HMRC IR35 Business Test expected to go live in April 2012

The Employment Status Test has been around for a few years now, see my recent Blog but now IR35 is going to get special attention from HMRC.

What is IR35?
The Term “IR35” became established following a Budget press release issued by the Inland Revenue on 23rd September 1999. That press release was called “IR35”. At its simplest, IR35 is the way in which the taxman closed a loophole that was allowing many contractors and freelance professionals to avoid paying large amounts of Tax and National Insurance.

IR35 Forum

The latest IR35 Forum minutes show that a new trial IR35 business test will be made live on the HMRC website in April, together with a set of typical scenarios to help establish how likely a business is to be caught by IR35.

The minutes for the last two IR35 Forum meetings (21st February and 8th March) have been published on the HMRC site.

Out of an initial set of 17 IR35 scenarios examined by the Forum, the external members and HMRC agreed on 14 of them.

It was agreed that in order to avoid confusion, just 6 scenarios would be published online. Of these, two were ‘IR35 caught’ contracts, two were outside of IR35, one is a ‘grey’ case, and the final case begins outside IR35, but moves within the scope of the rules due to changes in the company’s practices.

Clarity on tax rules is always a good thing, but it will be interesting to see where the lines have been drawn.

Supply Chain Finance – its like Invoice Finance in Reverse

I received my copy of CIMA – Excellence in leadership Issue 1 2012 today and I have been reading all about Supply Chain Finance.

I hadn’t heard of it before, the article explains how businesses like Travis Perkins have been working with Santander to find a way to help their suppliers.

Santander offer to pay the suppliers immediately for a fee and the client (TP) pays on their normal trading terms, this is better for the suppliers than factoring because it improves their working capital position and based on the article the fees are cheaper than factoring.

Its good for the client because they aren’t borrowing money either, but the client needs to have a good credit rating. Here is link for more details:

Have you used this type of finance? do other banks offer it?

Borrowing money from a SIPP or SSAS

Final Salary schemes have pretty much ceased to exist, Stakeholder Pensions never really caught on, so the majority of us have one of the following:

Personal Pension Plan – most people have or have had one of these, its the kind of scheme where your IFA comes along every year, asks you how much risk you want to take and then invests your pension in a Managed Fund or similar.

SIPPs – Self Invested Personal Pensions – these are a little more expensive but you have a lot more control and you can invest directly into Commercial Property, borrow money to buy Property and you can make loans to unconnected parties

SSAS – Small Self Administered Scheme – these are generally a little more expense than both Personal Pensions and SIPPs but you have even more control and you can lend to your own company are great for SIPPs and SSASs, there many other great providers too

You could have a combination of the above and its possible to transfer money between pension plans (but there is normally a fee for the transfer)

When you pay earned money into you pension you will get tax relief at either 20% or a higher rate but its limited to a maximum of your earnings.

Your employer can pay in too, maximum contributions are now £50k

You can also carry forward unused allowances

SIPPs and SSASs can lend money at market rates to unconnected parties without too many restrictions a great explanation of this is given on this link

Alternatively you could use or or I am sure there are others too

Lets say you are 40% tax payer, you pay in £100k out of earned income, the tax man gives the tax back of £40k, so you have £140k to lend, because its short term lending against assets you will probably be paid interest at 10% to 15%, thats a pretty good return (I appreciate there are risks, as there are with everything in life and of course you should always take professional advice before doing anything).

If you are a business looking for funding perhaps borrowing from a SIPP or SSAS may be the solution, it certainly seems to be catching on. But just be careful who you choose to lend to and against what assets.

Correction – if you pay in £60k it will be topped up by £40k to £100k if you are a 40% tax payer

Help for SME’s – National Loan Guarantee Scheme

On the 5th April 2012 the new National Loan Guarantee Scheme will be launched. So what is it and how does it work?

The Government will guarantee £20Bn of banks debt, enabling the banks to access cheaper funding in the money market.
RBS/NWB anticipates £6Bn allocation.Santander has signed up, HSBC have declined.
This has been made possible by  Government reducing the Asset Purchase Facility from £40Bn to £10Bn.
This is a contingent liability for the Government.
There is a two year window, and the banks will pay a fee for the guarantee.

The purpose is that the bank passes on the saving to eligible customers.
The savings are up to 1% off the APC (asset price calculator).

Banks will retain full credit risk of the client facilities.

Eligiblity: SME’s with turnover up to £50m
New loans, hire purchase and leasing including refinance of Over Draft’s and refinance loans. Purchase of owner occupier property is eligible.

Ineligible: loans to property investors, property developers and those that have restrictions in state aid set out in specific European Commission State Aid rules (e.g. agriculture, transport and export).

OD’s, Revolving loans and Invoice Discounting are not eligible.

The borrower must be advised if banks use the scheme on their facility.

Loans up £25k to £250k must be repayable on 3, 5 or 10 year terms.

Payroll Year End – how to stay in control

Tax week 51 starts n Monday 19th March, so there are only 2 weeks till tax year end. For many Payroll Year End brings on feelings of dread and fear, the panic of closing off, printing P60’s, clearing payroll history, re-setting tax codes, tax rates, NI rates, but with a bit of planning and preparation it doesn’t need to be scary.

Here is a quick summary and timetable:

  1. Register online with HMRC
  2. Order your P60’s (including some spares, just in case), you can get them free from HMRC
  3. Run your year end payslips as normal and print the P32, check what you have paid against P32 amounts
  4. Print the P11 Workings for PAYE and NI, makesure they are complete, no missed weeks, run some test calculations to double check the answers
  5. Print your P60’s and check them against the Payslips (these have to be issued to current employees by 31st May, but why wait till then? also employees that have left before year end get P45’s they don’t get a P60)
  6. Produce your P35 Employers Return and P14’s (these have the same details at the P60) – due by 19th May but you might as well prepare these when you run the final payslips
  7. Take back ups, print file copies
  8. Whether you use HMRC Basic PAYE Tools or commercial software like Sage, you will have been sent an update for the new tax year, basically, this will help you reset the Tax and NI Bands and change the basic tax code, starting the new tax year should also mean that the history is cleared
  9. HMRC will also have sent you new coding notices to start in the new tax year
  10. When you process your first period in the new tax year carryout your own test calculations on several employees to make sure the answers are correct, it better to deal with problems in the first period than have to roll back or start again later
  11. By the 6th July you will need to do you P11D’s for Benefits in Kind, but there is plenty of time for that

HMRC have a checklist and timetable available at

Fraud and Scams – be on your guard

I hadn’t realised just how many types of scam were out there until I was discussing it with our Nat West Relationship Director Mike Harrison, take a look at these links

It is an absolutely incredible list.

So what should you do?

As a business you should have a Fraud Policy that covers:

  • allocation of responsibilities for the overall management of fraud
  • the formal procedures which staff should follow if a fraud is discovered
  • any staff training necessary for the prevention and detection of fraud
  • creation of an awareness amongst staff that response plans have been devised, to deal with and minimise the damage caused by any fraudulent attack.

Alongside such fraud policy statements staff should be given clear guidance on the acceptance of gifts and hospitality and should also be clear on how to handle conflicts of interests.

An organisation’s Fraud Awareness Policy should be a short, precise document that can be understood and acted on by the appropriate personnel within the organisation. In broad terms, and in addition to the points noted above, the plan may also cover the following:

  • a general review of robustness of existing systems, procedures and controls in preventing fraud
  • a means for regular testing of such controls
  • the identification of assets (including corporate information and plans) most at risk
  • an appraisal of the threat of fraud on those assets and how it might manifest itself
  • the means of damage limitation and recovery of funds if fraud occurs
  • an unequivocal statement that all fraud offenders will be prosecuted
  • the steps to be taken in the event a fraud occurs and who is responsible for taking action including:
    • assigning responsibility for an instant response to the occurrence
    • recovering funds
    • dealing with the media
    • preserving evidence and reporting to the police


Practical Uses for Hive Up and Hive Down

Many Groups consist of trading and non trading businesses and often assets will get left behind in non trading businesses or businesses that only exist to cross charge their services, this is inefficient, to make a Group work efficiently assets need to centralised. But how can you do that?

Hive Ups and Hive Downs refer to the transfer of a business or assets within a group company.

What is a Hive Up?

A Hive Up is where a business or assets are transferred (or hived up) to the parent company.

What is a Hive Down?

A Hive Down is effectively a reorganisation of a company whereby a business or businesses are transferred (or hived down) to a subsidiary.

What could you Hive?

  • Assets
  • Clients
  • Trade

How do you Hive?

You need to sell the assets at their market value between the companies and to be a subsidiary a company must be 75% owned by its parent.

HMRC have rules to prevent loss buying ie buy a business with losses and use the losses to cut you tax bill, the rules are set out in CTM06300

It isn’t possible to get HMRC Clearance prior to a Hive Up or Hive Down but provided everything is fully disclosed and there are good commerical reasons for Hiving its likely HMRC will be supportive.

As always, if in doubt, seek advice.

Plan out the Key Dates for your Business

There are so many things to remember when you have a company, accounting dates, vat dates, paye dates, corporation tax, self assessment dates, the list seems endless. The only way to keep on top of the dates is to put them in your diary.

I found this link

Business Link can generate all your key dates, the results look like this

July 2012

05/07/12 Ensure agreement is reached with HM Revenue & Customs re Class 1B voluntary settlement.
Find out more: National Insurance: an introduction
06/07/12 Ensure copies of P9D/P11D are with employees. PAYE and NICs
Submit P11D(b), P9D and P11D forms to HM Revenue & Customs.  
Report shares/securities information to HM Revenue & Customs.
Form 42 is provided by HM Revenue & Customs for this purpose.
Find out more: Share schemes – Opens in a new window
22/07/12 Pay PAYE, NICs, student loan deductions and deductions for payments to subcontractors for the month up to the 5th of this month electronically.
Find out more: PAYE for employers: the basics
Pay Class 1A NICs shown to be due by your form P11D(b), electronically.  
31/07/12 If you need to make a Self Assessment payment on account, this is the date for your second payment.
You won’t have to make payments on account if your tax bill for the previous year was less than £1000, or if more than 80 per cent of your income tax for the previous year was deducted at source.
Find out more: Tax return deadlines and penalties
Self assessment

You can then print the list and pin on the wall or fridge and pop the dates in your diary.


It could save you a fortune in late filing penalties


Choosing the right VAT Scheme could massively improve your cash flow

For SME’s there are lots of options, here is a quick summary:

Standard VAT Scheme – on this scheme the VAT is based on tax points from invoices

Flat Rate VAT Scheme – If your turnover is below £150k you could join the Flat Rate Scheme, this scheme applies a % to your sales to work out your VAT Liability, it can make VAT returns easier to complete and in can sometimes work in your favour as the Flat Rates may mean you pay less VAT, if you join in your first year of VAT registration you get an extra 1% off the rate for the first year.

VAT Cash Accounting Scheme – if your turnover is below £1.35m you can account for VAT on a Cash basis, this is particularly helpful if your customers pay you on slower terms than you pay your suppliers

Annual Accounting Scheme for VAT – if your turnover is below £1.35m you could join the Annual Scheme and complete one return for the year but you make either 9 interim payments or 3 quarterly interim payments

Retail VAT Schemes – These are specific schemes aimed at mainly at shops and help to overcome the issues of mixed vat rate goods

VAT Margin Scheme – The margin scheme relates to second hand goods and accounts for VAT on the margin, for example on the sale of cars

The cash flow impact of the different schemes can be considerable, to get an idea of impact consider your cash cycle

To identify which schemes are availble to you take this test