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Updates that contractors should know about – IR35 reform

The government finally introduced IR35 reform in the private sector six months ago. At the time, a Simply Business survey revealed that nearly a third of contractors expected reform to cost them more than £20,000.

Medium-sized businesses don’t have a formal IR35 process in place

According to a survey from tax advisory firm BDO, more than half of medium-sized businesses don’t have a formal process in place for assessing a contractor’s employment status (small businesses are exempted from the change).

55 per cent of these firms said that they’ll worry about IR35 once their business gets back to normal after Covid-19.

But despite HMRC’s ‘light touch’ on compliance for the first 12 months of private sector reform, BDO warns that businesses should adapt quickly: “Businesses who do not comply will still need to pay tax and could face significant penalties. HMRC has shown that it will not turn a blind eye to non-compliance”.

Contractors will pay more in tax next year

The government is hiking National Insurance by 1.25 per cent for employees, employers, and the self-employed from April 2022.

The government has also announced that it’ll be hiking the dividend tax rate by 1.25 percentage points from April 2022, too.

These increases stack up more challenges for a sector already struggling with IR35 reform.

Matt Fryer tells Contractor UK that umbrella company contractors will be hit twice as hard by the National Insurance hike, “where the contract rate includes the employer costs which is predominantly employer’s NIC.”

HMRC is checking ‘payroll compliance’

HMRC has promised that it won’t launch enquiries into personal service companies (PSCs) unless it suspects that they’re deliberately breaking the rules.

But Nigel Nordone explains for Contractor UK that two contractors he supports are currently undergoing PAYE compliance checks. This involves HMRC checking payroll to clarify how contractors are paying themselves.

Nordone explains that this could give HMRC a back-door to investigating IR35 compliance, without breaking its promise to refrain from launching enquiries unless foul play is suspected.

Even government departments can’t get IR35 right

According to FT Adviser, three government departments have been given huge bills by HMRC for not applying IR35 rules correctly. While private sector IR35 reform was only introduced in April 2021, the public sector has been grappling with the changes since 2017.

  • HM Courts & Tribunal Service paid £12.5 million to HMRC in 2020-21 relating to incorrect status determinations between 6 April 2017 and 5 April 2020
  • the Department for Work and Pensions paid £87.9 million to HMRC in 2020-21 for historic errors from 2017-2020, although a liability for 2020-21 was agreed too
  • the Home Office paid HMRC £29.5 million for incorrect assessments, as well as £4 million for ‘careless’ application of IR35 rules

Seb Maley questions who might be next, adding: “given that HMRC’s fundamentally flawed IR35 tool, CEST, was used to decide the IR35 status of contract workers, I’m not in the least bit surprised that mistakes have been made.”

He urges businesses to make sure IR35 compliance is high in their priorities.

Roles can morph from inside to outside IR35 – so be careful

Contractor UK quotes an IT contractor as saying that one client they were hoping to work with changed the opportunity from inside to outside IR35 almost overnight.

They explained: “Possibly [due to not many candidates going forward], they might have changed the working practices, and then reassessed the contract. But I wouldn’t hold my breath on the [change to working practices] actually.”

If you notice any opportunities changing like this, Graham Webber, a director at WTT Consulting, urges caution: “a simple re-label to ‘outside’ is going to be a hard hurdle to overcome should HMRC [subsequently] ask any questions”.

CEST users are being shown an ‘undetermined’ status

Finally, the Express has reported on HMRC’s CEST data released in June 2021. CEST – or Check Employment Status for Tax – is HMRC’s tool that aims to provide a view on a particular worker’s employment status.

Both contractors and the clients they work for can use the tool to help them work out IR35 status.

But HMRC’s June data shows that 210,100 contractors from November 2019 to May 2021 were shown an ‘undetermined’ status, which suggests that many contractors are still not getting clarity over their status.

The Express further reports on a discrepancy in the data, quoting Matt Fryer: “According to CEST data, 49-56 per cent of all contractor roles clearly fall outside of IR35, with another 19-21 per cent in a grey area that the tool is unable to determine.

“Market data from Jobfeed, however, indicates that only 26 per cent of contractor roles are currently being advertised as outside IR35 (w/c June 7).”

Fryer questions where all of these outside IR35 roles are, suggesting that businesses might not have faith in the processes they’ve put in place to determine IR35 status – linking back to the first point in this article.

By Sam Bromley

Source: Simply Business

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Thousands of companies throughout the UK may be breaking IR35 rules

Thousands of companies throughout the UK may be breaking the IR35 rules when it comes to reviewing the status of the freelance contractors who work for them, say tax and advisory firm Blick Rothenberg. The warning comes at the end of National payroll week and Robert Salter a client service director with the firm.

Since April Companies are required to assess whether each contractor is working in a pattern which is ‘akin to that of an employee’ unless they are exempt from the IR35 requirements as small enterprises.

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Businesses are now legally obliged to account for PAYE and NICs on the invoices it receives from PSCs rather than simply paying them on a gross basis, where the contractor is held to be a ‘deemed employee’ of the end business. Failures by the businesses using freelance contractors in this regard can result in the business being liable to Interest and penalty charges in respect of the underpaid tax (with penalties potentially being as high as 100% in some scenarios. They must account for the PAYE which should have been accounted for and are liable to employee and employer NICs on the invoices.

Although the new legislation has been in place since April many businesses who are impacted by the IR35 changes are actually either (a) totally unaware of the new regulations, or (b) have not been able to invest in training staff vis-à-vis their obligations in this area and the obligations which one needs to meet, to protect the business from unwelcome tax and NIC charges.

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Whilst these shortcomings are inevitable given the pressures businesses have been experiencing with Covid and the underlying difficulties associated with the core regulations – which are hard to understand and apply in practice – such factors will not provide businesses with any meaningful ‘defence’ in the case of a formal Revenue enquiry into this area.

Moreover, businesses need to realize that HMRC teams have been staffed to specifically address this issue on a going forward basis, so the chance of receiving future enquiries in this regard are significant for most businesses.

On an going forward basis, businesses should – if they haven’t already – start reviewing the position of their contract employees and ensuring that these reviews are clearly documented. If this delayed review does highlight any problems, they should discuss the position with their advisors as a matter of urgency. If they don’t, they risk getting into even more problems and difficulties over the coming months and years.

By Barney Cotton

Source: Business Leader

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More than half UK SMEs delay adopting IR35 tax reforms

More than half of the UK’s small and medium-sized enterprises (SMEs) have not put in formal processes to adhere to changes to the IR35 rules, according to a new survey.

A survey from advisory firm BDO found 55 per cent of SMEs using contract workers say they will worry about IR35 reforms when businesses return to a more normal footing post-Covid.

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The IR35 rule changes came into effect five months ago, meaning all these firms are now susceptible to investigations from HM Revenue and Customs (HMRC).

HMRC has said there will be a so-called soft landing in the first year for those who do not comply with the new rules, but that a taskforce will soon be launched to clamp down on tax avoidance.

The IR35 changes force companies treat self-employed contractors as employees for tax purposes, without having to provide standard employment rights such as statutory sick, maternity and redundancy pay.

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John Chaplin, employment tax partner at BDO, said : “Businesses who do not comply will still need to pay tax and could face significant penalties. HMRC has shown that it will not turn a blind eye to non-compliance, so businesses who do not have a formal IR35 process in place should immediately rethink their affairs.

“At a time when ESG is becoming increasingly important for businesses, there is an expectation for decision makers to come forward and show that good governance and tax compliance is important to them.

“Failing to comply with IR35 certainly shows weak governance and can prove to be an expensive mistake. Unless a business can show that it has taken ‘reasonable care’ over its IR35 responsibilities, penalties can rack up pretty quickly.”

By Stefan Boscia

Source: City AM

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IR35 warning: ‘Huge discrepancy’ discovered in HMRC data

IR35 tax complications continue to hit freelancers and contractors and while the Government aims to mitigate this, its tools prove to be imperfect. Analysis of recent data from HMRC found discrepancies in the private contractor industry.

HMRC released data on its Check Employment Status for Tax (CEST) tool usage in late June, which was created to help people find out if they should be classed as employed or self-employed for IR35 tax purposes. The results of this data showed thousands of self-employed workers are still struggling with the changes introduced in April 2021.

The CEST data showed that while 499,974 were deemed outside IR35, and 308,176 were deemed inside, 210,100 users were categorized as “undetermined”.

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At the time, many experts argued this showed the tax changes were too complicated to manage, even for the Government itself.

On top of this, Matt Fryer, the Head of Legal Services at Brookson Legal, identified a worrying discrepancy.

Mr Fryer said: “There is a huge discrepancy between the CEST usage data and the number of private sector contractor jobs being advertised as outside of IR35.

“As demand for skilled labour begins to outstrip supply, hiring businesses that are unable to guarantee outside IR35 status for these contractors will struggle to recruit the talent they need for economic recovery.

“According to CEST data, 49-56 percent of all contractor roles clearly fall outside of IR35, with another 19-21 percent in a grey area that the tool is unable to determine.

“Market data from Jobfeed, however, indicates that only 26 percent of contractor roles are currently being advertised as outside IR35 (w/c June 7).

“This is a worker’s market, with REC reporting on rapid rises in hiring and intent to hire for temporary roles, coupled with a shortage of skilled talent.

“As the economy picks up, businesses that require skilled contractors will need to clearly demonstrate that they can provide roles outside of IR35 to beat the competition.

“The question is: why are more of these roles not being advertised already?

“One answer might be that many businesses do not have faith in the solutions that they put in place to meet the deadline.

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“This is where we will see hirers who have planned well begin to reap the rewards of their diligence.”

Struggling freelancers may be able to receive support through SEISS at the moment, as claims for the fifth and final set of grants can be made up until September 30, 2021.

To be eligible for these grants, claimants must be a self-employed individual or a member of a partnership.

They must also have traded throughout the 2019 to 2021 tax years.

Eligible claimants must also have submitted their 2019 to 2020 tax return on, or before, 2 March 2, 2021, have trading profits of no more than £50,000 and are at least equal to their non-trading income.

For the fifth grant, claimants will also need to provide details on their turnover figures so the Government can calculate how much money should be paid out.

Claims are made through the Government’s website.

Following this, the Government will pay grants within six working days, so long as claimants are eligible.

HMRC should only be contacted if payments do not arrive within 10 working days.


Source: Express

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How IR35 changes have affected mortgage affordability

The start of the tax year saw changes to the way some contractors pay tax under ‘IR35’ rules, and they are not without controversy.

The Association of Independent Professionals and the Self-Employed (IPSE) describes the IR35 changes as a “disaster” in the public sector, and claims they are already proving to be “just as devastating” in the private sector.

Under IR35, also known as off-payroll working rules, contractors who would have been an employee if they were providing services directly to a client, pay broadly the same income tax and National Insurance contributions as employees.

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Besides tax implications, the IR35 rules are having an impact on some mortgage applications.

Alan Overy remarks that with the reviews to IR35, an extra layer of scrutiny is necessary to establish if a person is “really an employee or is working for themselves as a true contractor”.

“Each lender will apply their own criteria and tests but it mainly boils down to how the individual pays their tax and the level of autonomy they have from the company in terms of their hours and location,” Overy adds.

Halifax for example, treats contractors as employed for income verification purposes if tax is paid by the company they work for, or they are employed via an umbrella company who deduct tax.

Alternatively, contractors can be treated by the lender as employed if they earn more than £500 a day or £75,000 a year, or are an IT contractor on any income, irrespective of whether they pay their own tax or class themselves as self-employed, with exceptions.

Mortgage Broker Tools’ chief executive Tanya Toumadj remarks that the changes could limit affordability based on income and structure.

“For contractors, previously lenders would take the day rate and turn it into a gross annual amount, using an assumption on the number of weeks’ work, usually 46 weeks.

“Now… the umbrella company will be [deducting] the tax and therefore affordability would decrease.”

As Qdos Contractor explains, umbrella companies act as a middleman and provide a payroll service to contractors. Additionally, some clients may require any contractors that come under IR35 rules to use an umbrella company.

An April survey by Qdos of contractors’ experience of IR35 reform found most (64 per cent) were given the option to continue working via an umbrella company.

When it comes to applying for a mortgage, Accord’s Alvarez observes how lenders’ requirements differ on the treatment of contractors.

“Some lenders will accept contractors, some won’t, and some will accept them under certain circumstances. And they have different requirements about how long somebody needs to have been in that type of work and what evidence they have to support that income,” says Alvarez.

According to Chris Sykes many lenders require a client to have one to two years’ experience of contracting under an umbrella company arrangement, even if they were to have years of contracting experience through different structures, treating them more like a newly self-employed individual.

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Sykes says: “We have seen some examples where clients have tried to remortgage and have seen their affordability drop, with some lenders able to consider these new structures.

“But where previously a lender may have taken a view of £500 per day x 5 days x 46 weeks, now some will look at it as £500 per day, but take into account the umbrella company costs of 13 per cent, for example; so £435 a day x 5 days x 46 weeks. This could heavily affect someone’s affordability and borrowing power.”

Alex Beavis notes the implication of falling inside IR35 can reduce net income by up to 25 per cent.

“Where an application is on a more complex area of criteria such as this, using a mortgage helpdesk can assist with the initial placement of a case. Once a potential lender has been identified, then contacting the lender’s business development manager and using their knowledge and expertise can help,” Beavis adds.

“By talking the case through before submission, the lender’s BDM will know how best to present the adviser’s case and any additional information which may need to be provided to support a client’s application.”

Clydesdale Bank, for example, updated its lending criteria for contractors after IR35 rule changes.

In June the bank announced it would accept contracts that fall within IR35 rules, as well as contract income received via a payroll services (umbrella) company.

The lender’s announcement continues: “When a contractor is paid via an umbrella company, or falls inside IR35 and receives payslips, we need to see the last two months’ payslips, in addition to standard documentation.

“Any statutory employer costs (including employer NI contributions and Apprenticeship Levy) and any payroll service costs are deducted from gross pay before we multiply gross pay by 46 weeks.”

Gordon Hunter says they have seen more limited company contractors switch to umbrella companies, although such structures can create paperwork problems in the mortgage application process.

“If a contractor is now operating under an umbrella company for payroll, the payslip issued by the umbrella company usually states national minimum wage plus a bonus or commission payment to make up the difference. This is primarily due to the umbrella trying to keep employer costs, such as pension contributions, to a minimum,” Hunter adds.

“The problem is that lenders tend to look for the payslips and contract to match, with the day rate stated on the payslip rather than the breakdown to minimum wage and commission.”

Simon Butler says IR35 creates “further complexities” that some high street lenders are “not equipped to deal with”.

“Since April we have found that more people are overall concerned that these lenders will understand their working status even less, especially for those who have been contracting for themselves and moving inside of IR35 and now working through an umbrella.

“Essentially, mixing a history of self-employment via a limited company to the present day when monthly payslips are received,” says Butler.

But Hunter says some lenders are now accommodating to contractors switching from a limited company to an umbrella, “by flexing their lending criteria to facilitate umbrella arrangements, in recognition that these are still the same highly skilled mobile contractor clients as the ones who previously used their limited company contractor mortgage criteria”.

Hunter also notes some lenders, such as Skipton Building Society, do not differentiate between contractors operating through a limited company and those operating through an umbrella company, and will still use the contract day rate value to assess income.

And according to TSB, provided the applicant is on a day rate contract and income can be evidenced as per its standard policy for day rate contractors, they do not differentiate between how a business is set up.

A spokesperson for the bank says that any contracts provided to evidence income would need to show the name of the applicant personally, irrespective of whether there is an umbrella or limited company.

“There isn’t a one size fits all approach when considering contractors,” remarks Andrew Chalton, private client director at broker LDNfinance, which works with a large number of self-employed contractors mostly in the IT and financial services sectors.

“Therefore to our benefit we are able to lean upon our vast network of specialist lenders, which isn’t limited to your typical high street banks.

“As changes occur to taxation law, the requirement for a specialist broker becomes even more apparent as a fundamental tool to navigating an ever-changing and complex market.”

By Chloe Cheung

Source: FT Adviser

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IR35: Government sets out plan to rid contractor market of non-compliant umbrellas and loan schemes

The federal government has printed particulars of the motion it might take to rid the contractor market of non-compliant umbrella corporations and mortgage scheme promoters, as a part of its on-going efforts to clampdown on tax avoidance.

On the again of a session the federal government ran between 23 March 2021 and 1 June 2021, the federal government has printed a set of proposals that might see it repurpose current laws and move new legal guidelines that might give HM Income & Customs (HMRC) extra powers to sort out tax avoidance scheme promoters.

Authorities estimates counsel there are between “20-to-30” promoters in operation who’re concerned in advertising and marketing mass-market tax avoidance schemes, and the overwhelming majority (98%) use disguised remuneration methods to allow contributors to minimise their tax liabilities.

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Contributors in these sorts of schemes might be paid partially for the work they do in non-taxable loans or annuities, as a method of bolstering their take residence pay, as they solely pay tax on a comparatively small quantity of the general sum they obtain. Such schemes are typically run as offshore worker profit trusts, however the operators of them normally depend on UK-based, non-complaint umbrella corporations to onboard contractors who might or might not know that they’ve been enrolled in a disguised remuneration scheme.

The proposals put ahead by the federal government search to deal with that by giving HMRC renewed powers to shutdown promoters and curb tax losses by making it more durable for these entities to make use of their off-shore states to cover their belongings, for instance.

Source: Technical Ripon

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Contractors argue umbrella companies need improved regulation, not outright ban

Contractors have described a UK union’s call to ban umbrella companies as unworkable, leading to a greater void in the under-regulated market and making outsourced workers vulnerable.

The Trade Union Congress (TUC), a powerful association of British unions, said yesterday UK government should abolish umbrella companies to employ agency workers in light of what it sees as abuse of workers’ rights and financial fraud.

Frances O’Grady, the TUC’s general secretary, said: “These scandalous workplace practices have no place in modern Britain. But our inadequate regulations let dodgy umbrella companies off the hook – allowing them to act with impunity.”

“Enough is enough. It’s time for ministers to ban umbrella companies, without delay,” she added.

While umbrella companies have come under fire from lawyers and employment campaigners who want to see better regulation of the market, they criticised the call for an outright ban, arguing it could lead to more bad practices and exploitation of workers.

Campaigners say umbrella companies have mushroomed as firms and temp agencies avoid directly hiring contractors judged to fall within the IR35 “off-payroll working” tax law. They take the untaxed income from an employer or agency and run the payroll, hand over the taxes and national insurance to the UK’s tax collection agency, HMRC, and pass the net pay to the contractor. Among the alleged dubious practices used by some umbrella companies are attempts to impede holiday pay or entitlement and adding hidden fees to payslips.

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But the Freelancer and Contractor Services Association (FCSA) said an outright ban could be harmful.

It said the TUC’s move was a “knee-jerk reaction” and the suggestions that recruitment agencies should provide contingent labour was misguided.

The FCSA argued that contractors may move from contract to contract on almost a weekly basis with day rates for their work varying on each contract. While it was impractical for recruitment firms to manage so many variable-rate contracts, their specialism lay in finding people for jobs, it said.

“Recruitment companies are simply not equipped to properly manage and employ such a varying workforce. Hence the existence of umbrella firms. To simply suggest that umbrella firms be banned is not workable and ultimately will disadvantage the freelance worker.”

Meanwhile, campaigners Rebecca Seeley Harris, chair of the Employment Status Forum, and James Poyser, CEO of inniAccounts, have argued for better regulation of the sector rather than an outright ban on umbrella companies.

Seeley Harris said: “The TUC report on the umbrella industry emphasises the need for the market to be properly reviewed and regulated. However, an immediate outright ban would be very complex to implement overnight because of the legislative timetable and the time companies would need to unravel arrangements.”

She said she had discussed better regulation with the Department for Business, Energy and Industrial Strategy after submitting a draft policy entitled “Umbrella companies – Call for Regulation” to Jesse Norman, the financial secretary to the Treasury, and Paul Scully, the Parliamentary under secretary of state in the Department for Business, Energy and Industrial Strategy.

Having failed to secure amendments to the Finance Bill in May, she argued it would take considerable time to introduce it because of the legislative formalities and timetable for the Spending Review.

The government has proposed a “Single Enforcement Body” to tackle modern slavery, enforce the minimum wage, and protect agency workers, including those employed by umbrella companies.

But campaigners argued there was a lack of detail in the proposals. Poyser said: “Overall, there still remains a long way to go in the battle for workers’ rights, despite the announcement of a single enforcement body, which is why we will continue to press the government to work with us on the policy we have written and submitted.”

Source: The Register

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IR35: Contractors demand tax and employment law alignment to protect ‘zero-rights’ workers

The government is again facing calls to amend its IR35 tax-avoidance legislation as concerns mount about its potential to be misused by employers to cuts costs by hiring contractors to effectively work as “zero-rights” employees.

Similar concerns were raised several months ago by a 200-strong group of MPs, and now tens of hundreds of contractors have also voiced similar worries in a poll conducted by IR35 compliance consultancy Qdos.

Two-thirds (65%) of the 1,846 contractors that took part in the poll said they are engaging with their clients on an inside-IR35 basis, which means they are considered to be an employee from a taxation perspective, based on the work they do and how it is performed.

This means they will be expected to be taxed in the same way as a permanent employee of the company, from an income tax and national insurance perspective, but they are not eligible to receive the same workplace benefits as an employee would.

Contracting market stakeholders have repeatedly argued that this could lead to employers using the IR35 legislation to build out a workforce that is comprised of contractors to whom they have no duty of care to provide workplace benefits.

This is particularly so given that the way the IR35 legislation works in the public and private sectors has been revised in April 2017 and April 2021, respectively, so that organisations are now responsible for determining whether the engagements they have with contractors should be classified as inside or outside IR35.

Before these changes were introduced, contractors were responsible for determining for themselves whether their working arrangements fell in or out of scope of the IR35 rules, raising concerns that employers may use their new powers to deliberately mis-classify their contractors as inside-IR35 to cut costs.

Because of the perceived risk of zero-rights employment, 82% of respondents to the Qdos poll said they are now calling on the government to tweak the IR35 legislation so that those determined by their clients to be working inside IR35 will receive the same workplace benefits as permanent employees.

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“The government needs to put an end to zero-rights employment once and for all,” said Qdos CEO Seb Maley. “It was already an issue, but the introduction of IR35 reform has exacerbated the situation.

“Thousands of contractors are now working as zero-rights employees – often as a result of needlessly risk-averse and sometimes non-compliant IR35 decisions carried out by businesses in response to the reform.

“Contractors working inside IR35 are effectively taxed as employees, but don’t receive any employment rights in return. It is illogical, unjust and must be eradicated.”

The 2017 gig economy review by Matthew Taylor, former interim director of labour market enforcement, raised this point and called on the government to take action to ensure the laws on tax and employment are aligned to ensure contractors that pay the same tax as employees receive the same workplace benefits.

Maley added: “The solution is to align employment rights with tax status, so that contractors taxed as employees get holiday pay, get paid sick leave, along with maternity and paternity privileges.

“The government promised to look into this some time ago, but it should have been done before the IR35 reform was enforced.

“It is astonishing that Westminster still has its head buried in the sand, showing how unsupportive it is of the independent workforce, which is arguably one of the UK’s most valuable economic assets.”

By Caroline Donnelly

Source: Computer Weekly

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IR35: Britons warned of tax ‘minefield’ with new changes – how to check status

IR35, formally known as off-payroll working rules, are a tool used by HMRC to check whether a contractor is genuine. Some instances will arise where contractors are being “disguised” as employees for tax purposes, and thus IR35 is in place to ensure everyone pays their fair share. While the changes were first due to be introduced in April 2020, they were delayed by a year as a result of the COVID-19 crisis.

Despite this delay, many Britons are still confused about who is now affected and how.

Businesses, contractors and the self-employed have all posed questions about IR35 matters.

To gain further insight, spoke to Andrew Oury, tax expert at partner at Oury Clark.

He said: “The changes in the IR35 rules brought about in recent years and extended to the private sector in April have not been universally well-received.

“With responsibility for setting IR35 status – and therefore liability – shifting, many have raised concerns about the potential for huge tax bills in the event the client makes the wrong decision.

“Recognising if IR35 applies will come down to analysing your relationship.

“If your relationship with your customers looks like employee and employer for income tax purposes, then IR35 applies.

“If the relationship looks like a self-employed contractor and a customer, then IR35 does not apply.”

However, Mr Oury urged all Britons to take particular caution when it comes to IR35 decision making.

This is because each contract will be different, and therefore a separate IR35 decision will need to be made on each one.

This, he said, has the potential to create a “minefield” of decision making when it comes to IR35.

IR35 rules will not apply in a number of circumstances, and these will be important to check.

If an organisation is not a UK limited company, for example, and is not supplying services to a client who is a limited company, IR35 will not apply.

If those doing the work concerned do not own more than five percent of the limited company, and the worker is not employed by the company concerned – similarly IR35 will not apply.

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However, there will be many circumstances where IR35 does have to be taken into consideration.

This burden now lies with the client who must determine themselves if IR35 applies to the situation.

The matter is complicated by the fact there is no single test to determine employment status for tax purposes.

As a result, then, a number of factors will have to be considered when it comes to decision making.

However, in an attempt to reduce this level of uncertainty, Oury Clark has developed an infographic flow chart which allows Britons to answer specific questions about their circumstances.

It is hoped this will provide further clarity to those who are currently dealing with IR35.

In a similar way, HMRC has developed a tool known as Check Employment Status for Tax (CEST).

But it is worth noting some experts have criticised the tool for failing to provide a response in some circumstances.

Responding to this recently, HMRC told “In the vast majority of cases, the free CEST tool will determine the worker’s employment status for tax and NICs. In the minority of more finely balanced cases, CEST will give an undetermined outcome.

“To reach a view in all cases HMRC would need to add more complex questions, increasing the burden of using the tool for the majority of users. HMRC has recently launched an enhanced customer support offering where users can speak to an online adviser for help whilst using the tool.”


Source: Express

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Halifax updates contractor policy to align with IR35 rules

Halifax has adjusted its affordability and income criteria for contractors who work on an employed basis to reflect changes to government tax legislation under IR35.

IR35 rule changes came in this April to ensure contractors paid the correct tax if the work they carried out for a company resembled employment.

Under IR35, a person can be deemed as employed based on conditions including how easily they can be substituted, the provision of their equipment and how exposed the worker is to financial risk.

Halifax’s amendments are effective from 9 July and mean contractors can be treated as either employed or self-employed for income verification depending on their circumstances.

The general definition of a contractor includes those whose income comes from a contract, they pay their own tax, or they are employed via an umbrella company that deducts their tax, or they are workers who are essentially employed but are on a fixed or short-term contract.

Borrowers will be treated as self-employed by Halifax if they pay their own tax, they have more than one contract, or if they have set up a limited company which employs other contractors.

In this instance, income verification will remain in line with existing self-employed policy.

Halifax will deem clients as employed if tax is paid on their behalf by the company they work for or they are employed by an umbrella firm that deducts tax.

Borrowers will also be considered employed if they earn more than £500 a day or £75,000 per year. They are also classed as employed if they are IT contractors on any income, regardless of the tax structure or if they consider themselves to be self-employed.

This follows a recent ruling where an IT contractor working for Nationwide had to pay £74,523 in income tax and National Insurance Contributions after losing an appeal to be deemed self-employed.

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The only exemptions for those earning more than £500 a day, £75,000 a year or IT contractors will be borrowers with more than one contract or those who have set up a limited company that employs other contractors.

Customers will also be considered employed if they have 12 months or more continuous employment, with six months of the contract remaining. People who have two years of continuous services in the same type of employment will also be treated as employed, as per existing Halifax criteria.

Contractor income verification

Where a contractor is considered employed for income verification, this will need to be checked either with a copy of their latest contract and payslip, or bank statement if a payslip is not issued.

The income will be calculated based on a 46-week year.

The lowest figure of either the calculated gross value of the contract or income will be used for affordability.

Those who work on a fixed or short-term contract or through an agency where tax is deducted by the employer who is not an IR35 umbrella firm will have to show their latest payslip to evidence income or last three payslips if other income is being used.

Members of the construction industry must provide the last three months’ payslips and corresponding bank statements, and an average will be calculated.

There will be no changes to income verification for borrowers on a zero hours contract.

Updates will apply to full applications submitted from 9 July. Any decision in principle entered before this date then submitted as a full application after Friday will be subject to the new criteria.

Further advances submitted after this date will also be subject to the changes.

By Shekina Tuahene

Source: Mortgage Solutions

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