Employment status review before 2015 Budget

Employment status review before 2015 Budget

With business behaviour changing and an increase in people working in multiple roles, there is a need for the government to look at the tax system.

Many people are working for more than one business where they may be classed as employed for one role and self-employed for another. Freelancing and contracting levels have grown and times are changing in the way we conduct business. A suggested ‘third way’ of working between employment and self-employment is becoming a more popular approach.

With significant tax and NIC differences between both ways of working, The Office of Tax Simplification (OTS) has been requested by the government to look at the dividing line and provide a report before the 2015 Budget.  Getting the status right is important as the wrong way of working could be costly for both the company and the individual.

As part of their review, the OTS will look at some of the following:

  • The level of uncertainty in current employment status
  • The sectors that have difficulties in administering the tax system
  • The way in which current rules and guidelines fit with anyone working multiple roles
  • The possibility of simplification through increased use of digitisation
  • The way other countries manage their approach

However, the review will not include issues around IR35, the Construction Industry Scheme (CIS) or the expenses rules.

With a report in time for the 2015 Budget, it is likely that any ‘quick wins’ will be taken forward as soon as possible, with other points to be reviewed by the next government.

The full terms of reference can be found online. https://www.gov.uk/government/publications/employment-status-review

 

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.

Office of Tax Simplification interim report on employee benefits and expenses: Quick Wins

Office of Tax Simplification interim report on employee benefits and expenses: Quick Wins

The Office of Tax Simplification (OFT) interim report on employee benefits and expenses, published in August, is a review of findings following extensive consultation with both employers and HMRC frontline staff on how the taxation of these areas could be made easier. It also includes a number of ideas and suggestions for change. As you would expect, some are ‘big picture’ which will take time and effort to discuss and implement. However, there is also a list of 43 ‘quick wins’ which are items   that could have a big, helpful impact quite quickly and with relatively little effort. Overall, as well as making things easier for those who incur non-taxable expenses, these changes could potentially simplify things for around 4 million employees and 300,000 employers who have taxable benefits and expenses.

The Quick Wins

Below is a selection of some of the 43 ‘quick wins’ which could be particularly helpful to contractors. Some of these ideas would require legislation to change and this is unlikely before the next election in 2015. Others simply need a change in how HMRC administers things or by secondary legislation, so could be implemented sooner.

Area

 

Detail

Needs legislation?

Benefits HMRC to encourage voluntary payrolling of benefits, in place of reporting benefits on forms P11D.

Yes

Benefits – accommodation HMRC to review published list of employments where it is “customary” to get accommodation.

No

Benefits – broadband HMRC to allow home broadband costs to be subject to PAYE Settlement Agreements.

Yes

Benefits – car fuel Car fuel benefit should be based on what you put in your tank, not how you pay ie: the differences regarding paying with a fuel card should not apply.

Yes

Benefits – car fuel Allow reimbursement of car fuel where employee contributes by 6 July.

Yes

Benefits – cycle schemes Carry out a proper evaluation of the cycle schemes success and look for ways of streamlining its administration.

Yes

Benefits – trivial benefits HMRC should publish a list of benefits they consider to be trivial, presumably with limits on the amounts.

No

Expenses – mileage rates Align tax and NICs treatment of mileage rates over 45p.

Yes

Expenses – mileage rates HMRC should not require retention of fuel VAT receipts for expense claims where only a mileage rate has been claimed.

No

Expenses – subsistence rates HMRC should give better guidance on what qualifies for subsistence expenses.

No

Expenses – subsistence rates HMRC should reinstate the practice of having a ‘friends and family’ scale rate.Currently employers cannot agree a scale rate with HMRC for expenses incurred by an employee if they stay with a friend or relative when travelling on business. Many employers find this unhelpful and argue that encouraging employees to stay with friends and family is much more cost effective than paying for hotel accommodation.

No

Expenses – travel and subsistence HMRC should commit to revising and updating the booklet 490 to fit better with modern working patterns.

No

Expenses – travel expenses HMRC to publish guidance on temporary workplace rules for projects carried out in phases.This is where an employee attends a temporary workplace for one phase of a project, then works elsewhere on a different project, then returns to the first project for a later phase. Under current rules they may fall foul of the 40 per cent rule by attending a workplace for a period of continuous work – for 40 per cent or more of their working time – for more than 24 months. Sometimes HMRC has treated these as two separate temporary workplaces. It was suggested that the rules are changed to give a clear statutory framework for these decisions.

No

Expenses – travel expenses HMRC should stop treating London as one workplace regardless of travel time.HMRC has sometimes deemed all of London as one workplace even though two separate workplaces could be one or two hours travelling time apart.

No

HMRC administration Improve guidance and design of Form P11D, for example state that you need a different form if the employee earns less than £8,500.

No

HMRC administration Add a box to the P11D to tick if the benefit is just for one year.

No

HMRC administration Allow voluntary notification of in-year changes to benefits.

No

HMRC administration HMRC to improve guidance on allowable expenses.

No

HMRC administration HMRC to allow all types of expenses claims to be made on one form, or online.

No

HMRC administration Improve web-site guidance and cross referencing, for example keep the What’s New pages up to date.

No

HMRC administration HMRC to improve layout and design of Form P87 for claiming expenses.

No

 

These are initial ideas and so far no priorities or further detail has been given. Over the coming months OFT will be discussing the report in detail with Treasury Ministers. It plans to publish its recommendations in stages with some coming out before the end of 2013 and some in January/February 2014.

For further information the full OFT Review of employee benefits and expenses: interim report can be found on their website.

 

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.

Budget 2011: IR35 to stay in place

Budget 2011: IR35 to stay in place

Much criticised freelance tax rules will stay in place, the government has announced during today’s Budget.

Known as IR35, the tax rule outlines how freelancers are treated for tax purposes – either employed or self-employed.

The rules have been criticised as being far too complex, but rather than start again the government has introduced details to better administer IR35.

A dedicated helpline staffed by specialists will be set up, said the government today, and restrict review to high risk cases. An IR35 forum will be formed that will monitor HMRC’s approach.

Anne Redston, barrister at Temple Tax Chambers, said that keeping IR35 was “disappointing”.

Although she welcomed better administration of the scheme, she voiced concern that the complexity of the rules had failed to be dealt with.

“The real problem is that the definition is inherently unclear. People don’t know whether they’re [caught] in it or not,” she said. “The problems embedded within it won’t go away.”

The Office of Tax Simplification recently announced a series of options for the government to take on IR35. Options provided by the OTS were: to cancel IR35 – which it warned could increase tax avoidance; or reform through simpler ways to test a person’s tax status.

 

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.

OTS is reviewing over 1,000 tax reliefs

OTS is reviewing over 1,000 tax reliefs

FOR THE FIRST time in 200 years someone has managed to map out the UK’s tax relief system – a system which has ballooned according to the government of the day, taxpayer demand, and backlashes to aggressive tax schemes.

The Office of Tax Simplification (OTS) is trawling through 1,042 reliefs, allowances and exemptions – which cover everything from selling assets stolen by the Nazis, to deep-sea drills- before recommending which should be simplified or scrapped.

The difficulty facing the OTS is that each relief – even the ones which seem obscure – may be vital to a particular group of people or businesses.

For this reason, the UK’s dense mesh of double taxation reliefs – an area the OTS is known to be looking at – will raise major points of conflict if they are “simplified”, because simplification often translates as a relief being withdrawn.

It’s inevitable the OTS will encounter a wall of resistance with any potential changes in this area because of the sheer number of groups that come under the double taxation umbrella. It’s not just the high-net worth individuals and corporates considering whether to leave the UK for countries with lower tax rates.

Double tax reliefs also affect the UK’s two million migrant workers, overseas bank workers – most of whom aren’t super-rich traders – 22,000 diplomatic staff, and non-domiciled individuals who all rely on these breaks.

Lowly-paid migrant workers currently don’t have to file tax returns when paying tax on any overseas income they make below a value of £10,000.

Even a slight change to the rules – for example, a decrease of the £10,000 ceiling – could see more of these lowly paid workers shelling out for tax returns to be prepared and also cause a rise in admin costs for the taxman.

Against this backdrop, the Low Incomes Tax reform Group (LITRG) will be lobbying for the relief to be kept. “We are keen that this [relief] is preserved – not least as it was LITRG who persuaded ministers to introduce it,” an LITRG spokesman said.

If the relief were removed we think the amount saved would very quickly be swallowed up by the administration costs of dealing with the tax returns of low-income migrants,” LITRG added.

Another good example of the difficulty facing the OTS are the tax rules for freelancers. These are relatively new, but have suffered from criticisms that they are fiendishly complex.

There is already a project running to simplify the freelancer income tax rules known as IR35, but there are related areas which could also come under the OTS spotlight.

The numerous reliefs available to businesses for training expenditure could easily be changed or withdrawn, but this would have a marked effect on the freelancer sector.

Contractors trading as managed service companies keep their skills up-to-date in order to stay in business, and often have to fork out for expensive training courses.

With 20,000 members potentially affected, the Professional Contractors Group (PCG) says it would strongly resist any withdrawal of income tax relief on relevant training courses.

PCG representatives are currently preparing to lobby the OTS for guarantees that training courses will be spared the axe.

But the OTS will not just face resistance from taxpayers. The panel could also face opposition from both the Treasury and HM Revenue & Customs: the OTS has been told to make sure recommendations end up revenue neutral, a senior OTS figure tells Accountancy Age.

Trying to make sure that the UK’s coffers neither benefit or lose out by the proposed changes to potentially hundreds of reliefs is almost impossible, advisers say.

The OTS already has enough to worry about without government divisions potentially taking umbrage with its recommendations.

One particular bugbear for the taxman is the way UK- based multinationals pass company funds through subsidiaries in low tax jurisdictions.

Controlled foreign companies (CFC) rules cause advisers and businesses a major headache in terms of complexity, and efforts have been dragging on for years to simplify the system.

These efforts have pushed on in recent months but that would not stop the OTS weighing into the CFC issue because of the panel’s wide-reaching mandate to make recommendations on all areas of the tax system.

John Whiting, the tax specialist in charge at the panel, has said there will be no issue the body will shy away from in trying to make the system less administratively complex.

“It isn’t about saving money, this is about a more efficient tax system,” Whiting said.

“If you come up with some sensible recommendations, it will make it very hard for the government to argue against 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.