Off Payroll Working Rules – April 2020 Changes Reply

The organisation receiving an individual’s services will be responsible for determining whether the off-payroll rules apply, so in other words the fee payer is responsible for tax and NI deductions.

From April 2020 the rules apply to Large and Medium business as well as the Public Sector, the rules are to combat none compliance with IR35.

A client organisation could be

  • a company
  • a limited liability partnership
  • an unregistered company
  • an overseas company

You can check status using the CEST – Check Employment Status for Tax – tool.

The changes don’t apply to Small businesses/organisations employing contractors, to qualify a business or organisation must

  1. Have a turnover below £10.2 million
  2. Balance Sheet worth less than £5.1 million
  3. not more than 50 employees

If the rules apply the Fee Payer is not responsible for

  • Statutory Payments
  • Deducting Student Loan repayments
  • Automatic Enrolment into a pension
  • Holiday Pay

The Client has to demonstrate reasonable care in testing employment status and apply the new rules.

The Fee Payer (Client) is responsible for

  • Calculating deemed direct payment
  • Deducting tax and employee NI
  • Reporting and paying tax and NI including employer contribution
  • Consider if Apprenticeship Levy applies

Client Organisation now need to:

  • Review current contracts and arrangements
  • Establish processes for status decisions
  • Review internal systems for Payroll, HR and on-boarding

The changes don’t affect VAT

No IR35 if there is common control Reply

IR35 is complicated set of rules that applies to contractors.

Many companies will award contracts to related and associated businesses, are these subject to IR35?

Paragraph 3(1) and (2) Schedule 12 Finance Act 2000 / Section 51(1) and (2)

Chapter 8 ITEPA 2003

Regulation 5(2)(a) SI 2000 No. 727

The conditions of liability are not met if the intermediary is an associated company of the client by reason of the two companies both being under the control of the worker, or the worker and one or more persons.

When considering who has control of both companies you have to consider the minimum irreducible shareholdings.

Example 1

Mrs J owns all of the shares in Holdco Ltd, which in turn owns all of the shares in Tradeco Ltd. She works for Tradeco Ltd under a service agreement between Tradeco Ltd and Holdco Ltd. Both client and intermediary companies are under the control of Mrs J so the conditions of liability are not met and therefore, the legislation does not apply.

Example 2

Mr K and Mr L each own 50% of the shares in Holdco Ltd and Tradeco Ltd. They both work for Tradeco Ltd under a service agreement between Tradeco Ltd and Holdco Ltd. Neither Mr K nor Mr L controls both companies on their own and both their shareholdings have to be taken into account in establishing control. Therefore Holdco Ltd and Tradeco Ltd are under the control of Mr K and Mr L. The conditions of liability are not met and no deemed payment arises.

Example 3

Ms M owns 60% of the shares in Holdco Ltd and Tradeco Ltd. Mr N and Mr O own a further 20% of the shares each. Ms M has control of both companies on her own. Therefore the conditions of liability will not be met with respect to her services. However, the exception will not apply to any services provided by Mr N and Mr O.

Example 4

Mr A, Mrs B, Mr C and Ms D who are unconnected each own 25% of the ordinary shares in both Holdco Ltd (intermediary) and Manuco Ltd (client). The following combinations could control both companies – Mr A, Mrs B and Mr C; Mr A, Mrs B and Ms D; Mr A, Mr C and Ms D; Mrs B, Mr C and Ms D. Consequently, in relation to each worker’s engagement, the companies are associated companies as they are both under the control of the worker and other persons.

Example 5

Mr A, Mrs B, Mr C and Ms D who are unconnected each own 25% of the ordinary shares in Holdco Ltd (intermediary) but Mr A, Mrs B and Mr C each own one-third of the ordinary shares of Manuco Ltd (client). The combinations which could control Holdco Ltd are as shown in Example 4 above. The combinations which could control Manuco Ltd are Mr A and Mrs B; Mr A and Mr C; and Mrs B and Mr C. As none of these combinations control Holdco Ltd the companies are not associated companies for the purposes of the legislation.

How many BBC Presenters are at risk under IR35? Reply

Woman with microphone

IR35 is a nightmare for contractors, since it came into force on the 6th April 2000, it has never been clear cut as to whether a contractor is in or out of IR35. Being in IR35 means paying a lot more tax.

There are a range of factors to consider, including:

1. The nature of the contract and written terms
2. Right of substitution
3. Mutality of obligation
4. Right of control
5. Provision of own equipment
6. Financial risk
7. Opportunity to profit
8. Length of engagement
9. ‘part and parcel’ of the organization
10. Entitlement to employee-type benefits
11. Right of termination
12. Personal factors
13. The intention of the parties

HMRC estimate that there are 200,000 personal service companies.

Since July HMRC have been pursuing BBC Presenters and so far it looks like 100 presenters are on their list, this will of course be the tip of iceberg and many more will be caught if HMRC win.

Why can’t we just have a simple online test for IR35 as we do with employment status! it would save so much confusion

What is the optimum salary for 2016/17? 1

small business displayed on calculator

There have been several tax changes in the Budget:

  1. Changes to Personal Allowances –
    The Personal Allowance is the amount of income you can earn before you start paying Income Tax. This is currently £10,600 – it will already rise to £11,000 in 2016, and will now increase further to £11,500 in April 2017.

    The point at which you pay the higher rate of Income Tax will increase from £42,385 to £43,000 in 2016 and to £45,000 in April 2017.

  2. Employment Allowance – The employment allowance is £3,000 but there is a restriction on it being used by single person companies.
  3. Dividend Tax -From April 2016 you’ll pay tax on any dividends you receive over £5,000 at the following rates:
    • 7.5% on dividend income within the basic rate band
    • 32.5% on dividend income within the higher rate band
    • 38.1% on dividend income within the additional rate band

    This simpler system will mean that only those with significant dividend income will pay more tax.

    The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.

    Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance.

These changes also make it more complicated in deciding whether to incorporate, so I have added a new calculator to help you decide

The £5,000 dividend allowance is a bit confusing because its an allowance and not an exemption, so it becomes part of your overall income.

Basically, most small business owners will either choose £8,060 as a salary (free of tax an NI) or £11,000 (tax free)

Because your salary is tax deductible in companies the difference £11,000 – £8,060 = £2,940 plus 13.8% NI = £3,345.72 which saves 20% corporation tax = £669.14

There will be NI to pay 12% employee and 13.8% employer = 25.8% x £2,940 = £758.52 – £669.14 = £89.38 net tax

Beyond this you will pay income tax at 20%.

So in summary, I think the optimum salary is £11,000.

Above this you should take dividends.

This is a simplification and you should speak to your accountant about your specific tax affairs.



Travel and Subsistence tax restrictions starting in April 2016 1

Oh no!

It’s estimated that 430,000 contractors will be affected by the new rules!

Under the new rules certain groups of workers will no longer be able to claim tax relief on travel and subsistence expenses, specifically:

  • Those employed via umbrella companies (employment intermediaries).
  • If you personally provide services to another person.
  • The draft legislation confirms that limited company contractors are not affected by this new restriction, except for any contract work they carry out which is caught by the IR35 rules.

We expect that the new rules will prevent claims for routine travel but allow exceptional travel. For example say you normally work in London that would be excluded but they you have to go to a meeting in Birmingham, that trip should be allowed.



Contractors in the Public Sector will have to pay more tax! Reply

Retro Drama Woman

In the Budget 2016 George Osborne announced that as from April 2017 it will be the duty of the Public Sector to make sure Personal Service Companies and Intermediaries pay the correct tax.

The government announced at Budget 2016 that it will reform the intermediaries legislation (known as IR35) for public sector engagements. It will do this by moving the liability to pay the correct employment taxes from the worker’s own company to the public sector body or agency / third party paying the company. In partnership with stakeholders, HM Revenue and Customs will develop a new tool that will make the decision on whether or not the rules should apply as simple as possible and provide certainty. A formal consultation will be published later. [Technical Note]
The organisations checking intermediaries will include:
  • Government departments, legislative bodies, armed forces
  • Local government
  • NHS
  • Schools and further and higher education institutions
  • Police
  • The British Museum, BBC, Channel 4
  • Transport for London
  • Publically owned bodies

It will be the engagers duty calculate the deemed employment income.

Here are 3 examples…




Will this lead to higher taxes for contractors? will they be converted to employees?

IR35 new status test – coming soon Reply

surprised businessman holding a laptop

IR35 is a nightmare for contractors, since it came into force on the 6th April 2000, it has never been clear cut as to whether a contractor is in or out of IR35. Being in IR35 means paying a lot more tax.

There are a range of factors to consider, including:

1. The nature of the contract and written terms
2. Right of substitution
3. Mutality of obligation
4. Right of control
5. Provision of own equipment
6. Financial risk
7. Opportunity to profit
8. Length of engagement
9. ‘part and parcel’ of the organization
10. Entitlement to employee-type benefits
11. Right of termination
12. Personal factors
13. The intention of the parties

But soon we may have an easy way to check, HMRC are planning to develop an online test similar to the Employment Status Indicator Test.

The test will be completely anonymous.

Having clarity should make life easier for everyone!

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What are the Pros and Cons of Limited Companies? 1

Comparison Calculator

Click here to access the spreadsheet

What is a Limited Company?

A limited company is an organisation that you can set up to run your business – it’s responsible in its own right for everything it does and its finances are separate to your personal finances.

Any profit it makes is owned by the company, after it pays Corporation Tax. The company can then share its profits.

What is a Sole Trader?

If you start working for yourself, you’re classed as a self-employed sole trader – even if you’ve not yet told HM Revenue and Customs (HMRC).

As a sole trader, you run your own business as an individual. You can keep all your business’s profits after you’ve paid tax on them.

You can employ staff. ‘Sole trader’ means you’re responsible for the business, not that you have to work alone.

You’re personally responsible for any losses your business makes.

The key Advantages and Disadvantages of Companies are shown below.


How do you form a Limited Company?

You can form your company directly with Companies House for £15, it normally takes 24 hours

You’ll need:

  • the company’s name and registered address
  • names and addresses of directors (and company secretary if you have one)
  • details of shareholders and share capital

Personally, I find it easier to use a formation agent such as Company Wizard for £16.99

Often using an agent will mean the company is formed quickly, sometime within a couple of hours.

What are the next steps?

Once your company has been formed you need to:

  1. Open a bank account for the Company, this can often take a couple of weeks
  2. Register for Corporation Tax
  3. Register for other taxes (if they apply to your business) – VAT, PAYE, CIS
  4. Appoint an accountant (recommended but not compulsory) – Form 64-8
  5. Set up your accounting software
  6. Create shareholder agreements, contracts and other legal documents (if required)

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Why it’s time to end Offshore and Contractor Loan Schemes? Reply


There have been many creative schemes promoted to contractors, entertainers and sports stars, basically using a limited company to make loans to connected parties to avoid tax.

HMRC have been attacking these schemes for years, for example the Boyle case

Philip Boyle v HMRC [TC03103] 2013

On the 16th September HMRC published Spotlight 26: Contractor Loan Schemes – Too good to be true

Contractors and freelancers are bombarded by promoters who make claims that they can help individuals take home as much as 80% to 90% of their income. Sounds too good to be true, that’s because it is.

So why is this considered to be tax avoidance? These promoters use schemes to reduce the amount of tax you pay on your income by making payments which purport to be ‘loans’ from a trust or a company. Normally, a contractor would receive the contract income directly and pay tax on it. These arrangements artificially divert the income through a chain of companies, trusts or partnerships and pay the contractor in the form of a ‘loan’. The ‘loans’ are claimed to be non-taxable because they don’t form part of a contractor’s income. However, in reality the ‘loans’ aren’t repaid and the money is used by the contractor as if it were his or her income.

HM Revenue and Customs (HMRC) view is that these schemes don’t work and strongly advises any contractor or freelancer who has used such a scheme to withdraw and settle their tax affairs. People who settle with HMRC avoid the costs of investigation and litigation and minimise interest and penalty charges on the tax which should have been paid.

Don’t be fooled by promoter websites..

The promoters’ websites and promotional literature claim that they are fully compliant and are HMRC approved. HMRC doesn’t view these arrangements as compliant and never approves any schemes.

Contractor loan schemes, of the sort described above, must be declared under the Disclosure of Tax Avoidance legislation. The promoter is required to pass the scheme reference number (SRN) to all the users who must put this on their tax return. A failure to show the correct SRN on your tax return will lead to additional penalty charges.

Don’t be tempted, HMRC are closing in on unpaid tax, they will find you!

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That’s Scotch Tax! 2

Scottish Tax

On the 15th September HMRC issued the following announcement…

Depending on the level the Scottish Parliament sets the rate at Scottish taxpayers may pay a different rate of Income Tax to the rest of the UK.

Some of the Income Tax collected under the Scottish rate will fund the Scottish government and the rest will fund the UK government.

The Scottish rate of Income Tax doesn’t apply to income from savings such as building society interest or income from dividends. This rate will stay the same for all taxpayers across the UK.

The Scottish government is expected to announce the proposed Scottish rate of Income Tax for the tax year 2016 to 2017 in its autumn 2015 draft budget.

HM Revenue and Customs (HMRC) will collect the Scottish rate of Income Tax on behalf of the Scottish government.

Identifying Scottish taxpayers

It’s where you live, not where you work, that decides whether you’re a Scottish taxpayer.

You’ll pay the Scottish rate of Income Tax if:

  • you’re resident in the UK for tax purposes, and
  • your main residence for most of the tax year has a Scottish postcode

HMRC will contact potential Scottish taxpayers before April 2016. If the address HMRC holds for you is in Scotland you’ll be classed as a Scottish taxpayer. It’s your responsibility (not your employers’) to notify HMRC if you change your address.

Your April 2016 tax code will begin with the letter ‘S’ to show you’re a Scottish taxpayer.

If you pay your Income Tax through your wages (known as Pay As You Earn) HMRC will advise your employer to treat you as a Scottish taxpayer so you don’t need to do anything.

The Scotland Act 2012 contains the full definition of a Scottish taxpayer but where residency is not straightforward these examples of ‘close connection’ will help you.

National Insurance contributions are unaffected by the introduction of the Scottish rate of Income Tax.

Scottish Rate of Income Tax Calculator – click here

According to the Telegraph in August

Nicola Sturgeons’ rhetoric suggests she is planning to revive Labour’s ailing fortunes in Scotland, where it was all but wiped out in the general election, by veering Left and attempting to regain the party’s traditional working class support.

Among the policies she said she supported were a 50p top rate of income tax for people earning more than £150,000 and removing independent schools’ charitable status.

But the Tories said her blueprint would “send Scotland back to the 1970s” and warned it would merely result in an exodus of “wealth creators” south of the Border.

It will be interesting to see what the Scottish Parliament does to tax rates and whether or not its a success for Scotland.

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