Breaking news! Does today’s Autumn Statement harm or help Limited Company contractors?

Breaking news! Does today’s Autumn Statement harm or help Limited Company contractors?

Philip Hammond today delivered his first Autumn Statement as Chancellor of the Exchequer (and his last). He and the Prime Minister continue to compete for control of economic policy and are arm wrestling for the “glory sound bites”. Unless they get on the same page, the losers of this Pyrrhic victory will be you and I.

 

Famous for ill-conceived strategies implemented at a dangerous pace in the face of universal criticism, and ignoring calls for caution from industry experts (who HMRC asked for advice in the first place), HMRC and the Treasury just keep ploughing their own furrow regarding the flexible workforce.

 

Today’s statement offered public sector contractors no surprise good news, and worse no reason for private sector contractors to be optimistic. HMRC’s vision for a level playing field between employees and the UK’s flexible workforce continues to be deployed in the face of all arguments to the contrary. Mr Hammond continues to imply that anyone who is not taxed under PAYE is a tax dodger, and that any independent worker wanting to trade as a Limited Company is only doing so for the tax benefit. I wonder if this is a real belief or a view necessary to keep his job in a post-Brexit, post-Trump world of pragmatic politics.

 

HMRC are JAM (“Just about managing”)

“Passing the buck” is now officially written within the Autumn Statement. When policing employment status compliance gets too tough for HMRC and they end up in a JAM, they outsource the problem to the public sector supply chain (only affecting public sector contractors) and ignore advice from stakeholders telling them it will not work!

 

It’s such a pity that the Chancellor refuses to accept that the positive contribution from a vibrant flexible workforce is widely recognised by stakeholders as essential to the prosperity and economic recovery of UK plc, and therefore dangerous to ignore.

 

“Hammond and May never listen” ( I sound like Jeremy Clarkson)

Throughout the summer HMRC have “consulted” Industry experts, Accountants, Business leaders, Trade Associations and even the man on the “Clapham omnibus” searching for views and comment on key topics including: IR35 reform in the Public sector, and Making Tax Digital.

 

I wish that I could understand why HMRC are not listening. A significant proportion of stakeholder responses on both consultations are consistently negative about:

 

  • the unrealistic timetables being imposed
  • the lack of attention to detail in the implementation guidance
  • the absence of the digital tool for IR35 status assessment
  • the administrative burden being outsourced from HMRC to employers, service providers and taxpayers in an attempt to reduce HMRC’s cost of delivery
  • blanket self-justifications from HMRC of their own actions, which ignore the advice of the wider community and which do not stand up to intellectual scrutiny

 

There seems little evidence from today’s statement that smart people who work at HMRC are using their ears. A consultation process, which has merit in concept, becomes a waste of everyone’s time if consistent contributions from stakeholders across the UK are continually ignored.

 

“Hammond’s way”

So Mr Hammond let’s try it your way: Push on with the policy of forcing independent flexible workers in the public sector into a taxation straitjacket against their will, and against the will of the end hirers. Engagers (even public bodies) want control over the ease with which their business units can expand, they do not want to provide employment rights, and flexible workers are not asking for them. But to do that you will need to continue to vilify and call “tax dodgers” hardworking and proud independent workers, who are trying to put their family’s wellbeing ahead of their own.

 

Make sure that the public don’t work out that by passing the buck for determining Employment Status (because HMRC have failed to find a way to get it right) and by passing the costs of doing so on to the engager or supply chain, saves the Government plenty of cash (because I doubt you will ever find c£400m of “tax gap” that you’re looking for from contractors). Make sure also that the workers don’t blame you for the fact that their take home pay is being reduced, as the supply chain adjusts to protect its margins.

 

Proposals to remove abuse under existing flat rate VAT rules will follow in December and could affect the many innocent parties seeking fairness not abuse.

 

I am not saying that non-governmental stakeholders have exclusive access to crystal balls, but we do have ears and we use them more than you do. Your statement today affecting the contractor community is only as strong as your ability to get the implementation right. If I were to buy you and your colleagues at HMRC a Christmas present, it would be a large hearing aid. If you wanted to give independent contractors in the UK a Christmas present, just turn it on.

 

Want to know more?

Before the statement, we released our own set of predictions and wish lists on what we thought would happen and what we wanted to see announced. So were we correct? We will be sending out our full Autumn Statement review tomorrow, simply leave us your email address and we will ensure you are sent a copy.

 

cat catch the mouse

 

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.

Claiming Christmas expenses through your Limited Company

Claiming Christmas expenses through your Limited Company

Can I claim Christmas party expenses through my Limited Company?

The interest-free sofa adverts have started and the supermarkets are full of advent calendars, yes you’ve guessed it, it’s now officially Christmas. If you’re currently contracting within a corporate environment the annual Christmas party is probably a hot topic amongst permanent employees.

 

But there’s no need to feel left out, as HMRC give even the smallest of Limited Companies the ability to take advantage of a tax exemption for any allowable costs of their Christmas event. So you can still have a good old merry knees-up for your Limited Company’s most valued member of the team.

 

In this blog we take a look at the rules surrounding Christmas party expenses and what you can claim for. We also look at why it doesn’t have to be lonely this Christmas, as the rules for claiming can extend to others if you’re a single-person Limited Company contractor.

 

How much can I claim for?

If you take advantage of the tax exemption for annual events it means that you’ll only have to pay for 80% of the costs. HMRC usually spend most of the year telling you how to stay compliant and reinforcing the the taxes you must pay, so why not make the most of their generosity at this time of year?

 

Which HMRC rules apply to Christmas party expenses?

For your event to qualify for a tax exemption, the event must meet the following criteria:

The event must run annually - If you’re going to party once then you’ll have to do it every year (sorry about that….!) The event doesn’t have to be restricted to Christmas though, it could be a summer party or Easter event. The point here is that whichever event you choose to celebrate it has to be annually recurring. Do bear in mind though that if you decide to have an event for just one member of staff, you must still account for the expenses and that they will not be treated as tax allowable.

The event should be available to all employees in one location - That includes all directors, staff and guests. The guests of directors can include spouses or civil partners. Children of the directors or employees are also included within this. This inclusion therefore means that if you wanted to hold a Christmas party for you and your family, there’s nothing saying that you can’t. Part time employees are also included in this, so you could have a party for them, their partners and children.

There’s a limit of £150 per head - If you were planning on treating yourself or your employees to a Christmas party in the North Pole, it’s worth bearing in mind that there’s a limit of £150 per head. This is the absolute maximum and HMRC will make no exceptions. This is not an allowance and therefore it is the receipted amount that is an allowable expense.

The £150 includes VAT, transport costs and the total cost for any accommodation. The total amount is then added together and divided up between the number of guests attending the event.

If you’re feeling generous and thinking about footing the bill for any costs over the £150 per head, don’t! Even a penny over will mean that the exemption will be void and the total cost will be taxed. It’s not worth the extra large bill just before Christmas, so if you’re in doubt speak to your contractor accountant to be sure everything has been calculated correctly.

 

If you like to party throughout the year

Annual events don’t have to be limited to just one per year. You could hold one whenever you wish, as long as the total combined costs of all events do not exceed the £150 per head threshold for the tax exemption to still apply. If you do happen to go over the threshold for any particular event, HMRC will only apply the tax exemption to expenses for the events that have fallen within the allowable limit.

 

Giving gifts to employees

It’s also worth bearing in mind that you are entitled to claiming back any costs for ‘trivial’ gifts you purchase for your employees. Now this doesn’t mean that you can buy them all a brand new Ferrari and claim the cost back! These gifts must be in keeping with the season, so giving your employees a bottle of wine or turkey is acceptable, but giving them a case of wine or a Christmas hamper would be considered as a non – trivial gift and therefore not allowable.

 

It is always best to discuss any annual event expenses with your contractor accountant, to ensure that you are covered by the tax exemption before you part ways with your pennies. If  you’re thinking about switching accountant, or even becoming Limited in the New Year, call our team on 01202 375 562, or email us at 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.

 

Understanding the Self-Assessment Tax Return

Understanding the Self-Assessment Tax Return

We don’t like to be a scrooge here at Intouch, but after the Christmas festivities have ended it’ll be time for you to submit your Self-Assessment Tax Return (SATR). After all the Christmas chocolates have gone and the New Year celebrations seem like a distant memory, you will need to take stock from the past tax year and pay what is due to HMRC.

 

It’s a good idea to get on with your SATR as soon as possible so that it’s one less thing to worry about, especially over the festive period. If you are an Intouch client your Personal Accountant will have already been in touch to guide you through this process and make you aware of what needs to be submitted.

 

But if you’re not yet a client of ours and need to understand what the assessment is and if you need to fill one out, read on…

 

What is the Self-Assessment Tax Return?

It’s HMRC’s way of accounting for the incomes that may not all be taxed through permanent employment. Paper self-assessments must have been received by HMRC by the 31st of October and online submissions must be made by January 31st.

 

The assessment itself is a series of questions which all must be filled out. If you’re struggling with the answers, or need advice on claiming for your business expenses, then enlisting the services of a trusted accountant will be one of the best moves you can make.

 

If you have received only PAYE income since April 6th of this year, you may not have to complete an assessment. Exemptions may include if you have received any Child Benefit in your household and one receives an income in excess of £50,000, or if your income has exceeded £100,000 whilst in PAYE.

 

Who has to fill one out?

If you have received non PAYE income then you may need to fill out a Self-Assessment Tax Return. This includes (but is not limited to) the following types of people:

  •  self employed
  • if you are a company director
  • if you have accommodation or land that you receive payment for from tenants (unless covered by the rent-a-room scheme threshold of £4,250)
  • if you receive other income which is not taxed before you receive it
  • if you are subject to paying more tax as a result of Child Benefits and a member of your household is receiving more than £50,000 in income
  • if you are a pensioner who receives a higher amount than your tax-free personal allowances

 

If you’re unsure whether you need to complete a return, take a look at HMRC’s website.

 

What happens if you don’t return your self-assessment or tax due to HMRC?

If you miss the submission deadline for your return and / or tax payment, HMRC will issue you with a fine. The fines range from £100 for the first three months after missing the submission deadline and interest if the tax payment is late, with penalties enforced if more than 30 days late.

 

HMRC do allow you to pay your tax bill throughout the year with the use of their budget payment plan. Your Personal Accountant will be able to advise you on the best way to ensure you retain the correct amount of tax and when it’s due to HMRC.

 

What happens if you make a mistake on your SATR?

Many people make mistakes on their SATR, but it’s worth remembering that HMRC will not accept it if you’ve included incorrect information. If you do make a mistake you’ll have twelve months to correct it (which is called an amendment). However, if HMRC find an error in which they have had to prompt you, there could be a minimum 15% penalty charge on the total tax owed for each mistake that HMRC classes as a careless error. So make sure that you check it, check it again – then check it once more before you submit it!

 

How can Intouch Accounting help?

We ask our clients to submit their assessment details to us by November 30th, so there’s still time to join Intouch and have your self assessment submitted for this year. Please be aware that if you do join us now, there will be a charge for your SATR to be completed, as you have not been a client for the past tax year.

 

Alternatively if you’ve tried to go it alone and seen first hand the amount of time (and potential stress) it can cause, it might be time to look into appointing a contractor accountant.

 

At Intouch we include a personal self assessment tax return as part of our all inclusive monthly fee of £98+VAT. But that’s not all, take a look at our full service inclusions to see just how much we include in our monthly charge with no nasty hidden charges. Ready to join us? Great! Give our team a call on 01202 375 562 to talk through the joining process.

 

Missed our twitter chat with IPSE on the Self-Assessment Tax Return? Catch the full Q&As here.

 

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.

Claiming mileage as an independent contractor

Claiming mileage as an independent contractor

As a contractor, you’ll undoubtedly already be claiming expenses against your tax bill. However, one of the most common areas of confusion is that of mileage. Many contractors may wonder whether they would be better off purchasing a company car (when trading as a Limited Company) or whether claiming the standard mileage allowance is in fact the most attractive option. On top of that, questions often arise as to how much can be claimed, up to what threshold and on what journeys.

 

With this in mind, here’s our own look at claiming mileage as a contractor, outlining everything which we believe you might need to know.

 

Company car vs mileage allowance payments

Limited Company contractors do have the ability to purchase a company car should they wish. From the outset, a company car might look like the best option. However when looked at over a number of years and when fuel, road tax, insurance and maintenance are taken into account, this isn’t always the case.

 

Many contractors make the mistake of looking at the tax savings across the first year which, when buying a company car, will always be greater due to the tax relief associated with the initial capital allowance on the purchase. In addition, many may not consider that if any personal journeys are made, this will be seen as a taxable benefit and the savings you might have made on initial corporation tax when purchasing the vehicle are suddenly diminished.

 

The company will also be liable to pay Class 1A National Insurance (NI) on the cost of providing a car, just as it would if you had been paid the extra salary and purchased a car with that directly.

 

Whilst there’s always exceptions, in most cases, once the tax and NI is taken into account over a longer period, especially if personal journeys are undertaken, using your own car and claiming mileage usually works out to be not only the simpler but also the most financially appealing option.

 

How much can you claim?

The current rates* per business mile as outlined by HMRC are as follows:

claiming mileage
*Correct at time of publication 29/10/15

 

To calculate the Approved Mileage Allowance Payments (AMAPs) over a given period, it is simply a case of multiplying the total number of business miles by the rate per mile for the vehicle. This can be used across more than one vehicle and should be calculated together as one allowance.

 

As a working example, if 12,000 miles were travelled each year in a car, the mileage allowance would be £5,000, worked out as:

  • 10,000 miles at 45p per mile (£4,500)
  • 2,000 miles at 25p per mile (£500)

 

It is also worth noting that additional expense of up to 5p per mile can be claimed when travelling with more than one person in the car. This is of course only when the passenger is also travelling for business purposes.

 

What journeys can mileage be claimed for?

When the purpose of travel is solely for business, expenses can be claimed back by the contractor as an ‘approved amount’. As would be expected, not all journeys can be claimed for and it is important to be able to correctly distinguish between ‘business’ and ‘private’ miles.

 

HMRC define ‘business’ travel as, “journeys forming part of an employee’s employment duties (such as journeys between appointments by a service engineer or to external meetings) and journeys related to an employee’s attendance at a temporary workplace.”

 

As such, for the majority of contractors, it is the latter which is most important given that a workplace is usually temporary for the duration of a contract. HMRC do not count travel between home and a fixed, (permanent place of work) as business travel, unless you have to travel to another location ‘outside the norm’ of your permanent place of work.

 

It is also important when claiming business mileage that you keep note of the following information which may be required by HMRC in order to qualify as an ‘approved amount’:

  • The date of the journey
  • The start and end locations
  • The reason for the journey and the parties involved
  • The number of miles
  • The name of any passengers
  • The mileage calculations

 

If you want any further information on claiming business mileage as a contractor, you can find this in our ‘What is a reasonable mileage claim for a contractor?’ blog. Alternatively, contact one of our team on 01202 375 562, to see how Intouch Accounting can help keep you compliant and maximise your income.

 

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 has come for HMRC to pay attention and change tack

The time has come for HMRC to pay attention and change tack

If you work in or with the contracting industry, you won’t have been able to miss the concern and speculation surrounding HMRC’s proposed reforms to the way contractors and freelancers are taxed.

 

In the months that followed the Chancellor’s announcement that this was to be reviewed in an attempt to ‘level the playing field’ and flush out abuse, the contractor industry has been shouting its concerns from the rooftops.

 

At the heart of the matter are two key documents; HMRC’s Intermediaries Legislation (IR35) discussion document and the hotly debated Employment Intermediaries and Tax Relief for Travel and Subsistence consultation document.

 

Last month, the CEO of FSCA, Julia Kermode, wrote a blog post ‘Is HMRC listening?’ in which she strongly set out the flaws in HMRC’s calculations. And she raised a good question, as after reviewing the consultation document it would be easy to worry that the views of genuine and compliant flexible workers expressed during the discussion phase did not get through.

 

Now the closing date for responding to both documents has passed, HMRC is no doubt head down in a pile of paperwork in which the contractor industry has tried again to get its fears and suggestions heard.

 

The most advanced of these proposals is the consultation document regarding Employment Intermediaries and Tax Relief for Travel and Subsistence. In it, HMRC sets out its proposal to remove home-to-work travel and subsistence (T&S) tax relief where a worker is employed through an employment intermediary and under the supervision, direction or control (SDC) of any person.

 

Once proposals such as these reach consultation stage, they are usually a pretty reliable indicator of which direction the reforms will go. Which is why our official response to the document makes no bones about the fact we don’t believe it will deliver on HMRC’s intended aims without unintended and costly consequences.

 

Having spent a great deal of time speaking to our personal service company (PSC) clients, contributing to industry commentary and working closely with membership and trade bodies such as IPSE and FSCA, we strongly believe that the proposals are disproportionate, over simplified, and will negatively impact the UK’s highly valuable, flexible labour supply market. The end result is likely to add an excessive burden on smaller and medium size businesses.

 

The Intouch response is clear; the majority of UK contractors wish to be compliant and already ensure they are paying the right amount of tax at the right time. Our fear is that, as the proposal stands, even the most compliant of PSC contractors will end up losing out in one form or another.

 

We, along with so many others, have real concerns over the proposed options for the ‘transfer of liability’. This is an ill-thought out plan to put the burden of determining tax status onto the engager and is likely to have a number of negative consequences. Not least of these could be the application of risk averse measures by UK plc, resulting in a restricted labour market and causing wider economic consequences.

 

Another contentious reform is making personal service and the exercise (or right to) SDC the only criteria HMRC will consider when ensuring the appropriate application for the new T&S rules. Under the current application of IR35, a broader range of factors are considered when deciding a contractor’s tax status. I talked about this on the Intouch blog earlier in the summer and will be writing more about our response to the IR35 discussion document next week.

 

Recruitment website FirstPerson has already warned the proposals could put pressure on rates if workers who fail the SDC test suffer a fall in income.

 

The crumbling icing on the cake is the suggestion that engagers should, in effect, determine availability of tax relief. Our response outlined a number of concerns with this proposal and these can be viewed in more detail in our IR35 and T&S: Proposed changes ebrief.

 

The industry forums are awash with speculation over what will happen should the proposed changes be implemented in April 2016. Some contractors fear clients will automatically consider everyone is under SDC in order to safeguard their position or may even refuse to engage them altogether to avoid the risk

 

Whilst we don’t believe that the reforms outlined in the consultation document have been thought through enough to work, we do agree that something needs to be done to better outlaw false self-employments and the use of abusive models to achieve tax relief where it is not due.

 

It is time for HMRC and the Chancellor to take heed of industry concerns and be brave enough not just to listen, but to go back to the drawing board and change tack.

 

If you are unsure where you stand in the debate, or would like to know more about how the proposed changes to tax relief may affect you, our expert contractor accountants can help you. Speak to us today on 01202 375562  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.

IR35 and T&S: Proposed changes and the impact for contractors and freelancers

The proposed changes

Earlier this week saw the closing date for responses to HMRC’s Intermediaries Legislation (IR35) discussion document and the Employment Intermediaries and Tax Relief for Travel and Subsistence consultation document. Intouch Accounting have formally submitted responses to both, championing  the voice of contractors. While we fully support fairness and the need to level the playing field, we share concerns of many in the industry that HMRC’s plans are piecemeal and severally flawed. We have put forward our suggestions of what we believe would be better solutions, based on our extensive experience working with contractors. We have also contributed to FCSA’s response. We now await the outcome and expect to hear more in November’s Autumn Statement. We’ll keep you posted as events unfold.

 

In the meantime download our new ebrief to help you make sense of the proposals and our suggestions.

 

Don’t face HMRC’s changes alone. At Intouch Accounting we work with Limited Company contractors every day so if you’re thinking of starting contracting or want more from your contractor accountant, contact us today.

 

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.

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.