Asda employ 170,000 UK staff and they have received final demands from HMRC for outstanding tax bills ranging from £72 to £160 because they all potentially underpaid income tax last year (according to the Courier and Payroll World).
Assuming each employee only has to pay back the minimum amount, then Asda employees across the UK will have to give more than £12 million back to the taxman.
May be Winston Harrigan could help them this weekend, he loves surprises…..
PAYE (Pay As You Earn) tax is deducted differently from ‘week 53’ payments. HM Revenue & Customs (HMRC) treats it as a non-cumulative payment (also known as ‘Week 1’), meaning that it is treated in isolation and tax is deducted without taking into account previous pay and tax details. So the tax code you use should be non-cumulative in all cases.
This advice has only been given since the tax year end.
Dragonfly Consulting was a one man consultancy business, the one man being Mr John Bessell and his client was the AA (Automobile Association). It was landmark case in IR35 which was concluded in 2008 when HMRC won the case and claimed £99,000 in unpaid taxes and National Insurance.
First lets get Mike and Jeff to explain the basics of IR35 and employment status….
The key points being:
Personal Service and Substitution
So let’s pick out the key points in the Judgement:
1. Personal service / substitution.
Mr Bessell was named as the Consultant in two of the lower level agreements; however the fact that his name was omitted from the other lower level agreements did not undermine the requirement for his personal service. Henderson J found that Dragonfly was a one-man company, whose raison d’etre was to supply Mr Bessell’s services – therefore it was obvious that the intention of both parties was that it would be Mr Bessell who would provide the services.
The existence of a clause in the lower level agreement demonstrating that a substitute could only be used where the AA had expressly agreed it, and the oral evidence given by AA’s representatives regarding substitution, resulted in Henderson J concluding that the findings of fact were unassailable – amply justifying the Special Commissioners conclusion that each notional contract would have been for the services of Mr Bessell, and that a substitute could be used only if the AA had firstly given notice that a particular substitute was acceptable.
Henderson J agreed with the Special Commissioner that a schedule supporting the first lower level agreement demonstrated that the consultant provided by Dragonfly was to act under the direct supervision and control of the AA.
3. Intention of the parties
Henderson J summarised the position, acknowledging that statements by the parties disavowing any intention to create a relationship of employment cannot prevail over the true legal effect of the agreement between them.
It was accepted that, in a borderline case, a statement of the parties intention may be taken into account and may help to tip the balance one way or the other, however in the majority of cases such statements will be of little, if any, assistance in characterising the relationship between the parties.
whether the engagement was one of service or for services – therefore the hypothetical contract would not have included a statement of the intention of the parties. Even if it was found such a clause were to be included in the hypothetical contract, this could not by itself result in reach the opposite conclusion about Mr Bessell’s notional status as an employee.
4. Worker status.
The appellant contended that the Special Commissioner failed to consider a third intermediate category – that of ‘worker’.
Henderson J confirmed the general law of employment does not recognise a third intermediate category between employment and self-employment; therefore there was no reason why the Special Commissioner should have considered any other category. In the context of IR35 the only distinction to be made is whether the notional contract is one of service or not – and the Special Commissioner clearly had that in mind.
Henderson J concluded by stating that for the reasons given in his judgement the conclusion that Mr Bessell fell on the employment side of the line is unassailable.
The lessons we can learn from this are:
The contractual paperwork must be correct at every stage
Paperwork on its own is not enough and commercial reality may take precedence
Despite the economic downturn, companies are still on the lookout for talented new employees, with demand surging after a slowdown in April. The findings pointed to more vacancies in the private sector than public sector roles.
So why would you want to be a Freelancer.
Pay rates – generally contractors are paid considerably more than employees
Flexibility – you are your won boss but the downside is that you have to find work
“Operating through a limited company as opposed to an employee brings significant financial benefits. By taking a small salary and high dividends you pay far less National Insurance, saving around 26%. There are obviously associated costs involved in running your own company, such as accountancy fees and insurance, but the overall ‘take home’ pay will still almost certainly exceed that of an employee.
But with the benefits there also comes risks. The IR35 legislation could affect any contractors working through limited companies and it’s vital that you take steps to ensure you are compliant. Contracting is also far less stable than permanent employment; you have been engaged as a temporary resource and your client can terminate the agreement at any stage. There is also the issue of illness; as a contractor you won’t receive any sick pay from your client, so any days not worked will hit your finances.”
But on a final note makesure you have the right equipment as explained in this sketch
HMRC doesn’t regard lottery winnings as income, so all prizes are tax free, hooray!
But the problems start when you give the money away, as reported in the Guardian in 2012
The cash will form part of your estate and be liable for 40% inheritance tax (IHT) if it takes the value of your estate above the current threshold of £325,000.
Gifting millions will not save you from paying IHT either: HMRC will tax you on a sliding IHT scale should you die within seven years of gifting any cash to friends and relatives – a 20% reduction in tax if you die between three and four years after gifting, a 40% reduction between four and five years, etc). You can get around this by making sure the recipient signs an agreement that they will pay any IHT due if you do die within seven years.
The IHT issue also applies where you have a syndicate without a syndicate agreement.
The solution to this is to have a syndicate agreement , then you can look forward to spending your fortune.
The reasoning behind HMRC’s thinking goes back to the case of Graham v Green  9TC309 and concerned a man whose sole means of livelihood came from betting on horses at starting prices.
The basic position is that betting and gambling, as such, do not constitute trading. Rowlatt J said in Graham v Green  9TC309:
A bet is merely an irrational agreement that one person should pay another person on the happening of an event.
This shows that having expertise or being systematic (“studying form”) is not enough to create a trade of being a ”professional gambler”.
Some ”professional gamblers” do carry on a trade, for example, where they receive appearance money for appearing on television programmes. They are providing a service to a customer (the television production company) for reward. Whether their gambling winnings are proceeds of that trade would depend upon the facts. BIM22017
The other problem for HMRC is that if you tax ‘winnings’ you would have to allow tax deductions for ‘losing’ and there are more losers than winners.
Things get complicated when it comes to sporting events, in general, amateur sporting prizes are tax free, here are HMRC’s examples for Community Amateur Sports Clubs:
Clubs may wish to arrange prize competitions where the nature of both the competition and the prize is such as to promote participation in the sport. In strictness there is nothing to permit this but where the value of prizes, are commensurate with amateur participation in the particular sport these would not prevent club from being registered. Competition prizes of sufficient value to attract professionals or such frequency that could be equated with payment to players would preclude qualification as a CASC.
Example 1 A Cycling club promotes races in which members and others, particularly local juniors, are encouraged to participate. Modest cash prizes are awarded and funded from entry fees and local sponsorship. This would be acceptable.
Example 2 A Golf club holds regular competitions for members throughout its season. Although individual events may be limited by gender or handicap, all members are able to participate in some of the competitions. Prizes of golf equipment, for example bags, shoes, balls or vouchers redeemable at the club shop are awarded. Again, this would be acceptable.
Example 3 A Bowling club organises frequent competitions for club members with cash prizes subsidised by a brewery. Senior players derive significant benefit from these arrangements. A club that subsidised its members in this way would be unlikely to qualify as a CASC.
When it comes to professional sporting events the tax can be significant and has led to problems attracting sporting stars.
Like most countries, the UK charges tax on appearance fees and prize money when non-resident athletes compete in Britain but, unlike many other countries, it also seeks to tax the athlete’s global endorsement income.
Based on the number of days spent competing in the UK, Her Majesty’s Revenue and Customs charges tax on a percentage of the athlete’s income earned elsewhere.
“It’s like me asking you to come to work today and pay three times in tax what you’re getting”