What the Budget means for contractors

The Budget is a topic that’s been dominating the news recently, with Chancellor of the Exchequer Philip Hammond delivering his speech to Parliament on Monday, 29th of October.

As a contractor, you might be wondering what impact the Budget will have on you when it comes into effect from the new tax year in April 2019. So, we thought it would be useful to run through the key changes for self-employed professionals:

Company/Business Tax

Corporation Tax

As expected, Hammond said that the Corporation Tax rate will remain at 19%, though it will drop to 17% from April 2020.

VAT

Similar to Corporation Tax, the VAT threshold will stay at £85,000 until 2020. This news has been well received by the industry, due to the introduction of Making Tax Digital next year which will require businesses with a turnover over the threshold to submit their information electronically at least every quarter.

National Insurance Contributions (NICs)

In September, the government announced plans to scrap Class 2 NICs for self-employed people due to the ‘potential impacts on some of the lowest earning in society’. From the new tax year, workers will continue to pay either Class 2 or Class 4 NICs. The government announced it’s considering reforms to simplify the system from April 2020.

Employers Allowance

If you’ve more than one employee or director, you qualify for an employer allowance, meaning the initial £3,000 of your NI bill doesn’t have to be paid to HMRC. From 2020, this benefit will only apply to companies with a NIC bill below £100,000.

Entrepreneurs Relief

A benefit to company owners wishing to sell or close their business, Hammond announced that the 12-month qualifying period will be doubled for disposals after 6th April 2019, unless you stopped trading before 29th of October.

Personal Tax

Income Tax

From next year personal allowances will be raised, meaning people will be able to earn more before they start paying tax. According to Hammond, the government ‘want working people to keep more of the money they earn’. The new thresholds will be as follows:

Personal allowance will increase from £11,850 to £12,500
Basic rate tax band will increase from £34,500 to £37,500
Overall increase to the higher rate tax threshold of £3,650 to £50,000

Capital Gains Tax

The threshold for Capital Gains Tax – the tax on profit when you sell something that’s increased in value – is going to be raised by £300 from £11,700 to £12,000.

IR35

Of course, we can’t summarise the Budget for contractors without mentioning the elephant in the room: IR35. As expected, the Chancellor announced a delay in the rollout of IR35 to the private sector until 2020.

Currently, it’s a contractor’s duty to determine whether they are operating in or outside of IR35 but, from 2020, it falls to the medium and large businesses employing them. If the contractor is operating inside of IR35, the company – i.e. the end client – will be responsible for assessing each assignment, deducting Income Tax and NICs and paying employer NICs. You can read more on this change here.

With a good handful of changes on the horizon for contractors, pairing with the experts at Intouch Accounting will ensure the transition into the new tax year is a smooth one. To find out more about our services, get in contact 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.

 

IR35 in the Private Sector – reform announced for April 2020

Contractors have been waiting with baited breath for news of IR35 reform in the private sector, and today, in his Autumn Budget, Philip Hammond announced that changes will not be rolled out until April 2020.

By far and away the biggest announcement in today’s Budget is the Government’s decision to roll out changes to IR35 in the Private sector in April 2020.

We’re pleased that the Government have listened to feedback they received during their consultation earlier in the year and allowed a decent lead time for the Private sector to implement this significant change.

It also allows further time for stakeholders to help shape the rules into something more appropriate and fair for contractors than the changes we saw in the Public sector. A further consultation is expected in the next few months to help shape the precise changes.

The key change taking place after 6 April 2020 is a shift in the responsibility for determining employment status for limited company contractors. But what does it mean for contractors? Well, the key implications are likely to be:

  • It will no longer be the responsibility of the director of the PSC to determine their IR35 status. This will become the responsibility of the end hirer (client), but only where the end hirer is a large or medium sized business (this is yet to be defined).
  • The actual method by which status is assessed is not changing, so if a contractor is legitimately outside IR35 today, they should continue to be outside IR35 post April 2020.
  • The end hirer will need to exercise “reasonable care” when determining the IR35 position of any contractors engaged via a PSC; so it’s clear that blanket bans on the use of PSCs or blanket IR35 assessments should be avoided and that professional advice would be recommended.


It’s this call for ‘reasonable care’, and the fact that the Private sector will be keen not to hold up key projects by alienating their flexible workforce that stands the savvy contractor in good stead. End hirers and recruitment businesses who continue to support genuinely self-employed contractors stand to benefit significantly from this change, whilst those who are unable or unwilling to manage their new obligations could face serious commercial implications.


As part of the Brookson Group, Intouch already engage with a number of end hirers and recruitment organisations who are all motivated to understand how to support their flexible workforce through this legislative change. The announcement of a ‘go live’ date for the changes will allow us to strengthen these relationships, and it’s this ability to influence up the supply chain that puts Intouch in a uniquely strong position to support contractors in their contracting journey.

Intouch clients already benefit from unlimited IR35 support, advice and contract reviews, and will be provided with all the evidence needed should their status be challenged. The key message to our contractors is; don’t panic! If your contract is legitimately outside of IR35 now, you should continue to be so after April 2020, and if you need help in proving that, let us know.

If you’re not an Intouch client but would like to work with an accountant with their finger on the pulse of IR35, please talk to us about how we can support you.

IR35 consultation response – we urge HMRC to learn from mistakes, start afresh and not to rush it

8th August 2018

IR35 consultation response – we urge HMRC to learn from mistakes, start afresh and not to rush it

 

I’m spoilt for proverbial choice when it comes to the advice we’ve given HMRC in our IR35 consultation response…’ fools rush in where angels fear to tread’, ‘more haste, less speed’, ‘measure twice, cut once’… they all add up to an appeal to take the time to create a new, fit for purpose approach to compliance in the public and private sectors rather than trying to reform and roll out the broken public sector approach.

Our formal response, filed today includes solid research to counter HMRC’s view that IR35 in the public sector is ‘working’, some suggested alternatives and our thoughts on timings:

 

  • We believe that the review of public-sector reforms set out in the consultation and other government documents provides an incomplete and misleading picture of the impact of the reforms. Further review on completion of a complete compliance cycle is needed and should include all parties in the supply chain. This will help identify all unintended effects of the reform such as the volume of self-employed contractors who have had PAYE incorrectly applied, and those who are working through non-compliant payroll vehicles.

 

  • We believe that the public sector reforms have driven non-compliance rather than addressing it, and for this reason, a different approach is needed for both public and private sectors. We have proposed a solution that focuses on compliance across the supply chain using enhanced record keeping with a legal requirement to supply the relevant information up the chain.

 

  • Given our points above, we believe that April 2019 is too soon for implementation of any reform and would not allow for proper consideration by HMRC or proper implementation of any reforms by contractors or end hirers.

 

We believe our response is measured, backed by evidence and realistic; we’ve always welcomed reform that encourages compliance and there is no doubt that compliance reforms are coming to the Private sector; we just ask HMRC to remember who won that race between the hare and the tortoise!

 

 

HMRC IR35 consultation ends on August 10th. We’re responding – are you?

In last Autumn’s Budget, the government announced that it would consult on how to tackle non-compliance with IR35 rules in the private sector. In May this year, that consultation was announced, with a closing date of 10th August.

We encourage all other interested parties to contribute; that means contractors as well as end-hirers who want to continue to have access to and support self-employed contractors.

You can see the consultation and how to send your response here .

Intouch will be responding to the consultation and we will publish an overview of our response early next week.

Spring Statement 2018

Today saw the Chancellor Philip Hammond deliver his first ever Spring Statement and we’re pleased to say that the future is looking positive for contractors. The Chancellor was upbeat about the recovery of the UK economy and spoke of continued investment in public services and large infrastructure projects. The announcement of a consultation on extending tax relief on training funded by the self-employed plus a review of late payments made to small businesses both also bode well for the future.

We had our ears open for news of the IR35 private sector consultation that was announced in the Autumn Statement last year, and although it wasn’t mentioned in the announcement itself, further information published following the Chancellor’s speech has confirmed that a consultation will be published in the coming months.

Philip Hammond’s written statement announced: “In the coming months the Government will publish: Off-payroll working – a consultation on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reform. The Government will work with businesses and individuals to mitigate the potential administrative burdens of any future changes.”

We would now urge the Government to take time to consider the right approach based on input from across the industry and will of course keeping close to any future announcements.

The IR35 saga has been rumbling on for so long that you may have lost track of the backstory. So, if you want a quick potted history of IR35, what’s happened, why it matters and what might happen next, then read on…

What is IR35?
IR35 is the tax legislation which determines whether an individual is truly self employed, or working as a ‘disguised employee’ in permanent employment in order to take advantage of certain tax relief schemes which permanent employees cannot. If you are ‘inside’ IR35 you are considered a permanent employee and will therefore be taxed as such. If you are considered to be ‘outside’ IR35, you are considered self employed. IR35 applies to all business sectors and specialisms and your status can vary from contract to contract, depending on the nature of the work and details of the contract.

Until April 2017, the contractor was responsible for determining whether their contract was inside or outside of IR35, according to the rules set out by HMRC.

IR35 in the Public Sector
From April 6th 2017, legislative reforms meant that the burden and responsibility of determining IR35 status for Public Sector Contracting was now with the client, not the contractor. This legislative move was perceived by some commentators as HMRC ‘testing the water’ in advance of potentially rolling out the reforms to the Private Sector.

However, the implications of the Public Sector reforms have been more wide-reaching than anticipated, with Public Sector entities like the NHS blanket-applying IR35 across all contracts for fear of getting it wrong and incurring fines. Not wanting the associated administrative burden of payroll management, they also insisted on their contractors using umbrella companies. This double whammy of having the Employer’s National Insurance costs passed down to the worker (and not borne by the Engager) plus the cashflow disadvantage of being taxed at source and still having to pay the umbrella fee left contractors substantially out of pocket. Many decided to work elsewhere, return to permanent employment, or work only in the Private Sector in future if their skills were transferrable.

IR35 in the Private Sector?
Following speculation that the IR35 reforms might be rolled out into the Private Sector imminently, contractors were relieved by the announcement in the November 2017 budget that a full review and consultation would be carried out before any decisions being made. We’ll be watching closely for the results of this consultation which may be published in the coming weeks or months.

If you have any questions relating to IR35 or want to find out more about our Contractor Accounting service, call us now on 01202 375 562.

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.

Public bodies urged to use IT freelancers

When is the best time to set up an IT contracting business? This is an almost impossible question to answer, as it largely depends on your individual circumstances. But if you’ve assessed your current situation and decided that you’re ready to become a contractor, then as far as the industry is concerned, 2018 could prove to be a stellar year.

 

Research from TechMarketView, discussed in a Contractor UK article, has urged the public sector to make more use of freelance consultants this year, in a bid to address the persisting digital skills gap. The market analysis firm said that public organisations will have to think of ‘more creative ways’ to gain the skills they need, ‘including the use of public freelance marketplaces.’

 

TechMarketView acknowledged that taxpayer-funded bodies may find it difficult to conduct business efficiently ‘without looking beyond their own four walls.’ This news comes after an IR35 update last year and its ‘off-payroll rules,’ which many believe has dissuaded freelancers from providing their services to the sector.

 

‘Fled in droves’

Mike Gibson, Managing Director at Ethical Consulting, who has been petitioning against IR35, argued the above point to the government’s business department, after it published a strategy on IT provision to its staff, ‘and the people and businesses we serve.’ This strategy is, in Gibson’s words, “[beautifully] written and composed, professionally created and ultimately pointless.

Delivery will be dependent on a veritable army of flexible and temporary resource – who have fled the UK [public sector] in their droves as a result of IR35 changes in April 2017.”

 

Options available

Gibson said that for the government department to achieve its aim – which is, to ‘make the best use of digital, data and technology (DDat) in our everyday work’ – then either one of two things need to happen:

The first option is for the body to pay 22% more to PSC contractors who possess the necessary skills, to counteract the hike in tax the IR35 reforms result in. Alternatively, it must accept that DDat-related work will be carried out by ‘inside IR35’ consultants willing to take a 22% cut to their wages. But, referring to the latter, Gibson said, “I don’t see the top-drawer [DDaT] people doing that when they don’t need to.”

It will be interesting to see how the next few months pan out and if any proactive steps are taken by the sector to address the continuing IT skills shortage. In the meantime, if you’re thinking of contracting and want to know how IR35 legislation affects you, contact the experts at Intouch Accounting now…

 

Sources:

TechMarketView – Public Sector Predictions 2018 – New Research

ContractorUK – Get IT Freelancers in for 2018, public bodies told

GOV.UK – BEIS digital data and technology (DDat) strategy

 

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.

 

 

 

 

 

 

 

 

 

Intouch Accounting wins Best Contractor Accountant (Small/Medium) in the ContractorUK reader Awards 2017

Everyone at Intouch is delighted to hear that our clients have voted us ‘Best Contractor Accountant (Small/Medium)’ in the ContractorUK Reader Awards 2017, retaining our title from last year.

This award is important to us as it is voted for by clients, and excellent client service from personal accountants is our number one goal. So we’d like to say a massive THANK YOU to all those clients who took the time to vote. You can find out more about what makes our service so special here.

We’re also delighted to prove to our new backers that they made the right decision! Coming shortly after the acquisition of Intouch by The Brookson Group, Andrew Fahey, MD of Brookson One who is facilitating the Intouch handover says; “This win is testament to the great service provided by the team at Intouch who put the client experience at the heart of everything they do. I’m delighted to welcome Intouch to the Brookson Group and this award just re-affirms our plans for Intouch to remain a stand-alone business with no change to this high service ethos. Thank you to all the Intouch clients who voted this year to help Intouch retain the crown.”

We look forward to another great year of continuing success and providing excellent service to all of our clients.

 

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 textbooks and legislation aside: we’re all still guessing about the public sector

What the team at Intouch thinks will happen next

It’s one thing to know the ins and outs of the legislation, and another to anticipate how everything will play out in practice over the coming months. Everyone, including Intouch, has a view on this and it does of course depend upon the attitude to risk of the public sector body. For example, TfL’s approach of “no more PSCs, thank you” compared to the MoD’s “let’s assess everyone fully then decide”. Outcomes will also be influenced by the degree of reliance upon the technical expertise involved and ability to substitute or replace the worker.

 

Unhelpful influences and how they will affect implementation of the legislative changes

Intouch cannot escape the conclusion that issues of morality, political correctness and “following the line of least resistance” will lead to many workers being shoe-horned into deemed employment without getting the associated and deserved employment rights.

 

For them, and any other vulnerable workers, many will and should return to agency payroll or permanent positions, where take home pay is comparable and employment rights follow.

 

However, for the vast majority of independent knowledge workers in the public sector, the unhelpful influences remain as follows:

 

  • Agency fee payers or end hirers may just avoid risk and conclude (based on varying degrees of evidence gathering or not) that the arrangements are within IR35. They will apply tax at source, the end hirer will be happy, and a victim will be found to bear the employment taxes.
  • Agencies will want to avoid PSC risk and “encourage” their workers to return to Umbrellas. Umbrellas will continue to pay rebates, rewards and doughnuts for introductions made by agencies and the losers of margin will be the contractor.
  • Competition between agencies will intensify as they all seek a “Hail Mary” solution that enables them to offer something better to their workers than the offering of a competitor. This will prompt the emergence of new models.We are seeing a new breed of intermediary arise which can be “inserted” into the supply chain between the current fee payer (agency) and the worker’s PSC. This is one form of a new body built to absorb risk and not liked by HMRC. Parties are already referring to these entities as “redundant intermediaries”.
  • Also, we recommend extreme caution if tempted by other so-called “compliant” models. The stigma of failed EBTs and offshore arrangements all fall foul of rigorous anti-abuse and tax avoidance regulations.

 

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.

Brexit: tax implications for contractors

Tax implications for contractors

Seven weeks after the EU Referendum vote and there has been little clarity on what will happen, when and by whom! In fact, until Article 50 is triggered, sparking the start of exit negotiations, we’re likely to remain in a haze of uncertainty at least until the Autumn. Our own political parties need to get their houses back in order before they can start divorce proceedings.

 

But a lot of people, understandably, are not keen on playing the waiting game and want at least some idea of what the future holds, now. Here we take a look at what Brexit is likely to mean for contractors and their taxes in the short-, medium- and longer-term. Before we get started, it’s important to stress that even once Article 50 is triggered it’ll be at least another two years until changes come into effect, following what will undoubtedly be complicated negotiations between UK and EU officials. Until that time, existing arrangements will remain in play.

 

In the short-term

Many in the accounting world expected progress to kick start on the Making Tax Digital consultations following a remain outcome. It now seems likely this will slip far down the priority list, unlikely to reemerge at least until a new Cabinet is in place. Any delay in progressing this already unpopular proposal will be music to many contractors’ ears.

 

With the Finance bill 2016 already behind schedule, further delays seem inevitable meaning a delay in the Finance Act due to be passed in October, while the Government sorts itself out.

 

There are already 40 pieces of tax legislation which have been already delayed during the Referendum so these will now be reactivated with a view to most coming into force later this year and early next.

 

One thing we can be pretty certain on, is that an emergency Budget will be held before the year is out.

 

In the medium-term

If the emergency Budget follows the blueprint which Osborne forecast when he was Chancellor during the Referendum campaign, then we can expect £15bn of tax rises and £15bn of spending cuts. If this does happen, we’re likely to see rises in income tax and National Insurance, with the campaign forecast suggesting a 2 pence rise in the basic rate of income tax; a 3 pence rise in the higher rate and a 5% inheritance tax rate to 45p.

 

As an incentive to companies to stay in the UK, it is expected that the rate of corporation tax will probably not increase.

 

There are two key guiding principles relating to the application of taxes within the UK:

1. Direct taxes are imposed by UK law but in accordance with EU law.

2. VAT is imposed and operated in accordance with EU law.

 

So for the next two years nothing can change relating to VAT without complying with the existing EU arrangements.

 

In the long-term

During the transition period (which is likely to continue to late 2018), VAT – like all the other tax and regulation tied to European law – won’t change. Despite the Leave campaign’s promise to cut VAT rates on domestic fuel, this is unlikely to happen in reality as it generates £115bn a year for the UK government. We may even see VAT rates increasing as it is easy to implement the change and is a more straightforward way to boost the government’s coffers.

 

Once fully out of the EU, sales going in and out of the UK will be treated as imports and exports and so subject to different VAT treatments to now, where they are considered as intra-EU movements. VAT on expenses incurred in other EU countries will probably be more difficult to recover.

 

For UK businesses selling digital services in the EU, VAT MOSS will continue to apply but on a non-EU basis, meaning the operation of VAT-MOSS is likely to become more complicated.

 

Since the decision was made to exit it has come to light that the UK and EU have disagreed on several occasions over the scope and operation of UK taxes including patent box, changes to the taxation of controlled foreign companies, differential rates of insurance premium tax and capital duty.

 

Once out of the EU, the powers in London, Edinburgh and Belfast will dictate tax rates and structures according to the UK’s needs and subject to whatever settlement is made with Europe. It is also anticipated that more tax incentives will be introduced to encourage investment in the UK as we break away from needing to seek EU approval on issues concerning R&D credits, the patent box, and executive investment schemes.

 

At Intouch we will, of course, be keeping a keen eye on developments and advising our clients on how to get the best from their Limited Company. To benefit from unlimited advice whenever you need it, sign up to our all inclusive monthly service and rest assured that we’re here for you, whatever the future holds.

 

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.

Leap year love – do what you love on this extra day

Happy Leap Year!

Today marks a leap year, a whole extra day to do whatever you like! So how will you be spending the day? How about doing something you love?

 

Here are just a few ideas you could try:

  • Be brave, bite the bullet and propose to your boyfriend!
  • Book a holiday
  • Watch a marathon box set or series of movies
  • Have a “staycation” – imagine you’re a tourist in your own town for a day
  • Buy a novel by your favourite author and read it in one day
  • Plan an old fashioned play day with children or grandchildren and relive your childhood
  • Visit a National Trust property to see snowdrops, the first signs of spring
  • Learn a new skill at a one-day workshop – eg cooking, photography, mindfulness
  • Volunteer for a day – so rewarding and you may decide to make it a regular event

 

Contracting means you can design your professional career around your personal life, rather than the other way around. You work when, where and how you like (try doing that if you are a permanent employee!) Why not take a couple of minutes to find out what makes a successful contractor? If you’re considering contracting, it’s better to be fully prepared and know what to expect.

 

A few fun facts about leap years

So, you’ve decided how you’re spending your extra day, but do you know how the leap day came about and how the rest of the world celebrates?

 

  • A leap year occurs every four years to help synchronize the calendar year with the solar year, or the length of time it takes the earth to orbit the sun, which is about 365¼ days.
  • However, because the orbit is slightly less, we have to skip three leap days every 400 years. The last time was in February 1900. The next time will be in February 2100.
  • Only 30 people alive today experienced the skipped Leap Day in 1900.
  • The tradition of a woman being “allowed” to propose marriage on 29th February became commonplace in the 19th Century.
  • Women who propose must either wear breeches or a scarlet petticoat to pop the question. In Scotland, the petticoat should be partly visible to the man during the proposal. If a man refused his partner’s proposal, he would be fined a kiss, a silk dress or twelve pairs of gloves.
  • One in five engaged couples in Greece will plan to avoid getting married in a leap year. They believe it is bad luck.
  • People born on February 29 are called “leaplings” or “leapers”.  The chance of being born on a leap day is one in 1,461. There are five million leaplings around the world.

 

So what will you be up to this leap year? Why not share your plans with us. Simply leave a comment below and we will share the craziest with our Twitter and Facebook followers!

 

And if you haven’t yet leapt at the chance of contracting and the freedom it brings, why not become your own boss and use 2016 to take a quantum leap forward for personal and professional freedom?

 

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.