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.

IR35 in the private sector – HMRC announces consultation

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. On Friday, HMRC issued this eagerly-awaited consultation which they say “looks at improving the rules around ‘off-payroll’ working so contractors who work through their own company pay the right tax.”

At Intouch, we would suggest that HMRC learn from the negative feedback following the public sector reform and at the same time, remember that private sector and public sector hirers are different entities with different motivations and potential responses. They engage with their clients in different ways and often at different levels and as such we’d encourage HMRC not to view them as the same with respect to off-payroll rules and deemed employment. Input should be taken from across the industry with a view to tailoring a bespoke private sector solution that improves compliance whilst mitigating any potential administrative burdens.

The consultation timescales mean that any changes could be introduced as early as April 2019, although we’d urge HMRC to take the time to consider timings very carefully to avoid any negative impact to the UK economy as we move forward with Brexit.

Intouch will be responding to the consultation and 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 – you have until 10th August!

If you want to have your say but need to brush-up on your IR35 knowledge, check out our resources below:

Guide – Embracing IR35
Infographic – IR35; Don’t panic!
IR35 FAQs

 

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 you need to know about IR35

Familiarising yourself with numerous legislation is just one of the many tasks involved in setting up your own business. But for contractors, specifically, there’s a crucial piece of legislation to get to grips with: IR35.

 

What is IR35?

IR35 is a type of tax legislation put in place to prevent contractors from limiting their tax liabilities by supplying services through a Limited Company, despite carrying out the same work as the company’s employees. In short, it’s designed to stop false self-employment.

 

Does it affect all contractors?

HMRC defines ‘disguised employees’ as contractors who are treated and act like any other member of staff working for a company. IR35 law aims to stop disguised employees trading under an intermediary, which would entitle them to greater tax benefits.

It may seem simple on paper, but in actual fact, many contractors have found it difficult determining whether or not the legislation applies to them. Trading as a Limited Company and working ‘outside’ of IR35 can result in higher take-home pay than an Umbrella agreement, but you need to be certain about your position or you could face financial penalties.

Another thing to bear in mind is that the legislation applies to each individual contract. This means that you might be outside of IR35 for one contract, but within its scope for another. And that’s why it’s important to conduct thorough contract review processes, in order to clarify if any part of your work falls inside the legislation.

 

What penalties could I face?

Contractors found to have been ‘careless’ can be fined 30% of unpaid tax. This climbs to 70% of unpaid tax if the contractor was aware they were inside of the legislation but deliberately did not make the payment; and 100% of unpaid tax if they also tried to conceal their actions.

 

Whose responsibility is to determine IR35 status?

Big changes were introduced from April 2017, which saw the responsibility of determining IR35 status move from the contractor to the client. But this is only where the contract is with a public sector body. The government are currently also debating rolling it out to cover the Private Sector, although this is likely to take some time, if it happens at all.

Some evidence suggests that this has had a negative impact on the industry, causing firms to insist their contractors trade under an Umbrella agreement to relieve the burden of payroll and other administrative duties.

 

Pairing up with a professional

If you’re considering setting up as a contractor, the experts at Intouch Accounting can help you to navigate the minefield that is IR35. We’ll make sure you understand your rights and risks under IR35 and other laws, and will review your contracts for compliance. To find out more about our service, get in touch 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.

 

 

 

 

 

 

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.

IR35 public sector changes

IR35 public sector changes

If you read our Autumn Statement predictions and review you’ll already have seen us talk a lot about proposed reforms to IR35 from April 2017. In the Autumn Statement, just two weeks ago, it was announced that reforms for contractors working in the public sector would be introduced on 6 April 2017. Yesterday, 5 December 2016, HMRC released their responses to the consultation earlier this year, additional guidance, and the draft legislation.

 

The changes will apply to all payments made on or after 6 April 2017. It’s important to note that this means all payments, even if the work was undertaken before 6 April or the contract agreed before that date.

 

HMRC have effectively created a completely new form of IR35, despite their assurances not to. Public sector work has been entirely excluded from the old IR35 and is now subject to its own specific “son of IR35”, called Chapter 10.

 

Although there is new legislation the actual basis for assessing “employment status” remains unchanged. Therefore if you were outside the old IR35 then you should expect to also be outside “son of IR35”.

 

The chain of supply

The draft legislation recognises the chain of supply, with the worker’s intermediary at the bottom and the end client at the top, defining the parties between in terms of whether they are higher or lower than one another. The party that pays the intermediary will be referred to as the Fee Payer (“FP”).

 

The FP’s responsibilities

Whilst the end client will be responsible for assessing whether conditions of employment are met, and for confirming the status to the FP, who will be responsible for determining how the new rules apply. To help them, the end client will be legally responsible for providing information on employment status to enable the FP to correctly apply the rules. If the end client fails to do so (within 31 days) they will be held accountable and forced to stand in the shoes of the FP.

 

Although the employment status test remains unchanged, there are fears that end clients will oversimplify the test, and alongside the FP take the line of least resistance, assessing many public sector workers as deemed employees subject to the new legislation.

 

Assessing working relationships

The legislation appears to suggest that the contract itself has a greater part to play in the assessment of working relationships. This is different to current thinking in the contracting industry, which suggests that day to day working practices have far more impact on one’s IR35 status than the contract itself.

 

It was also a surprise that the end client would play a major role in assessing whether the conditions of employment are met, or whether the FP will be able to reconsider the status applied.

 

The explanatory notes accompanying the legislation don’t explain this change, and whilst it does not appear there is any intention to rewrite the general employment test, the emphasis on the contract is still unclear.

 

What happens if you are caught within IR35?

The FP will deduct Income Tax and primary National Insurance from the payments made to your company. You may also find deductions from your normal contracted rate for Employers NI and the Apprenticeship Levy, as these will be liabilities the FP must also meet. Whatever happens, the FP won’t be meeting these costs and expect many contracts to be terminated or renegotiated between now and 6 April 2017.

 

In many respects the FP will account for you as an employee and will expect you to provide them with personal tax details. You are required to provide these under the new regulations.

 

The FP will report the income paid to you and the tax deductions alongside its own employees to HMRC. All very confusing because you will be taxed as an employee of the FP, whilst employed and paid by your company, but don’t for one minute expect that being taxed as an employee by the FP gives you any employment rights or rights to statutory payments or pension auto-enrollment. Government has been very careful to avoid assuming those responsibilities on behalf of the public sector.

 

At the end of the contract the FP will issue you a P45 and you will use that to declare your income on your personal tax return.

 

The worker’s responsibilities

The worker will be responsible for providing personal tax details to the FP, such as National Insurance number and tax code. This is particularly important because an emergency tax code would apply if a tax code is not provided.

 

Permitted deductions from the payment amount

The only permitted deductions by the FP will be:

 

  • VAT included in the payment made
  • Expenses incurred and recovered from the end client (and therefore included in the payment received)
  • Employment expenses incurred by the worker or intermediary

 

How this affects your company

Your company will not have to pay tax on the public sector income assessed as employment income under these new rules, and will be able to claim deductions for capital allowances and pension contributions not previously allowed by the FP.

 

Your company will not need to report any payments made to you personally that have previously been taxed by the FP, but will need to make a repayment claim for tax relief denied by the FP.

 

This is going to make your personal tax and that of the company not just messy but clearly at risk of double taxation. You will need to rely upon advisers that have a very clear understanding of the new legislation, otherwise tax relief may be lost or income taxed twice, especially where you have both public and private sector income.

 

Your company will deal with VAT in the normal way.

 

Intouch and what we are going to do

It’s time for legitimate contractors to have a voice. These proposals were intended to counter avoidance, but the draft legislation will most likely adversely affect legitimate Limited Company contractors. Whilst we have participated at various levels and engaged with HMRC, Government has not listened and has taken a very naïve path in the hope it will get them where they want to be.

 

Intouch will continue to argue the case on behalf of our clients and ensure its services to contractors help ensure their status is correctly assessed and taxed.

 

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.