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New reporting requirements for intermediaries

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An intermediary is any person who makes arrangements for an individual to work for a third party or be paid for work done for a third party. An employment intermediary is also commonly referred to as an agency.

From 6 April 2015, intermediaries must return details of all workers they place with clients where they don’t operate Pay As You Earn (PAYE) on the workers’ payments. The return will be a report (or reports) that must be sent to HM Revenue and Customs (HMRC) once every 3 months.

Agencies will be required to let HMRC know the following details:

  • Contractor’s name, address, date of birth, etc.
  • PAYE reference.
  • National Insurance number.
  • How the contractor was engaged during the period (i.e. was he working via a limited company).
  • The duration of each assignment.
  • Details of the contractor’s limited company (e.g. company registered number).
  • How much was paid to the contractor.

The regulations will give HMRC information that will enable it to decrease false self-employment and abuse of offshore working. This will help HMRC to:

  • support intermediaries that comply
  • penalise intermediaries that don’t comply
  • make sure the right tax and National Insurance is paid by people working through intermediaries
  • reduce unfair commercial advantage

Here is link to the full reporting requirements – Legislation Link

This is the link to consultation – Consultation

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

Are you ready for the OTS to check your employment status?

And now round two of justify it

Contractor Weekly reported on th 29th July 2014…

As part of the ongoing mission to create a simpler and fairer tax system the Office of Tax Simplification (OTS) has been tasked with carrying out reviews of employment status and also tax penalties, with a view to producing a report in time for next year’s Budget.

According to the OTS, the boundary between employment and self-employment no longer reflects modern working patterns, particularly in recent years. Many people have multiple jobs and can be classed as employed in one whilst self-employed in another. The rise of the freelancing business model has also caused some to suggest this is a ‘third way’ between employment and self-employment.

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

It will be interesting to see the report that the Office of Tax Simplification (OTS) produce, especially if they find a ‘third way’

steve@bicknells.net

Service Company – Yes or No

with computer

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

What are the implications of being a Service Company? Q1 Page TR4 SA100

business people colorful illustration

Here is the question:

If you provided your services through a service company (a company which provides your personal services to third
parties), enter the total of the dividends (including the tax credit) and salary (before tax was taken off) you withdrew
from the company in the tax year – read page TRG 21 of the guide
£ • 0 0

This is what the guide says:

Service companies
Box 1 If you provided your services through a service company

Complete this box if you provided your services through a service company.

You provided your services through a service company if:

• you performed services (intellectual, manual or a mixture of both) for a client (or clients), and
• the services were provided under a contract between the client(s) and a company of which you were, at any time during the tax year, a shareholder, and
• the company’s income was, at any time during the tax year, derived wholly or mainly (that is, more than half of it) from services performed by the shareholders personally.
Do not complete this box if all the income you derived from the company
was employment income.

http://www.hmrc.gov.uk/worksheets/sa150.pdf

The majority of limited company contractors are, by definition, ‘personal service companies’ and therefore this box is of relevance.

The question however has no statutory backing and you cannot be penalised for failing or refusing to answer it but if contractors ignore the question when HMRC know full well that their company is a ‘service company’ then they may be drawing unnecessary attention to themselves.

The information to be entered is the total of the gross salary and dividends taken from the contractor’s company in the year ended 5th April 2012.

http://shop.qdosconsulting.com/freelancer/news/2013/01/18/psc-question-on-sa-return

The point is not the whether you answer the question or not, its whether your company falls under IR35 that matters most.

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.

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

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

Can your business pass the HMRC IR35 Business Entity Tests

http://stevejbicknell.com/2012/05/14/can-your-business-pass-the-hmrc-ir35-business-entity-tests/

Consultants beware of IR35

http://stevejbicknell.com/2011/09/10/consultants-beware-of-ir35-use-the-qdos-model-contract-free/

steve@bicknells.net

IR35 – How are deemed payments taxed?

And now round two of justify it

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.

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
HMRC
Ground Floor North
Princess House
Cliftonville Road
Northampton
NN1 5AE

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:

  1. How much were you paid? deduct 5% for business costs
  2. Add any other payments/non cash benefits
  3. Deduct business expenses – travel, meals, accommodation
  4. Deduct capital allowances relevant to the work done
  5. Deduct pension contributions made by your company
  6. Deduct any NIC paid by your company on your salary and benefits
  7. Deduct any salary or benefits already paid and taxed
  8. 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.

steve@bicknells.net

5 reasons why Freelancers are taking over the world

MISSION: IMPOSSIBLE

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?

  1. 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
  2. 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
  3. Tax advantages – Freelancers run their own business and that means they pay less tax than employees. Employers save tax too, such as Employers NI.
  4. 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.
  5. 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

steve@bicknells.net

12 Business Entity Tests for IR35

And now round two of justify it

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:

  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. 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.

 

http://www.hmrc.gov.uk/ir35/guidance.pdf

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
HMRC
Ground Floor North
Princess House
Cliftonville Road
Northampton
NN1 5AE

 

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:

 

  1. How much were you paid? deduct 5% for business costs
  2. Add any other payments/non cash benefits
  3. Deduct business expenses – travel, meals, accommodation
  4. Deduct capital allowances relevant to the work done
  5. Deduct pension contributions made by your company
  6. Deduct any NIC paid by your company on your salary and benefits
  7. Deduct any salary or benefits already paid and taxed
  8. 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.

steve@bicknells.net

 

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