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Category Archives: IR35
Recently Zero Hours Contracts were in news, the BBC reported on 5th August 2013:
The Business Secretary Vince Cable fears zero-hours contracts are being abused after research suggested a million people could be working under them.
I think that employers may be tempted to switch from Zero Hours to Freelance Contractors.
PCG published this story on 3rd July 2013:
Demand from UK businesses for contract workers is continuing to rise in 2013, which could be good news for freelancers looking to get their foot in the door on a lucrative new project.
Why is it attractive to use Freelancers?
- Skill is more important than location in many business sectors – we live in world where internet can allow you to work with anyone at anytime, you can now track down the best person to work with even if they live thousands of miles away
- Lower fixed costs – Using Freelancers will lower your fixed costs (in similar way to Zero Hours Contracts), you employ them for a specific project and only pay for what you need so there isn’t any surplus capacity
- Tax advantages – Freelancers run their own business and that means they pay less tax than employees. Employers save tax too, such as Employers NI.
- Competitive Advantage – You can put together a team for a contract rather than finding contracts that fit your workforce, this means you can hire the best.
- 110% Commitment – A Freelancers success and future work depends on them performing to the highest level on every contract, failure is not an option for a successful contractor.
So is it a mission impossible for salaried employees to make the transition to Freelancers
Yes, HMRC are now able to process requests for annual payrolls.
An annual scheme must meet all of the following requirements:
- all the employees are paid annually
- all the employees are paid at the same time/same date
- the employer is only required to pay HMRC annually
Once a business is registered as an annual scheme, an Employer Payment Summary (EPS) is not required for the 11 months of the tax year where no payments are made to the employees.
We all have busy schedules………
Annual schemes are likely to be adopted mainly by very small businesses and single person companies as you can pay all your salary in one go and save yourself 11 months of RTI reporting.
HMRC check 30,000 UK businesses each year for Employer Compliance Checks, will it be your turn next. HMRC usually find something wrong, lets face it with the best will in the world mistakes happen – HMRC have collected £20.7bn overall in record compliance as shown in this infographic.
Why not ask a CIMA Accountant to check on Status/Employer Compliance matters we can:
- Discuss areas of concern with you
- Prepare new procedures
- Apply for Dispensations
- Help you disclose errors and reduce penalties
- Carry out a Full Risk Assessment & provide Recommendations
You never know you we might even find errors in your favour and be able to get a refund.
The Intermediaries legislation known as IR35 was introduced on 6th April 2000.
The aim of the legislation is to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise –
- For tax purposes, be regarded as an employee of the client; and
- For NICs purposes, be regarded as employed in employed earner’s employment by the client.
In May 2012 HMRC set out their 12 business tests:
- Business premises (10)
- PII (2)
- Efficiency (10)
- Assistance (35)
- Advertising (2)
- Previous PAYE (minus 15)
- Business plan (1)
- Repair at own expense (4)
- Client risk (10)
- Billing (2)
- Right of substitution (2)
- Actual substitution (20)
A score less than 10 is high risk and a score more than 20 is low risk. Whilst it is only guidance, these are the tests that HMRC use and if you fail the test you may be taxed on deemed payments.
Many Freelance Contractors have some assignments within IR35 and some outside, you can ask HMRC for their opinion.
If you would like HMRC’s opinion on a particular engagement you should send your contract(s) to:
IR35 Customer Service Unit
Ground Floor North
e-mail: IR35 Unit
Tel No: 0845 303 3535 (Opening hours 8.30am to 4.30pm, Monday to Friday. Closed weekends and bank holidays) Fax No: 0845 302 3535
If your contract is within IR35 its not the end of the world, the chances are that you will still pay less tax than a direct employee, to calculate the tax you have to work through 8 stages of calculation, here is a summary:
- How much were you paid? deduct 5% for business costs
- Add any other payments/non cash benefits
- Deduct business expenses – travel, meals, accommodation
- Deduct capital allowances relevant to the work done
- Deduct pension contributions made by your company
- Deduct any NIC paid by your company on your salary and benefits
- Deduct any salary or benefits already paid and taxed
- If the answer is zero or negative then there is no deemed payment, if the answer is positive you do have a deemed payment which will be taxable
HMRC have a spreadsheet you can download which has further details.