rest of the contractor community, waited with baited breath to see what George Osborne had up his sleeve. He issued his Autumn Statement amongst a background of rumour and sanctioned leaks concerning changes to both Travel and Subsistence (T&S) and IR35. Whilst we know change is on it’s way, we got very little further clarity. By the time we had finished our sandwiches, the uncertainty that had dogged the industry had passed. We’ve analysed what we already know and our experience of how these things work to predict how we think IR35 and T&S will progress – you can read more about this in our Autumn Statement summary.

 

George the saviour?

Yesterday’s speech was made up of an Autumn Statement and a Spending Review –  among many rabbits Osborne pulled out of his hat we saw a U-turn in tax credits, protecting the police budget, half a trillion pounds being pumped into the NHS, investment in infrastructure…and a resounding silence in contractor specific issues such as IR35. In the weeks leading up to yesterday, there had been unprecedented speculation in the media and among the contractor community about what was expected to be a huge blow to Umbrella and personal service company (PSC) workers. Instead, what we heard was a loud sigh of relief from much of the temporary workforce.

 

Beyond the speech

We have long realised that it is not the speech that is the issue but the detailed documentation released afterwards. There were a vast number of publications and announcements that followed the Chancellor’s speech containing much greater detail to what was said.

 

On page 116 of the Blue Book you will find clause 3.20: a single, short paragraph of text setting out the decision on T&S for intermediaries – but once again this confirms that nothing has been confirmed!

 

Our Autumn Statement summary looks at the facts emerging from yesterday. But we know you’ll be most interested in making sense of possible future changes. So we’ve applied our years of experience and industry expertise to analyse what’s happening with IR35 and T&S, the role of supervision, direction and control (SDC) and our best prediction of where they are heading. Download it now.

 

Osborne: friend or foe?

Perhaps yesterday’s shock shows that the Chancellor has bigger fish to fry and he’s putting his energies in tackling the issues that he can actually sort to achieve a positive impact on our economy. It seems that, in the great scheme of things, IR35 (whilst dear to our hearts) comes below tax credits, working families, education, health, policing and security, affordable housing and the living wage. Osborne showed his commitment to protecting what people care about – defence, policing, healthcare – and in doing so may have actually paved the way for contractors who work in these industries. Finding £27bn down the back of the sofa will have no doubt helped!

 

UK plc cannot operate optimally without a flexible workforce and it’s reassuring to see that this government seem to have woken up to the harm they could cause by implementing ill-thought through changes.

 

What became clear yesterday is what was already feared by Umbrellas and if you’re contracting through one at the moment, you’re likely to have just lost your T&S expenses and it’s a good idea to consider your options. If you’re committed to contracting and want to continue enjoying the flexibility and maximise your take home pay, let us help you navigate your choices.

 

What’s next?

The next key date in the contractor diary is 9 December – the day when we’ll find out more about proposed legislation. Then we can more accurately assess the future landscape and plan the way forward for you. Rest assured, knowing we’re on hand to provide the clarity you need around announcements affecting UK contractors. Our clients know they can rely on us to make sense of any changes so they can focus on the job in hand.

 

We’re committed to contractors and work with over 2,000 every day. As an Intouch client you’ll get the best expert accountancy you need translated in a way you’ll understand. We’d love to tell you more – contact us today.

 

Does the Autumn Statement show Osborne as a friend to legitimate contractors, or a wolf ready to pounce when emotion recedes? Let us know your thoughts.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Industry holds its breath as IR35 discussion phase comes to an end

Industry holds its breath as IR35 discussion phase comes to an end

A couple of weeks ago, I summarised the research, industry discussions and viewpoints that went into the Intouch response to HMRC’s Employment Intermediaries and Tax Relief for Travel and Subsistence (T&S) consultation document.

 

The other hot topic on contractor’s lips has been the suggested reforms to Intermediaries Legislation (IR35), proposed in HMRC’s discussion document. Although at different stages, it is important to be aware of both documents as the changes to T&S will impact assessment of IR35 going forward. If you haven’t already, it’s worth reading my previous post to help set the scene.

 

Unlike the Travel and Subsistence consultation document – which is further down the line and gives us a steer of the likely direction things will go – the IR35 discussion document is very much ‘work in progress’. That puts us in a strong position as there is still a fight to be won.

 

At Intouch, our focus since the proposed changes were announced in July 2015 has been to gather industry opinion, contribute to the debate and advise our clients on establishing their IR35 position.

 

This summer might well come to be known as The Summer of Discontent for contractors, for the overwhelming viewpoints expressed during the discussion phase were of criticism and concern for the future.

 

This is why our response to the discussion document is so crucial. It is a chance for the views and ideas of contractors and all those involved in the temporary contract industry to be heard by the decision-makers currently deciding which changes to take forward. It also provides a platform to put forward suggestions for alternative recommendations.

 

We fully support measures intended to promote compliance and level the playing field and understand the challenges facing HMRC. As we emphasised in our response, the majority of PSC workers wish to be compliant, and indeed are, and pay the right amount of tax on time.

 

However, having reviewed the proposed reforms at length, our primary concern is that HMRC has not truly grasped the complexity and variable nature of the temporary contract landscape.

 

As I warned in a previous article, ‘Unlimited Shades of Grey as HMRC closes in on IR35 abusers,’ any over simplified change to the way PSCs are taxed could have the unintended consequence of wrongly applying employment tax to the genuinely self-employed PSC worker.

 

Whilst we have always agreed that the ‘bad eggs’ who deliberately ignore or manipulate IR35 legislation to take unfair advantage of the system should be flushed out, the current HMRC proposals fail to protect the vital role played by PSCs in boosting UK plc.

 

We are not alone in voicing these concerns. In a recent article, ‘Is HMRC listening?’, FSCA CEO Julia Kermode, says the proposed approach by HMRC to specifically target employment intermediaries on claiming tax relief is, “disproportionate, based on false understanding of the sector and will have a significant impact of the flexible workforce in the UK.”

 

As outlined in contractor news sites such as Contractor Weekly, the fear is that contractor rates will start to rise  to cover the differential in tax paid.

 

So what’s the answer? Our response document concludes with a set of guiding principles and recommendations we believe will make IR35 more effective in protecting the Exchequer. A summary review of the Intouch response to both the IR35 discussion and Travel and Subsistence consultation documents can be found in our IR35 and T&S: Proposed changes ebrief.

 

Last month, The Chartered Institute of Taxation (CIOT) put forward a new approach to tackling IR35 abusers, which rejects the ‘Supervision, Direction or Control’ test. CIOT believe this is unlikely to improve compliance and suggests a better alternative could be to introduce an annual reporting obligation on organisations that engage contractors. This would involve the PSC making an initial assessment as to whether or not it considers that IR35 applies and the engager then reporting to HMRC whether or not it agrees.

 

Now the deadline for responding has passed and the industry can do no more but wait to see whether our voices were heard. I expect the IR35 consultation document that follows next will have scant regard to the input from industry experts and fail to explore or even contemplate being distracted from the ultimate goal of increasing the “tax take”.

 

It may try and align the tests for determining employment status with those for claiming travel expenses which, in my opinion, would be a huge mistake. HMRC are trying to solve a difficult problem with a simple solution but if a simple solution were the best solution it would have been obvious years ago.

 

So as the industry holds its breath, it is important to stay calm and try not to panic about the future for PSCs. Although it is of course a consideration, there is more to life than tax relief and most contractors don’t work through a Limited Company for this reason alone.

 

Working through a Limited Company opens up a host of other benefits such as freedom and control over working conditions, flexibility around family life and of course the possibility of securing a higher day rate. A more detailed overview of the benefits to be enjoyed from setting up a Limited Company can be found in our popular guide Limited Company or Umbrella – which is the right choice for you?

 

If you are unsure where you stand in the debate, or would like to know more about how the proposed may affect you, our expert contractor accountants can help you. Speak to us today on 01202 375 562 or email enquiries@intouchaccounting.com.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Contractor’s house of horrors

Don’t let the house of horrors spook you!

Forget The Shining, American Psycho or The Exorcist, sometimes the worries that contracting can cause can be far scarier! But fear not, Intouch Accounting are here to help guide you through each and every process, without the sleepless nights, or worrying if the Taxman is hiding under your bed…

 

Let’s take a look at some of the main concerns Limited Company contractors have and see why they’re not so scary after all:

 

IR35

Whether you’re a seasoned contractor or just starting out, IR35 should always be a consideration when starting a new contract. Whilst you should never let it stop you from contracting, it is something you need to understand and have respect for. Our clients don’t need to worry, as our monthly all inclusive service fee of £98 +VAT includes unlimited IR35 contract risk assessments.

 

Don’t let the fear of ‘what if’ stop you from contracting! In our ebrief: IR35 – the proposed changes we outline exactly what IR35 is, how it could affect you and the proposed changes for April 2016.

 

Claiming expenses

Do you worry about claiming for business expenses, for fear of not remaining compliant? Or do you hold back from purchasing equipment that you need for business, in case you can’t claim for it? Your contractor accountant will be able to give you advice on what you can and can’t claim. Intouch clients can ask their Personal Accountant about claiming expenses whenever they wish.

 

The ways in which you can claim for expenses will change in April 2016. Don’t wait until then; download our ebrief to get up to speed now.

 

HMRC Investigations

Probably one of the scariest things a contractor can face is a dreaded letter from HMRC announcing an investigation! You’re bound to feel some apprehension if you do receive one.

 

Intouch clients can stay cool as a cucumber, as professional fee protection service is included within their monthly fee. That means that if HMRC do decide to investigate them, they’re covered for up to £75,000 of accountancy fees per claim and don’t have to worry about the time or money it will cost. They simply forward their letter onto their Personal Accountant and they will do the rest! Wondering what the other benefits of fee protection service are and why you need it? Take a look at our blog.

 

Travel and Subsistence (T&S)

You’re probably going to have to travel to your client’s offices and that costs money. And what about the other possible expenses you’ll incur, like hotel rooms or food? These worries could put you off taking a contract, especially if you think it’s going to cost you an arm and leg.

 

Don’t panic! Whilst T&S can be a complex area to get your head around, your Personal Accountant will be able to guide you on what you can claim and the best way to do so. Like expenses, the way in which you can claim for T&S will change in April 2016. Take a look at our ebrief to get up to speed with the proposals HMRC are suggesting.

 

Just Starting Out

Considering contracting or have just started out and worried about what’s lurking behind every corner? We appreciate how daunting it can be when you’re new to the contracting game, but by having the right support behind you it can turn from a nightmare into a dream.

 

Why not take a look at the Contractor UK Forum, where you can ask other like-minded contractors questions and get a feel for what it’s like when contracting. If there are other topics you’ve heard of and want to find out more, or simply want access to a whole host of contractor resources, take a look around our website for useful videos and blogs.

 

Don’t let the thought of contracting spook you! Intouch Accounting are here to help you on your journey, by ensuring that you are able to face each challenge confidently and compliantly. Give our team a call on 01202 375 562 to discuss any aspect of contracting and to get you started.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

What are the benefits of having Fee Protection Service?

Fee Protection Service

In our blog last week we announced that we have enhanced our monthly service to include professional fee protection service. In this blog, Paul Mason of Abbey Tax explains the benefits for contractors in having this service.

 

A bit of background may be useful to put HMRC’s enquiry regime into context.  Prior to the introduction of Self Assessment, when you submitted your business or personal tax return, you would receive confirmation that it had been received and its contents accepted in all but about 90% of cases.  The remaining 10% – usually businesses – would either be contacted with queries that were either minor in nature (what we refer to now as “Aspect Enquiries”) or would be subject to an investigation (“Full Enquiry”) where HMRC wanted all the books and records. It should be added that at this point, no-one had yet come up with IR35…

 

The problem for HMRC was that this involved a lot of administration and when they undertook a full blown investigation, they had to give a reason for their enquiry, which more often than not was hotly contested by the accountant, resulting in a long-drawn out process.

 

Self Assessment changed all this.  Now, you only know that you won’t get an enquiry into your most recently submitted Self Assessment return if a year has elapsed since it was submitted (and even then legislation introduced in 2009 gives HMRC a subsequent bite at the cherry); and if you do get an enquiry, you may be able to guess why you were selected from the questions asked, but you won’t actually be given a reason by HMRC. They closely guard their selection criteria for fear of taxpayers changing their behaviour patterns.

 

If selected, then the one thing that we can guarantee: whatever the outcome of the enquiry, it is likely to be an expensive process to deal with.  For many taxpayers, the cost of professional fees in dealing with the enquiry has been enough for them to ask their accountant to get the enquiry closed – even if they ended up paying more tax than they should.  For others, the insult added to injury was paying several thousand pounds in fees to defend themselves, only to find that HMRC had accepted their original Self Assessment!

 

A good example of how expensive – and ultimately frustrating – things can get is IR35.  HMRC start this process by issuing a ‘Check of Employer Records’ letter, which requests all of the contracts in the period under enquiry (usually the last tax year) and asks the following question:

 

“Will you please also tell me whether you have considered the possibility whether the company is subject to what is commonly referred to as the IR35 Legislation? If you have, and have concluded that the company is not subject to that IR35 Legislation, then please explain to me the basis upon which you have arrived at that conclusion.  I am asking this to help me be fully aware of and understand any view you may hold on the application of the IR35 legislation”.

 

By the time you have reviewed the contractual terms (preferably with a professional) and spoken at length to have a detailed understanding of your working practices, and this has been carefully communicated to HMRC making it clear why we believe IR35 does not apply to your engagement(s), you could be staring at the wrong end of a £1,500 bill.  If HMRC decide that they do not accept this response, they will issue you detailed questionnaires to be completed and pursue the end client for their view of the working arrangements.  The resulting professional fees might easily reach£5,000.  If the matter goes to Tribunal, then the costs will escalate by a further £10,000 – £15,000.

 

Thankfully, the fee protection service will take care of the enquiry costs.  We can therefore focus on providing the best defence without you worrying about how much it is costing you.

 

So whether HMRC are challenging your VAT returns (checking the operation of the Flat Rate Scheme has been a high priority in recent years); or they are wanting to enquire into any travel and subsistence claims on your tax return; or decide that your engagements are caught by IR35, the fee protection service is there to help us support you when you most need it.  We want to ensure that when the Inspector calls, the odds are never stacked against you.

 

Get the service and cover you need to contract successfully with total peace of mind. Call our advisers today on 01202 912 831 to discuss your circumstances, or take a look at last week’s blog to discover what’s included in the new fee protection service.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.