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

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

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

 

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

In summary

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

 

This will not be the case for many Umbrella workers.

The relevant detail

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

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

 

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

 

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

 

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

 

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

 

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

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

George the Builder!

Autumn Statement 2015

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

 

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

 

George the saviour?

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

 

Beyond the speech

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

 

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

 

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

 

Osborne: friend or foe?

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

 

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

 

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

 

What’s next?

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

 

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

 

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

 

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

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

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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.

Contractor’s house of horrors

Don’t let the house of horrors spook you!

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

 

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

 

IR35

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

 

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

 

Claiming expenses

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

 

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

 

HMRC Investigations

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

 

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

 

Travel and Subsistence (T&S)

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

 

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

 

Just Starting Out

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

 

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

 

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

 

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

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.

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.

“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.