Tag: IR35

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 http://stevejbicknell.com/2012/01/28/so-you-think-you-are-self-employed-does-hmrc-agree/ 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.

http://www.contracteye.co.uk/hmrc-ir35-test-april-2012.shtml

http://www.contractorweekly.com/contractor-news/tax-a-ir35-news/390-ir35-business-test-imminent

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

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

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

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.

HMRC believed that it would generate £220 million a year in National Insurance Contributions and £80 million in Income Tax, but it has actually only generated around £1.5 million a year and HMRC have brought a number of cases before the courts, the latest being MBF Design Services Ltd v Revenue and Customs (2011) and ECR Conculting Ltd v Revenue and Customs, the taxpayer was successful in both cases.

I was reading an article in Accounting Practice about the MBF Design case and HMRC assisted a Foreign Airbus UK employee to prepare his statement but apparently because the employee struggled to read the statement or be examined on it the tribunal were unconvinced.

I have always found QDOS to be an invaluable source of help in the field of IR35 and you can download free guides and contracts using this link

http://www.qdosconsulting.com/freelancer-contractor/free-guides-templates

steve@bicknells.net