Tag: ESI

IR35 new status test – coming soon

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!

steve@bicknells.net

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HMRC update the Employment Status Tool

Determining whether a worker is Employed or Self Employed isn’t always easy.

HMRC updated and improved their tool in April 2015.

The Employment Status Indicator (ESI) tool enables you to check the employment status of an individual or group of workers – that is whether they are employed or self-employed for tax, National Insurance contributions (NICs) or VAT purposes.

The ESI tool is essential for anyone who takes on workers, such as employers and contractors. (The tool refers to anyone in this position as an engager.) Individual workers can also use the tool to check their own employment status.

The tool cannot, however, be used to check the employment status of certain workers:

  1. company directors or other individuals who hold office
  2. agency workers
  3. anyone providing services through an intermediary (sometimes referred to as IR35 arrangements)

The ESI tool is completely anonymous, so no personal details about the worker or engager are requested.

Click here to use the HMRC Tool

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steve@bicknells.net

Would an online IR35 test help?

Tablet

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.

In 2012 HMRC put forward the Business Tests but they haven’t been as successful as first thought.

Here are the 12 tests, scores shown in()

  1. Business premises (10)
  2. PII (2)
  3. Efficiency (10)
  4. Assistance (35)
  5. Advertising (2)
  6. Previous PAYE (minus 15)
  7. Business plan (1)
  8. Repair at own expense (4)
  9. Client risk (10)
  10. Billing (2)
  11. Right of substitution (2)
  12. Actual substitution (20)

A score less than 10 is high risk and a score more than 20 is low risk. Fail the test and it could cost you a great deal in tax.

In general the key test tend to be:

  1. Substitution
  2. Control
  3. Financial Risk

HMRC launched the ESI (Employment Status Indicator) a while ago.

The recently published Minutes of the IR35 Forum’s last meeting held on 24th July reveal that HMRC are keen for contractors to be able to assess their employment status by way of the Employment Status Indicator (ESI) tool.

Will this resolve the IR35 Status problems?

 

steve@bicknells.net

What is your status – Self Employed or Employed?

Business people group.

A worker’s employment status, that is whether they are employed or self-employed, is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement.

Many workers want to be self-employed because they will pay less tax, this calculator gives you a quick comparison between being employed, self employed or taking dividends in a limited company.

HMRC have a an employment status tool to help you determine whether a worker can be self-employed or should be an employee http://www.hmrc.gov.uk/calcs/esi.htm

If a worker should be an employee HMRC will seek to recover the employment taxes from the employer not the worker, so there are considerable risks for the employer if the status of its workers is wrongly assessed.

Some employers might decide to insist that sub-contractors must be limited companies, as companies can’t not be reclassified as employees.

The sub-contractor would then need to assess whether IR35 applies to their contract. If IR35 does apply then please read this blog on Deemed Payments

steve@bicknells.net

 

 

 

So you think you are self employed, does HMRC agree?

As everyone probably already knows there are tax and national insurance advantages to being self employed and to employing casual workers on a self employed basis.

As an employee, on most of your income (assuming you aren’t a higher rate tax payer) you will pay 20% tax, 12% employees NI and your employer will pay 13.8% employers NI, so thats 45.8% in tax and NI.

If you are self employed the equivalents are 20% tax, 9% Class 4 NI and £2.50 per week Class 2 NI, plus you can claim business related expenses that you probably wouldn’t get as an employee.

Whether employed or self employed you will get a tax free allowance of £7475.

For full details follow these links:

http://www.hmrc.gov.uk/rates/it.htm

http://www.hmrc.gov.uk/rates/nic.htm

So why isn’t everyone self employed?

Why not start by taking the HMRC test known as the ‘Employment Status Indicator’?

https://esi2calculator.hmrc.gov.uk/esi/app/index.html

You can take the test as many times as you wish and record the answers but if the result says you are really an employee then you need to speak to your employer and discuss the risks and liabilities that they will potentially face.

The most recent HMRC case on Employment Status relates to Weight Watchers and because HMRC successfully argued that their leaders were employees and not self employed it will cost Weight Watchers an estimated £23.5m in back taxes. When employment status goes wrong its the employer that gets the bill and often can’t recover the back taxes from the ’employees’.

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8501230/Weight-Watchers-to-employ-its-1700-slimming-leaders.html

http://www.telegraph.co.uk/finance/yourbusiness/7346758/Taxman-forces-slimmers-to-put-on-weight.html

One possible solution is to use Limited Companies, because a Limited Company can never be treated as an employee. Plus there are tax advantages in Dividends. But be careful of the IR35 Rules, follow my blog links to find out more.

Consultants beware of IR35 – use the QDOS Model Contract (Free)

Salary v’s Dividend – how much money could I save?

Things you need to know about Dividends…..

IR35 came into existance in 1999,  it was created to prevent workers previously employed from creating a limited company and then benefiting from lower taxes and national insurance through the use of dividends and expenses.

Follow my blog for more useful facts, tips, suggestions and ideas.

steve@bicknells.net