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 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.

Travel and subsistence: It’s robbery

The taxman is claiming that Umbrellas are trying to steal from him, but is it the other way round? Travel and subsistence: It’s robbery

HMRC is trying to reach the conclusion that overarching contracts of employment (OAC) are a form of underhand scheme designed by shady Umbrella organisations and other non-compliant employment intermediaries to avoid paying an estimated £400m in Income Tax and National Insurance.

There is no doubt that modern employment models have moved on since the original tax legislation was first drafted, but subsequent tax changes have simply not kept pace with current practice.

Nevertheless, for HMRC to contemplate removal of tax reliefs on previously acceptable expenses, which they introduced, based on an argument that too many people may be benefiting, is a poor argument that will not protect the interests of the vulnerable and lower paid.

Following the issue of a discussion document in December 2014 HMRC invited comment from stakeholders in the temporary labour market, to help the Revenue determine if some end hirers, agencies and Umbrellas, pressurise temporary workers to operate under OACs which in turn allows them to make claims for home to work travel costs that would otherwise be ‘normal commuting’ in order to reduce overall tax payable to HM Treasury.

What is really interesting is the reasons that HMRC have stated as to why they believe contractors should not be entitled to claim travel and subsistence from home to their place of work:

  • “It’s not fair” on other taxpayers who cannot claim, as these other taxpayers are effectively subsidising abuse.
  • “We want to level the playing field” and treat all taxpayers in the same manner
  • “Technically flawed planning schemes” being deliberate abuse especially of the vulnerable workforce.
  • “Because the Treasury wants to collect more tax” – to reduce public borrowing we could always collect more tax.

It seems most likely that if all of the reasons why HMRC want to change the rules are placed in order of importance, then the final one is the biggest driver and therefore highest priority, as they themselves confirmed. The remaining issues are the political justification for a very unpopular and ill-considered project.

Technical highlights

When a worker travels from home to their place of work, the primary assumption is that this is normal commuting and tax relief for the costs of travelling or subsistence is not allowable. However, legislation provides for an exception to this restriction if the travel is to a ‘temporary’ place of employment, rather than a ‘permanent’ one.

This ability (under certain circumstances) for the existence of an OAC to transform what would otherwise be a permanent workplace into a temporary one is what creates the tax relief for expenses.

Other types of workers not engaged under an OAC (permanent, or short term agency contracts), could sit next to an Umbrella worker, may make the same journey from home to the same place of work and are not able to claim tax relief for their travel costs. So there is a moral justification and a case for symmetry of treatment but that only carries weight if one assumes the risks, responsibilities and rights and obligations are also the same for differing types of worker. Which they are not…

HMRC wish to collect £400m more in taxation, remove this inequality, level the playing field and stamp out tax avoidance…and protect the vulnerable worker’s rights and income! (It is not disputed that within this figure some non-compliant business models exist, which rely upon an aggressive interpretation of how the tax laws should be applied. They may fail under anti-avoidance legislation and remain a legitimate target for HMRC.)

The alternative options suggested by HMRC to collect this tax are also open to comment and may even be extended to include personal service companies (PSCs). Today’s main targets seem to be Umbrellas and tax avoidance scheme users; tomorrow’s may well include an attack on the independence of PSCs and small businesses.

If we assume that the estimate of tax loss from HMRC is indeed correct at £400m and HMRC outlaw current tax avoidance models and legislate to make all travelling from home to work under OAC non tax deductible, who will be the losers?

Any increase in the tax take has to come from somewhere. Will contractors and temporary workers in general, but especially at the lower skilled end of the market, be able to afford this additional burden? Will they be able to pass it on to their employer (the Umbrella)? Will the Umbrella be able to pass it on (via the agency) to the end hirer?

Will UK plc be willing to pick up the costs of an extra £400m and in doing so accept this hit to their profits? If they do, the taxable profits of UK plc will fall by the same amount and reduce the tax they pay by approximately £84m…I’m not convinced.

Umbrella v Limited – what’s right for you? Understand your options and contract with confidence. Contact us  to discuss your options.

 

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.

Cycle to work scheme

Cycle to work scheme – what is it, how much can you claim, how does it work?

The cycle to work scheme is a government initiative designed to support and encourage employees to cycle to work. The idea behind the scheme is that this will contribute to healthier employees which has benefits for both the individuals themselves and the companies they work for.

 

How the scheme works

For those who are not Limited Company contractors the way the scheme works is that the employee sacrifices some salary for the use of the bike which is loaned to them by their employer. It is not deemed a benefit in kind to the employee and is therefore tax free. In addition, the employee can eventually buy the bike from the company. The cost to the employee is calculated according to HMRC approved valuation tables to ensure it does not attract a benefit in kind charge. Overall this can mean a significant cash and tax saving for the employee.

The employer company benefits financially from this with reduced income tax and NICs from the employee’s sacrifice of salary, reduced corporation tax and in some cases VAT relief.

 

Limited Company contractors and the cycle to work scheme

Limited Company contractors, as employees of their companies, can also take advantage of the cycle to work scheme but do not have to make a salary sacrifice. They can also benefit from a number of tax savings.

• It may be possible to reclaim VAT on the bike purchase, making it cheaper to buy

• The company’s Annual Investment Allowance can be used to get 100% tax relief on corporation tax

• As the bike is paid for from gross earnings, not personal income, there is a potential saving on income tax

• If the contractor buys the bike from their company – although the company will pay corporation tax on the sale – the contractor can potentially make tax savings on the purchase

 

Rules of the scheme

The scheme is not designed for personal bicycle use so the bike must be used more than 50% of the time for business travel purposes. Therefore, the employee must predominantly use the bike to get them to and from their workplace. The definition of ‘workplace’ is wider under the scheme than the usual definition for travel expense purposes, so travel to a permanent workplace is allowable.

If a contractor chooses to use their personally owned bike for business travel, mileage can be claimed at £0.20.

If the cycle to work scheme is an option you would like to explore further, speak with your contractor accountant who will be able to advise you on the most tax efficient way to benefit from this.

 

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 24 month rule and how it affects contractor travel expenses

The 24 month rule and how it affects contractor travel expenses

Contractors are allowed to claim travel expenses through their Limited Companies, if the travel is related to a ‘temporary workplace’, which for contractors will mean their clients’ workplace.  The 24 month rule relates to the HMRC definition of a ‘temporary workplace’. If you are aware that you will be travelling to the same workplace for more than 24 months, this workplace becomes a ‘permanent’ workplace.  From then on any costs associated with travelling to a ‘permanent’ workplace must not be claimed as an expense.

 

How the 24 month rule works

The key points are:

  • A contractor who works at the same location for more than 24 months cannot claim travel expenses once they have passed the 24 month date.
  • The minute the contractor is aware that their contract will continue beyond 24 months they should stop claiming travel expenses.
  • A contractor cannot claim any travel expenses at all – for the entire duration of the contract – if they know from the beginning that they are likely to be working for the client for more than 24 months.

If you are un-sure of where you stand with your own travel expenses, speak with your accountant to clarify matters.

 

The 40% rule

Many contractors have quite flexible working arrangements with their clients, meaning they are spending time at several different sites over the course of a month. For these contractors the HMRC’s ‘40% rule’ applies. Under this rule, if a contractor spends most of the week, say three days, at one site and only two at another they can claim travel expenses only up to the point that they are aware that they will be spending 40% of their time at one site.  Once they are aware, they cannot claim tax relief to and from the site they spend three days a week at. However, if they make individual journeys to different locations they will be able to claim for these. The 24 month rule calculation includes time even if there has been a gap of a month or two between contractor visits to the site. If a contractor returns to a site the total time spent should be calculated and the 40% rule used if applicable.

 

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.