IR35

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 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.

By CONNOR COOMBE-WHITLOCK

Source: Express

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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 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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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, 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, Express.co.uk 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 Express.co.uk: “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.”

By REBEKAH EVANS

Source: Express

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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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