Tag: IR35

No IR35 if there is common control

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.

https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm8050

steve@bicknells.net

How many BBC Presenters are at risk under IR35?

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

steve@bicknells.net

Travel and Subsistence tax restrictions starting in April 2016

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.

steve@bicknells.net

 

 

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

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…

PSC 1

 

PSC 2

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

steve@bicknells.net

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

Contact Us

A new type of employment status

The Office of Tax Simplification – Employment Status Report – March 2015 suggests we could see a new type of worker being created, part way between Employed and Self Employed. We could also see the term office holder removed from legislation.

Contractor Weekly reported – This involves the introduction of a new category of worker, a ‘third way’ between the employed and self-employed, acknowledging that some workers do not fit easily into either of the two traditional positions and that they should be subject to a modified set of tax rules. Freelancers might fall into this ‘third way’ and who might be seen as people who have chosen this route of working and want certainty over their status.

Click on this link to read the Employment Status Report

Will this solve the IR35 problem? who will it defined? what should the rules be?

Workers

 

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

Doctor, Doctor, I think you should be an Employee

Young Doctor with stop sign

A report in the Telegraph on the 14th July 2014…

Dozens of NHS executives face possible investigation by HM Revenue and Customs after they refused to answer questions about their tax arrangements, it can be revealed.

An investigation has identified 86 senior health service officials paid off-payroll who have refused to give assurances to their employers that they are paying the correct level of income tax and national insurance.

They are paid through service companies – arrangements that allow public sector employees to be paid as contractors through private companies, potentially cutting their tax bills.

http://www.telegraph.co.uk/health/healthnews/10966314/Dozens-of-NHS-executives-face-tax-inquiry-into-off-payroll-earnings.html

Monitor found 30 foundation trusts had issues to resolve in their report of the 10th July 2014:

  • 20 foundation trusts have 1 or more senior employees paid through an off-payroll arrangement, and they are waiting for responses after asking those employees for assurance about their tax arrangements
  • 23 foundation trusts (including some of the 20 above) still have at least 1 board member or senior member of staff with significant financial responsibility employed through an off-payroll arrangement
  • of these 23 trusts, 9 are facing wider issues relating to their performance which they have explained is affecting their ability to recruit and retain permanent skilled staff; this resulted in the need to use interim off-payroll contracts to attract high-performing staff to help improve the foundation trust’s situation
  • as a result of their performance issues, these 9 trusts are facing current enforcement action by Monitor, which is unrelated to their use of off-payroll employment
  • out of those 23 trusts, the other 14 which are not facing enforcement action have plans to end off-payroll arrangements by the end of the year

Will this end the use of PSC’s in the NHS?

steve@bicknells.net

RTI Declarations – Service Company

And now round two of justify it

It’s time to run your first RTI PAYE year end and you have your own limited company, how do you answer this question?

Service Company ‘Yes’ if you are a service company – ‘service company’ includes a limited company, a limited liability partnership or a partnership (but not a sole trader) – and have operated the Intermediaries legislation (Chapter 8, Part 2, Income Tax (Earnings and Pensions) Act 2003 (ITEPA), sometimes known as IR35). Otherwise indicate ‘No’.

The question is now a bit more specific, which is great, because you will only answer ‘Yes’ if you have operated IR35.

steve@bicknells.net

Key Points from the Autumn Statement 2013

Tax Money

The Chancellor George Osborne presented the Autumn Statement to the House of Commons on 5th December 2013 and things are getting better, economic growth forecasts for this year have more than doubled from 0.6% to 1.4% but the austerity plan is set to continue.

Here is a summary of the key announcements:

Business Rates

Business rate increases in England will be capped at 2% in 2014/15 (they were set to increase by 3.2%) and businesses will be able to pay over 12 months rather than 10.

The Retail Sector will also get a £1,000 discount in 2014/15 and 2015/16, this applies to pubs, cafes, restaurants and charity shops with a rateable value below £50,000.

A reoccupation relief of 50% is being introduced for up to 18 months on premises that have been empty for a year or more and it will apply from 1st April 2014 to 31st March 2016.

Small Business Rate Relief has been extended to April 2015 under the scheme small businesses with a rateable value of £6,000 or less can get 100% relief, the relief is scaled down to zero on rateable values of £12,000 and there is a lower multiplier on rates between £12,001 and £17,999.

Income Tax

As previously announced the personal allowance will be £10,000 for the tax year 2014/15.

From April 2015, a spouse or civil partner who is not liable to income tax will be able to transfer £1,000 of their allowance to a basic rate tax paying spouse and as a result save £200 in tax.

State Pension Age

By 2020 it will be 66, by 2028 it will be 67 and by mid 2030’s 68, then in 2040’s 69.

Capital Gains Tax

The annual exempt amount will be £11,000 for individuals for 2014/15.

But there was an exemption for principle private residence  letting for 36 months and from 6th April 2014 it will be reduced to 18 months.

Consultation will start in April on non-residents paying capital gains on property disposals.

Individual Savings Account (ISA)

The limit will rise to £11,880 for 2014/15 and of this £5,940 can be invested in cash ISA’s

Mortgage Guarantee Scheme

The scheme started in October will run for 3 years and end in January 2017.

Buyers will only need a 5% deposit and the government and the funder will guarantee 15% of the loan in return for a fee.

IR35

Legislation will be tightened from April 2014.

Anti-avoidance

A range of measures were discussed in addition to IR35 and these included:

  • Partnership Tax
  • Controlled foreign companies
  • Charities
  • High risk tax avoidance schemes
  • Dual contracts

Other headline measures

  • Employers NI for under 21’s to be scrapped in 2015
  • Rolling back green levies to allow an average saving of £50 on energy bills
  • Free school meals for infants
  • Scrapping of 1% above inflation rail fare increases
  • Electronic tax discs
  • Abolition of next years 2p per litre fuel duty rise

 

steve@bicknells.net