Unlimited shades of grey as HMRC closes in on IR35 abusers

HMRC closes in on IR35 abusers

As the post-Summer Budget dust starts to settle, there is a hotly debated topic still keeping contractors awake at night. Last week I started to look at the proposed changes to dividend tax, which form part of a series of wider reforms to the Intermediaries Legislation, commonly known as IR35.

The publication of HMRC’s IR35 discussion document in July has triggered a growing sense of unease amongst the contractor community. The big concern is that these latest attempts to achieve clarity will only serve to move the onus of declaring a worker’s status from the worker themselves, to the reluctant client.

The story so far

In order to get on board with the so-called “Rationale for Change”, it is important to first understand the current situation…

Under the current ways of trading with a client, self-employed workers have been able to use employment intermediaries such as Umbrella companies, employment businesses and Personal Service Companies (PSCs) as a way to reduce their tax and National Insurance payments.

As a result, people pay different levels of tax depending on whether they are employees, self-employed, or work through their own Limited Company.

An example of this is a contractor being able to claim tax relief for travel and subsistence costs to and from their usual place of work, whereas an employed worker doing exactly the same job would have to grin and bear it with no tax reliew for themselves. It is this disparity that the Chancellor, George Osborne, wants to even out.

Who is at risk?

Most contractors are operating fairly and squarely through these employment intermediaries and have legitimate and justifiable reasons for working through a Limited Company, such a the protection of limited liability, greater flexibility and long-term planning options. However, some are taking unfair advantage of the system and it is these “abusers” that the Chancellor has set his sights on catching.

In my view, anything that helps police the industry more effectively and “level the playing field” so it is fair to all, is a good thing. By tightening the noose on IR35 abusers, the Chancellor is paving the way for legitimate PSCs to get on with what they do best and being recognised for the valuable contribution they make to the UK’s flexible workforce.

Understandably the fear is that, rather like trawling the ocean to catch a few naughty fish hiding in the shadows, many compliant businesses will be caught up in the new measures designed to better fill the Treasury’s coffers. The other contentious matter is introducing the concept of “fairness” to a moral and ethical debate. How can ‘fair’ be anything other than subjective?

As you can see, the situation is not as clear cut as HMRC would like us to think. The Treasury’s promise to the Chancellor that the IR35 reforms could help raise an additional £430 million is, in the view of many commentators, unrealistic.

There may be trouble ahead

A key flaw in the discussion document’s suggestion is the proposal of putting the responsibility of assessing a contractor’s IR35 status onto the engager. This is likely to cause a serious headache for UK employers. Why does HMRC think engagers will be any more accurate in doing this than the worker, unless it is accompanied by transfer of debt provisions?

To me, this is where the reforms start to unravel. Is the tax man seriously expecting people to put up their hands and declare, “I am Spartacus!”?

The current guidance for identifying “supervision, direction or control” [see ESM2029 for examples] to help assess the worker’s tax status is, in itself, entirely based on hypothetical examples and open to misinterpretation in the real world. This is a subject I will be exploring in more detail on the Intouch blog over the coming weeks.

The constant challenge for HMRC is deciding who should, or should not, be either side of the IR35 dividing line. In an ideal world, HMRC would like to make every PSC worker or self-employed contractor fit in a neat little box and put the onus on the engager to determine where they slot in on the compliancy scale.

After reading the discussion document, you would be forgiven for thinking that every individual case is easy to assess. The case study examples are so clear cut and unrealistic it’s almost caricature.

For as we know, the reality of whether IR35 applies or not is anything but black and white. In fact, there are so many shades of grey in between that there are almost unlimited ways to argue the situation.

This is why HMRC has struggled to enforce legislation in the past. So although its good intentions are to be supported, viewing the current landscape through an oversimplified lens and merely playing around with subjective rules is unlikely to improve effectiveness of the current legislation.

To make a real difference, HMRC needs a system that sorts the wheat from the chaff, and can identify abusers based on something other than gut feel. They should not be scared of rapid expansion in a modern method of working just because the Treasury would be better off if we were all permanent employees.

I have no doubt HMRC recognises and accepts the reality of this deeply complex issue and wants to develop solutions that work within the grey areas as well as the black and white ones. The discussion document asks for help and, as stakeholders, we must respond responsibly and impartially. It is still better for Spartacus to identify himself rather than letting the soldiers of HMRC do it.

There’s no doubt the industry faces change ahead. But rather than hiding away, now is the time to fasten your seatbelt and talk to your accountant about what changes you might need to put in place to reinforce best practice standards and compliancy.

If you haven’t already, I recommend anyone who suspects they might be affected by the changes should read HMRC’s Intermediaries Legislation (IR35): discussion document or speak to your trade body and get involved in the conversation while you still have a chance to make a difference.

At Intouch our priority over the weeks and months leading up to next April is to advise and support our clients making the correct decision on their IR35 status.

If you are concerned about the proposed IR35 reforms or your compliancy position, give our team of expert contractor accountants a call on 01202 375491 and let Intouch make this complex issue a simple one to resolve.

 

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.

Summer Budget 2015: Changes to Dividend Taxation

2015 Budget aftermath: A look at what the dividend tax change means for contractors

Across the country, contractors are still reeling after the changes announced in the Summer 2015 Budget (see our full Summer Budget review here). In particular, the community has been awash with speculation and concern regarding the Government’s pledge to introduce a new taxation system for dividends taken from companies.

Under the current regime, there is a 10% tax rate for dividends but this is cancelled out by a 10% tax credit, meaning basic rate taxpayers receive dividend income tax-free. According to our man with a plan, Chancellor George Osborne, this system is “Arcane” and “Complex.”

The result of this thinking has been an overhaul of the current dividend tax system, with a new – and supposedly simpler – £5,000 tax-free dividend coming into play from April 2016. So far, so good you might say. However, with the introduction of this new limit comes the creation of three new dividend tax bands, which will apply to all dividend income in excess of £5,000 per year, as follows:

  • 7.5% (basic rate)
  • 32.5% (higher rate)
  • 38.1% (additional rate)

 

So what can you do about it? Well the first step is to make sure you understand the changes and what they mean for you and your business model. Let’s take a look.

Does it affect you?

The majority (around 85%) of UK taxpayers will, in fact, be safe from the changes thanks to the £5,000 tax free allowance. At normal rates of dividend yields, you would need to own £140,000 worth of shares before you hit that £5,000 sweet spot and the new dividend tax kicks in.

I predict the most affected community will be the middle income entrepreneurs. This will include freelancers and contractors trading through their own Limited Company (see our post on the advantages of contracting through a Limited Company), as well as any family owned businesses that have previously used dividends to reward shareholders, who may or may not also be employees.

The Government appears set on removing the incentive for incorporations that are motivated primarily to allow freelancers and contractors to save National Insurance by setting up as their own boss. It seems an interesting coincidence that the new 7.5% dividends tax works out at the same amount (roughly) as a basic rate taxpayer would save on National Insurance using dividends.

But this is a short-sighted strategy, for it is unlikely to deter people who should have been operating as a Personal Service Company (PSC) in the first place. Instead, it will add an extra tax burden to small and medium sized entities, which create jobs and wealth for UK plc.

I expect it will deter tax motivated incorporations for the vulnerable and lower paid contractors. However, is the likely additional ‘tax take’ from those individuals really worth the political criticism from attacking entrepreneurs?

“How can the Government get away with it?” you may ask. Well, the Chancellor has used smoke and mirrors to distract the business community with talk of a longer-term aim to allow further reductions in the rate of corporation tax. I’m afraid I don’t buy it. To me, this feels like a tax raid upon small and medium sized enterprises (SMEs), micro and nano businesses set up by entrepreneurs in the UK.

How will the changes affect your income?

For contractors and freelancers who earn up to the basic rate ceiling and take a salary of £8,000 and £31,000 dividends, their tax bill will rise by around £2,000.

While this is not an insignificant sum to be taken lightly, the reality could be that the impact is still less damaging than the sacrifice of other perks if a contractor returned to PAYE status. To me, the advantages of contracting – both in the immediate and long term, such as planning for retirement and pension funding – far outweigh the initial financial hit of this dividend tax change.

So as you can see, this is not just an issue for the contracting elite. It affects any business where the owners are also employees. For this reason, I believe this latest raft of changes is an attack on all small family and close company businesses, not just one man band contractors.

If you are unsure about how the changes will affect your income, it would be wise to speak to your accountant sooner rather than later. 

Remember the benefits of going solo

Contractors considering jumping ship and heading back into permanent employment would be well-advised not to make a hasty decision they may later regret.

At times like this, it can be tempting to start reviewing your business structure or how your company directors are paid. But my advice is this; Keep calm, and talk to an accountant.

In the same way share valuations can go up and down, taxes tend to ebb and flow with the political agenda. It is therefore crucial not to panic and make knee jerk reactions without first doing the sums and remembering the reasons why you went solo in the first place.

There are still benefits to be had by keeping your business model simple, remaining as your own boss and weathering the changes. It might turn out to be just a storm in a teacup.

What should you do next?

If you don’t already have a contractor accountant, now would be a good time to appoint one. I assume most advisers will be very busy in the run up to 5 April 2016, working out if large dividends should be paid before the rules change, along with which family members should be added to the share register.

The contractor landscape can be daunting enough as it is, so why not give us a call on 01202 375491 and let our team of expert contractor accountants guide you through the choppy waters left in the wake of this Summer’s budget?

In the meantime, watch out for more discussion on this issue over the coming weeks on the Intouch Accounting blog. To subscribe, simply fill in your details below so you can receive the latest industry advice, comment and analysis direct to your inbox.

 

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’s left for contractors?

What’s left for contractors?

The Summer Budget dealt a heavy blow for contractors who are rightly feeling pretty bruised after Wednesday’s announcements. Chancellor George Osborne seemed intent on delivering very little to inspire confidence in the contractor market. Our post-Budget blog picked out the opportunities and challenges contractors are now faced with.

Some commentators have speculated that the Government is making a stand against ‘tax-motivated incorporations’ in an attempt to move all contractors back to PAYE and boost the coffers but we also know the job market is shifting towards a flexible workforce and the skills so many contractors offer are still sought throughout the UK. Their demand will be heightened as companies look to invest and grow without necessarily increasing headcount.

Here we look at the advantages of contracting through a Limited Company:

  • Control over what money you take out of the company and, therefore, the tax paid now so you mitigate the higher tax rates. There’s no doubt you’ll continue to pay much less tax than an Umbrella worker who must take all their income, even if they don’t need it. Working with your contractor accountant will help you ensure you have the most tax efficient income planning to suit your needs.
  • Leaving surplus money in the company will mean avoiding higher taxes. And when you are ready to release that surplus to yourself consider closing the company and releasing cash as a capital gain that suffers less tax than dividends.
  • Flat Rate VAT Scheme – this was introduced to make filing a VAT return easier for businesses where initial turnover is less than £150,000. Companies simply pay HMRC a flat percentage which means that part of the VAT charged to clients is retained by contractors.
  • More claimable expenses – it’s true that it seems very likely that the already planned clamp down on travel and subsistence expense claims for Umbrella workers is going to extend to personal service companies.  For Umbrella workers, the end of expenses, including accommodation, travel and subsistence, was previously announced in March 2015 Budget and so really is in sight. PSC contractors, however, will only be subject to the proposed rules if they are subject to supervision, direction and control (SDC). They can negotiate SDC individually with clients and the best outcome therefore remains available. But even if you lose tax relief you won’t be any worse off than Umbrella or permanent employees.
  • In a genuine twist to the Summer Budget HMRC released a consultation on draft legislation previously proposed in the March 2015 Budget.  Benchmark Scale Rates (BSR) are flat rate expenses that can be reimbursed as an alternative to actual expenses and are intended to ease administration. Previously contractors would have to request their use and often requests were accompanied by conditions that were difficult to manage for single person companies. The draft legislation places BSR on a statutory basis meaning that entitlement appears more accessible. Although guidance will follow before 6 April 2016 and we can expect some conditions to remain the use of BSR may soften the blow of other changes.
  • Multiple shareholders – as a company you should look carefully at the shareholders who receive dividends and in the right circumstances keep higher rate taxes to a minimum by careful planning of dividends and who holds shares in your company.
  • The positive connotations of being a Limited Company has many advantages when it comes to securing work, especially as many organisations, including government, will only employ contractors operating through a Limited Company.
  • If you’re intending to contract for the long-term you’re still most likely to be better off in real terms by forming your own Limited Company. The total long-term benefits (of which tax is only one) far outweigh the costs and administration in setting up and running your company.
  • Being your own boss and have complete control over your finances and your business, along with all the lifestyle enhancements that go with this. You choose how you organise your tax planning to reap the maximum net income for your work and how much you need to work to achieve your financial goals. Working with a contractor accountant makes this even easier!
  • Being outside of Agency Workers Regulations (AWR) can greatly help you when you are seeking work via some agencies. AWR regulations don’t apply to Limited Company contractors, like they do an Umbrella worker, so there will be less administration for  the agency.

 

There’s no doubt that having your own personal service company is still more lucrative than operating under an Umbrella. The extra 7.5% tax on dividends remains substantially less than the combined effect of Employee’s (12%) and Employer’s (13.8%) National Insurance suffered by Umbrella workers.

 

In times of uncertainty it’s perfectly natural to feel anxious or helpless. For now the contractor community must ride the storm and avoid knee-jerk short-sighted reactions. Contractors are a vital part of the UK workforce and economy and you have a voice. Here are some things you can be doing now:

  • Speak to your contractor accountant about how the recent changes will affect you. That way you can mitigate the potential pitfalls and take advantage of the opportunities.
  • Upgrade your accountancy service – don’t try and do everything yourself. Working with a specialist contractor accountant, you can safeguard your future and not let the Government dictate your working practices.
  • Don’t settle for second best – if you already have a contractor accountant but don’t feel you’re getting the best from them, explore what you can get from other providers. With Intouch you get the combination of online accountancy software and unlimited personal advice for an all inclusive fee of £92+VAT a month.

 

Intouch will be remaining very firmly part of the discussions and government consultations, actively representing the best interest of contractors. We are here to serve our clients and fight the contractors’ corner.

 

Contact us today to discuss joining Intouch Accounting.

 

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.

July 2015 Budget – what does it mean for contractors?

July 2015 Budget

Yesterday Chancellor George Osborne presented his first Tory Budget to the House of Commons.

 

He optimistically presented it as a “Budget for working people” that creates a “sensible path for the benefit of the whole of the United Kingdom”. He reported that the British economy is fundamentally stronger today than it was five years ago and that it is growing faster than any other major advanced economy. Osborne is confident his plans will boldly back the aspirations of working people and suit a country with big ambitions.

 

We’ve unpicked exactly what this means for contractors – it’s immediately clear how some of the pledges will impact this community. With others, the coming months will reveal more and we’ll be keeping a keen eye on the proposed changes and what they mean for you. We’re involved in the conversations right at the top level and will continue to actively and aggressively champion contractors’ cause. We’re here to speak up on your behalf against the unfair and inappropriate suggestions put forward by government and remain an active part of the consultation discussions.

 

What is clear from yesterday is that changes are afoot for the contracting community and while Umbrella companies and workers will suffer the most (and soon), Limited Company contractors continue to have more opportunities to get the most out of contracting. And those who engage the services of an expert contractor accountant will certainly benefit more than those who rely on accountancy software alone to get them through. After all, keeping tidy records is one thing; having the know-how to make sure you’re getting the most while remaining compliant is quite another.

 

We’ve picked out the Budget announcements that contractors will be most interested in:

The challenges

 

    • In the March Budget no mention was made of IR35. Three months on Osborne clearly stated that consultations will take place soon to deal with the increasing abuse of the rules around disguised employment when working through a personal service company. On the face of it, this shouldn’t affect most contractors operating legitimately as long as you are able to demonstrate you aren’t operating as a disguised employee. But it will be more important than ever that you get every contract you undertake assessed for the level of risk you face under IR35. We’ll be part of the discussions and have already been invited by HMRC to take part in the consultation. We’ll be there to represent the interests of contractors.
    • The lifetime of the Office of Tax Simplification (OTS) has been extended. Earlier in the year it wasn’t clear if it would survive beyond the election but now its role has been extended and it will be looking at small company tax matters. This will include personal service companies.
    • The permanent non-dom tax status will be abolished and by April 2017 those who previously positioned themselves as such will pay the same taxes as everyone else.
    • Dividend tax credits will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016. After this amount, tax rates on dividend income will increase incrementally. Put simply, those who have a modest income (i.e £5,000 or less) from dividends will see either a tax cut or no change in the amount they owe; those with significant dividend income will pay more tax. It’s likely many contractors will need to reconsider the split between what they take as salary and what they take as dividends.
    • A consultation document has been issued following the March Budget’s limitations to Umbrella workers’ travel and subsistence (T&S) claims. Following our earlier involvement in the debate, Intouch has been invited to further round table discussions on T&S and we will be making sure that the contractor voice on this subject is heard loud and clear!
    • Employment Allowance has been removed for companies where the director is the sole employee. At this stage it is unclear if this will apply for companies which have a spouse second employee and we await further clarity on this.
    • The National Living Wage will increase to £7.20 an hour for over 25s in April 2016. This will rise to over £9 an hour by 2020. Any change may well affect spouse wages that are paid.
    • Tax relief for buy to let landlords will be restricted to 20% for all individuals by April 2020. In addition ‘wear and tear allowance’ will be replaced by a system that only applies if the landlord actually replaces furnishings.

 

The additional pledge by Osborne to increase HMRC resources to make sure people pay the tax they owe may set alarm bells ringing for some but knowing what you can do and remaining compliant doesn’t need to be a headache for you if you have the services of a reputable contractor accountant at your fingertips.

 The good: 

    • Forecast for jobs growth, created by businesses with the confidence to invest, to grow and to hire. This could be the boost contractors want to hear as businesses launch projects they may have been holding off on while they awaited Budget news.
    • The tax free Personal Allowance will be increased from £10,600 in 2015-16 to £11,000 in April 2016. The longer-term plan is to increase this to £12,500 by 2020 but we hope to see this come into effect sooner.
    • The 40% higher rate income tax threshold will increase from £42,385 in 2015-16 to £43,000 in 2016-17.
    • Corporation Tax will be cut to 19% in 2017 and 18% in 2020.
    • Inheritance tax is set to change and from 2017 the Government will phase in a new £175,000 allowance for your home when you leave it to your children or grandchildren. This is in addition to the existing £325,000 threshold which will be fixed until the end of 2020-21.

 

- Both allowances can be transferred to your spouse or partner.

- Those who choose to downsize will not lose any of the allowance from the property they used to own.

- In some cases you will be able to pass up to £1 million on to your children free of inheritance tax.

- Subject to relief will be tapered away for estates worth more than £2 million.

 

    • Free childcare for working families with three and four year olds will double from September 2017, from 15 to 30 hours. This should have a significant impact for all contractors with children, in particular single parent families and mums planning to return to work. In addition the childcare voucher scheme continues until early 2017 when the new tax free childcare is introduced.

 

Tips to help you manage outcomes from today’s Budget:

  •  The ongoing T&S consultation suggests that all PSC contractors look at their working practices and contracts to determine how HMRC’s proposed plans might affect them. Do this before the final legislation comes into play in April 2016 if you want to protect your expense claims for travel and subsistence.
  • If you are working through an Umbrella company then now is the time to think about the future. With most of your expense claims becoming ignored or taxable and the threat to your mileage claims following the T&S consultation you may find your income dropping off quickly after April 2016.
  • If you’re not already using a specialist contractor accountant, consider engaging one sooner rather than later. They are best placed to understand the implications of the Budget and the options available to you. If they deal with the sector every day they should know the pitfalls and opportunities, so take advantage of their experience and expertise.
  • The Budget has made it clear that scrutiny on IR35 has shot up Government’s agenda so it makes sense to opt for an accountant who can support you with IR35, including assessing the risks.
  • Look at the service you are receiving – if it’s software-heavy but light on personal advice you are likely to be missing out on opportunities. Consider if you are making the most out of contracting and fully mitigating the risks. And most importantly, that you are only paying the right amount of tax!
  • Change accountant – if you’re not happy with the service you are receiving from your current supplier, don’t put up with second best. You need to be able to rely on your accountant and there’s no room for complacency.

 

If you’ve been trying to manage your accounts by yourself or use the services of a software company without the personal service, it’s wise to engage a reputable accountant who can help you navigate through the changes. If you already have an accountant but don’t think you’re getting the service you deserve, talk to us about switching to Intouch. With the right advice you can make the most and mitigate the challenges.

The qualified experts at Intouch work with contractors every day and keep on top of changes that will affect you. We charged a fixed all inclusive fee of £92 + VAT a month and this covers everything you need to run your company smoothly and ensure you remain compliant.

For further information, download our July 2015 Budget summary.

 If you are already an Intouch client and have questions about what the Budget means for you, please contact your personal accountant directly.

 If you are not an Intouch client, contact us today to talk about how we can help you get the most from contracting.

 

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.

July’s Budget – what’s in it for contractors?

July’s Budget – what’s in it for contractors?

With tomorrow’s Budget just hours away, what’s in the red briefcase for UK contractors? It’s George Osborne’s first solo Budget, so it’s only natural to wonder what effect both the Budget and the recent general election will have on the UK’s contractor landscape.

An impending UK Budget is always an uncertain time, especially when the self-employed are likely to be affected. Whilst all of us dream of policies that will make our lives easier, some contractors simply want a fairer way of working, helping them to reach their contracting potential. Here’s a few things we’d like to see tomorrow that would help the UK contractor market:

  • Clarity surrounding the reimbursement of business expenses post March 2015
  • Clear decisions on the proposed changes to travel and subsistence rules
  • Clear decisions and commitment to the simplification of the tax system
  • Clarity about Government’s long-term intentions regarding IR35
  • Greater support for small businesses, especially contractor companies, to get the right start
  • Exemption for small companies from tax reporting so small businesses don’t suffer under big business rules
  • Quarterly RTI submission, to match existing quarterly payments – surely it makes sense to bring the RTI reporting regime in line with the payment regime
  • Greater clarity on timescales for digital tax returns
  • More childcare support by increasing the threshold for child care vouchers. As child care tax relief has been delayed, it makes sense to use another incentive to make it easier for people to get back to work
  • Back to work schemes that encourage all people to get back to different types of work, not just permanent employment. The schemes need to encourage entry to a flexible workforce, including contracting
  • Increase personal allowance to £12,000 – why delay?
  • Increase the threshold after which a formal members’ liquidation is required, from £25,000 to £50,000 to make it easier to close a company where no other creditors are involved
  • HMRC should adopt a fairer basis for penalties and interest, as proposed in their consultation document.


Whilst the above in most cases may remain fantasy, we are hopeful that this Government will be keeping the self-employed’s best interests at heart. To understand exactly who will be fighting the corner for UK contractors we’ve taken a look at some of the MPs, and what their positions are:

Ambassador for self-employment: @davidmorris has been reappointed to provide single focus for the self-employed. With his presence within parliament, the self-employed are empowered with a voice for change and support. David regularly tweets about how he is planning to challenge IR35, with talks last week of the Secretary of State for Business bringing it to the top of parliament’s attention.

Secretary of State for Business: @sajidjavid has been appointed to engage and demonstrate the value of the UK’s self-employed in today’s workplace. Previously Mr Javid has demonstrated a strong emphasis on late payments to contractors, clearly demonstrating that issues which affect contractors are close to his heart.

The Minister for Small Business, Industry and Enterprise: @anna_soubry is tasked with ensuring there’s growth and competitiveness with the UK’s small businesses market. A newly created position within parliament, only demonstrating further the commitment the Tories have towards supporting Limited Company contractors.

So whilst contractors can hope to see positive pledges being made in tomorrow’s Budget, the reality is we don’t quite know. Be sure to look out for our blog for our Budget reaction and whether it’s a positive step for the UK’s contractors.

What would you like to see in tomorrow’s Budget? Let us know what’s on your wish list.

 

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.

Election 2015: what’s in it for contractors and freelancers?

Election 2015: what’s in it for contractors and freelancers?

With 7th May just around the corner, it’s shaping up to be one of the most unpredictable elections in recent times. The Party leaders have been on the campaign trail, holding babies, petting animals, shaking hands, publishing policy papers and criticising each other at every opportunity.

But what are our want-to-be Prime Ministers pledging for UK contractors and freelancers? All of the major parties have indicated plans that will be of particular interest to contractors – although none have made much noise about IR35, most of the parties are looking to clamp down on zero hours contracts. But do they really mean it?  Nearly all of the leaders have recently spelt out to IPSE* what they would do for contractors and freelancers if they are voted in next week so we’ve picked out the highlights:

Conservative Party manifesto

David Cameron is eager to stay in power (for just one more term, mind) and George Osborne claimed that his recent Budget “backs small business owners”. The subsequent Conservative Party manifesto promises to:

  • look at other ways to support the self-employed
  • make 30-day payment terms standard for small suppliers
  • eject companies who don’t comply with the Prompt Payment Code
  • establish a Small Business Conciliation Service, following Australia’s example.

Read our post-Budget blog to see what else the Conservatives are planning to do.

 

Labour Party manifesto

We said “nearly all” of the leaders outlined their plans to IPSE as Ed Miliband failed to contribute to the topic. In fact, in recent comments about rising levels of self-employment in the UK, Miliband simply commented “The rise of self-employment could in part be evidence of growing insecurity in the labour market”.

So we’ll move swiftly on…

 

Liberal Democrats manifesto

He’s had a taste of life in the hot seat for the past five years and Mr Clegg wants to continue the journey to economic recovery for the UK. He has promised a new tax system to help boost contractors and freelancers and says that they are “the sort of worker that will thrive in the new economy”, recognising the need for a labour market that reflects the realities of modern Britain:

  • Extend free childcare to all 1 and 2 year olds
  • Review the regulatory and tax environment to ensure it’s as pro-business as possible
  • Continue investing in physical and digital infrastructure
  • Improve and increase high speed broadband connections
  • Put the self-employed and independent professionals at the heart of their agenda

 

Scottish National Party

As her popularity continues to rise during the election build up, Nicola Sturgeon hopes to win votes in Scotland with her promises:

  • Be enthusiastic in SNP’s support for jobs and business
  • Have an ‘open-door’ to freelancers, entrepreneurs and the self-employed

 

UK Independence Party (UKIP) manifesto

He’s known for his ‘out there’ statements but Nigel Farage’s plans involve boosting the self-employed, who he cites “are our greatest innovators”. Here’s what his party is offering you:

  • Address the approach to repeated late payment offenders
  • End the exploitative lending practices of the largest firms
  • Clamp down on the requirement for small firms and independent professionals to demonstrate compliance in areas irrelevant to the public sector jobs they are tendering for
  • Extricate the UK from the EU to free small firms from onerous regulations.

 

Green Party manifesto

Recognising that “self-employment is vital to the UK economy”, Natalie Bennett has promised to stand up for small businesses:

  • Introduce legislation to ensure the self-employed are paid on time
  • Ensure unemployment pay is available to the self-employed on equal terms to employees
  • Help self-employed people with childcare costs and arrangements
  • Make broadband access more widely, and easily, accessible
  • Promote equal rights for self-employed people with employees in other sectors, based on their average income and hours of work.

 

Still undecided?

Ahead of the General Election the IPSE Policy Team will be hosting an hour long Twitter chat at noon, this Thursday. The chat has been set up to encourage conversation around the election and what it means for contractors.

Join in @IPSEWestminster  #ipseGE15  and then make your voice heard at the polling stations on 7th May.

We’ll be keeping a close eye on the election results and finding out how things stand for contractors after 7th May. We’ll share our thoughts and practical assessment with you.

 

IR35 not going away?

With little mention of IR35 in any of the manifestos, it looks like it’s here to stay. Check out our FAQs to make sure you’re in the know. As an Intouch client you are entitled to as many IR35 contract risk assessments as you request,  as part of your £92 + VAT all inclusive fixed monthly fee.

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 advisors. If you have any specific queries, please contact Intouch Accounting.

*IPSE is the Association of Independent Professionals and the Self-Employed.

They are offering a 15% discount to Intouch clients wishing to join – simply quote INTOUCH2015 when you contact them.

 

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.

The time to tinker has passed by Paul Gough

Self Assessment Tax Returns

George Osborne’s Budget announced his five year plans to phase out Self Assessment Tax Returns for individuals and replace them with a single digital tax account. Sounds like simplification at its best! I am delighted that the Chancellor is content to expect taxpayers to embrace responsibility for a role currently performed by professional advisers.

To desire the accurate collation of information about income and allowances applicable to individuals in a central, secure, digital account is not without merit. But is it realistic? Are we more likely to get this from HMRC or the tooth fairy assisted by the Easter bunny?

I delight in the thought of banks and investment houses automatically disclosing interest and dividend income from an ‘electronic tax voucher’ linked to the digital tax account of taxpayers. I can even imagine a time when employers accurately return earnings figures (under RTI style reporting), into a system under the control of HMRC that is ready in time to meet the reporting dates and successfully ‘does what it says on the tin’.

In the unlikely future event that workers are allowed to claim tax relief on any expenses they incur in travelling to or from a place of work, or in the performance of their duty, then I’m sure that it’s possible this suite of simplifications can be combined in an unambiguous easy to use, infallible Government system. It would be a new system without uncertainty; a system of clarity and precision; one that is equitable to all and truly does ‘level the playing field’. But is this probable?

Am I merely being a Luddite with no ability to clearly see the future? Looking back over the last few years I can see a host of employment status related legislation that does not fill me with confidence. Failed attempts at simplification which make me think that whatever the Chancellor dreams of, tax advisers will continue to be very busy as they help prepare and submit personal tax information for others.

Tell the office no holidays …… I suspect the same is true for HMRC.

 

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.

“The Budget for Britain: the comeback country”

The Budget for Britain

In Monday’s blog we looked ahead to what we thought this week’s Budget might bring for contractors and freelancers. Osborne had already made it clear that there would be “[N]o giveaways, no gimmicks, a Budget for the long-term” and it certainly proved to be a steady Budget. Yesterday the Chancellor was at pains to stress that the UK is experiencing true national recovery, and with the highest rate of employment in history and businesses being backed, the Coalition is confident their measures are making work pay.

A Budget that “backs small business owners”?

So what does yesterday’s announcement mean specifically for contractors and freelancers…

Income Tax personal allowance

Back in the Autumn the Government announced that the Income Tax personal allowance will increase to £10,600 as of April 2015. This means the basic rate limit will be £31,785 and therefore the higher rate threshold above which individuals pay 40% Income Tax will be increased to £42,385. The personal allowance will rise to £11,000 by 2016/17 with the higher rate subsequently rising to £43,000.

National Insurance upper earnings and upper profits limits will increase to stay in line with the higher rate threshold. The basic, higher and additional rates of Income Tax for 2015-16 will remain at their 2014-15 levels.

Capital allowances

It had been expected that the Chancellor might announce an extension to the £500,000 limit to the Annual Investment Allowance due to fall back to just £25,000 on 1 January 2016 but this didn’t materialise in yesterday’s Budget.

Travel and subsistence claims for workers engaged through Employment Intermediaries (Umbrella companies and possibly PSCs).

The 2014 Autumn Statement announced that the Government would review with the intention of restricting the use of overarching contracts used by some temporary workers, and their employers to claim tax relief on travel and subsistence (T&S) expenses.

Yesterday’s Budget revealed that, with effect 6 April 2016,  Government intends to implement the conclusions of a consultation which is likely restrict T&S relief for workers engaged through an employment intermediary, such as an Umbrella company or a personal service company, who are also under the supervision, direction and control of the end user. They intend to force Employment intermediaries to provide workers with greater transparency on their terms of employment, including what they are being paid.

The springboard for these plans has arisen as HMRC seek to level the playing field between employment businesses that lower their costs by taking advantage of these arrangements, and those that don’t. But Osborne did say that the Government would continue to protect those genuinely self employed.The period of consultation will determine the finer details of the eventual proposals to restrict tax relief and we’ll post more about what that means for our clients as the plans unveil.

What else is there for contractors and freelancers in this year’s Budget?

Well, there are some ups and some downs for contractors with a range of benefits and penalties coming out of this Budget. The announcements to help savers will benefit most contractors and Osborne mentioned several times that this Government have made sure it pays to work. And with planned investment in infrastructure across all parts of the UK, this will be welcome news for contractors, especially in the North and South West.

Other headlines contractors will be interested in 

  • The annual Self-Assessment Tax Returns (SATR) will be abolished and replaced by online tax accounts. Osborne cited that the self-employed should be working for themselves, not the taxman. This news was particularly welcomed by IPSE, the Association Independent Professionals and the Self Employed who welcomed “a more flexible returns system to replace the current outdated model”.
  • Government will review Entrepreneurs Relief (ER) and this could impact on how contractors can extract cash efficiently from their Limited Companies.
  • A new personal savings allowance means the first £1,000 of savings income will not be taxed.
  • A fully flexible ISA that won’t penalise savers for withdrawing their own money or replacing it throughout the year.
  • A new Help to Buy ISA meaning first time buyers will get £50 from the Government for every £200  they save.
  • Tax relief on lifetime pension pots will fall from £1.25m to £1m but will be indexed from 2018 to protect those in place.
  • As predicted, investment will be made into the oil and gas industry, creating jobs for contractors in that field. The Chancellor stressed the importance of taking action in this area to protect the future of the industry.
  • TV, film and gaming tax credits will benefits contractors and freelancers working in the UK’s creative sector.
  • The freeze on petrol prices promises “£10 off a tank with the Tories” while alcohol duties will be cut.

Osborne hailed this as “[T]he Budget for Britain: the comeback country”. Will yesterday’s announcements make the sun shine for you? 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.

“No giveaways, no gimmicks, a Budget for the long-term” – but will the 2015 Red Box budget for contractors and freelancers?

Will the Red Box budget for contractors and freelancers?

The Budget is this Wednesday and in true pre-Election fashion it is unlikely it will be full of radical announcements.

I predict it will consist of Osborne telling us what he thinks we need to hear and not what he really intends to do, if he still has his job in the second week of May.  Could we be looking at two Budgets in one year?

The Conservatives billed themselves as being ‘the party of small business’ but, in reality, very few independent professionals will have felt any benefits from policy changes. In fact, the Government could be criticised for not delivering enough to empower freelancers and contractors. In the final pre-Election Budget it is uncertain, but also unlikely, that contractors will see significant changes in Osborne’s statement.

A number of tax changes have been announced already and have been under discussion. To the extent that they are not contentious, or at least acceptable to the other major political parties, they will be included in the Finance Bill and will be enacted before the end of this month.

The main, eye catching, announcements are likely to be changes which the Chancellor would like to make in the next Parliament if the Conservatives are in power, or are a member of a Coalition, in that Parliament; as there will then be less than six weeks of campaigning before the Election on Thursday 7 May.

The tone, and content, of the Budget is going to be highly political and will have a strong influence on the campaign not least because the Chancellor is the key strategist of the Conservative party. We know that contractors and freelancers are the lifeblood of the UK economy and they have an important role in rebuilding the economy. Inevitably there won’t be many people whom the Budget doesn’t affect one way or another so we’ve picked out some of our predictions that will be of particular interest to freelancers and contractors.

What is likely to come up in the Budget 2015 specifically affecting contractors and freelancers?

More measures to tackle tax evasion and tax avoidance

We can definitely expect that more tough measures will be announced, for next Parliament, to provide criminal sanctions for tax evaders and their advisors, whatever their role. Initiatives such as a ‘diverted profits tax’ targeting multinational companies who have been judged to have shifted profits overseas to avoid tax are expected to be implemented.

Support for key industries

It is expected that Osborne will unveil measures to support the North Sea oil and gas industry which will be welcome to many contractors who work in this industry, from engineers to IT specialists and finance professionals. It is hoped that a boost to British manufacturing will help rebalance the economy and protect the livelihood of contractors already in the industry while creating demand for their skills.

Tax simplification

The Office of Tax Simplification (OTS) has suggested many changes in a variety of areas that have previously been adopted but it has suffered from a lack of resources and is due to wind up at the end of this Parliament. The Chancellor may decide to put the OTS on a more permanent footing and properly resourced if the Conservatives win the election. If so we can expect more changes to arise in the coming Parliament to simplify taxation especially for small businesses and individuals.

Travel and subsistence claims for Umbrella workers

This is still high on the political agenda but the highly anticipated clampdown on travel and subsistence (T&S) expenses may not happen in this Budget. The concern was originally raised by MPs accusing Umbrellas of exploiting workers but FCSA disagree and have plead to MPs that imposing these proposals would threaten the £2.8bn of income tax and National Insurance Contributions generated by Umbrella service providers  HMRC have already stated that “any proposed measure to address this misuse will not come into effect until 2016 at the earliest”.

We can expect a restriction rather than a removal of tax relief for workers, with a curtailment of T&S expenses more likely from April 2016. The Chancellor’s statement last Wednesday, following the closure of HMRC’s consultation, will “inform the government’s decisions at Budget ‘15 on how best to address this avoidance.”

Personal Allowances and income tax thresholds

The Allowance for the average person went up from £6,475 to £10,000 over this Parliament, and the Autumn Statement announced an increase to £10,600 from 6 April 2015. A further increase is possible, perhaps by an additional £200, but unlikely, although there are hints that the Chancellor may announce future target increases.

It’s possible that the Chancellor may extend the basic rate threshold so that, allowing for allowances that the basic rate band moves closer towards an intended goal, announced in the Autumn Statement, of £50,000.

Inheritance Tax

Inheritance Tax is currently levied at 40% on estates worth £325,000 and above. There are hints of a return to the promise of increasing the Inheritance Tax nil rate band to £1 million and clarifying if the limit is per person or per married couple or civil partnership. It is thought Osborne will announce plans which involves the person inheriting rather than the deceased’s estate, being taxed. This would be popular among high earning professionals including contractors who may currently view Inheritance Tax as an inhibitor to aspiration and ambition.

Entrepreneurs’ Relief

The cost of Entrepreneurs’ Relief (ER) in 2013/14 is £2.9bn: three times higher than HMRC’s estimated cost. Unexpected changes were announced in the Autumn Statement and it is possible that further announcements on ways to limit ER will arise.

Capital allowances

The Annual Investment Allowance is currently £500,000 but is due to fall back to just £25,000 on 1 January 2016. It is possible that the Chancellor may promise to extend the £500,000 limit if the government is re-elected.

Research and development tax credits

Changes to the system for claiming research and development R&D tax credits were announced in the Autumn Statement introducing a new advance assurance service for small companies from the autumn. Further assistance may be announced to help small companies undertaking R&D perhaps in simplifying the definitions of applicable costs.

Pensions and pensioners

The Prime Minister has announced that he wants to protect pensioner benefits. But there may be announcements about tax relief for pension contributions and limiting the contributions possible or the scope to only basic rate tax relief.

Watch this space

It is hoped that the 2015 Budget will finally address the realities faced by the freelancer and contractor community.The Federation for Small Business has been calling for policies to help small businesses grow, through tax reforms and sensitive changes to Minimum Wage rules. Of course Osborne needs to leave some rabbits in the hat for Wednesday and it may be that initiatives such as a further reduction to Corporation Tax (which would be welcomed by Limited Company contractors) are saved for the Conservatives’ Election manifesto.

Whatever happens in the 2015 Budget, we’ll publish our views on what it means for contractors after the announcement. Make sure you follow us on social media for the latest updates:

https://www.facebook.com/intouchaccountinglimited  https://plus.google.com/b/110212747959978702656/+Intouchaccounting/posts  https://www.linkedin.com/company/intouch-accounting-limited  https://uk.pinterest.com/intouchacc/  https://twitter.com/InTouchAcc   https://www.youtube.com/user/InTouchAccounting1

What do you hope to see in this year’s Budget?

While we wait for the Budget, are you ready for the 2014/15 tax yearend? Download our new guide and get the most from being a contractor.

 

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 can we expect in the 2014 Budget?

What can we expect in the 2014 Budget?

Spring is finally on the way and that must mean that it’s nearly Budget time!

The Budget is the annual statement made by the Chancellor of the Exchequer, on behalf of the Government, to set out spending plans for the year ahead.  It also announces details on any new tax rates and bands, along with changes to any existing taxes.  Any increases (or decreases!) on duties are included too, on items such as beer, spirits, cigarettes and petrol.

The Chancellor will make his Budget speech on 19 March 2014, but there are a few things that we already know will be announced thanks to the Autumn Statement last year.  Some of these will no doubt be of interest to our readers.

  1. The normal tax code limit will increase to £10,000, for those under 65.
  2. The basic rate band decreases from £32,010 to £31,865.
  3. The new Employers Allowance will be available, allowing small employers to save up to £2,000 a year in Employer’s National Insurance.
  4. The benefit in kind limit on a beneficial loan increases from £5,000 to £10,000.
  5. Beneficial loan interest in decreasing for the first time in 4 years, from 4% to 3.25%.
  6. The annual pension limit decreases from £50,000 to £40,000, and the lifetime limit decreases from £1.5million to £1.25million.
  7. The ISA allowance for the year increases from £11,520 to £11,880, of which half can be cash.
  8.  The junior ISA limit increases from £3,720 to £3,840.
  9. If you own a property that you’ve rented and are intending to sell the last 18 months will be an exempt period for Capital Gains Tax purposes – this was previously 36 months.
  10. The recovery of Statutory Sick Pay (SSP) is abolished.

We are also expecting final legislation covering offshore intermediaries and possibly the introduction of onshore intermediaries’ legislation covering specifically agency workers. There could also be personal service company announcements connected with the House of Lords committee hearings on IR35. So this could be an interesting Budget.

Intouch will be issuing a full budget summary to our clients shortly after the speech, along with an analysis of how it may 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.