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Mortgages difficult for self-employed say advisors

A new survey of mortgage advisors has found that the majority of them think that lenders are making it more difficult for self-employed people to get a mortgage, despite growing numbers opting for self-employment.

United Trust Bank carried out this survey and nine of every 10 advisors that responded to it said that the eligibility criteria for people who are self-employed has been made much stricter by mortgage lenders. In total, 91% of the advisors who took part in the survey told the bank that it is now harder than ever for the self-employed to secure a loan.

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This survey was part of a new report published by the bank that has been titled ‘Growing opportunities for brokers in the specialist mortgage market.’ The premise is that lenders outside of the big-name ones might offer a way for those with complicated financial and employment situations to get onto the property ladder.

According to Mortgage Strategy, this report goes on to argue that such people:

“Are a group which will continue to grow and that having lenders sufficiently skilled-up and with an appetite to cater for these customers is vital.”

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This is supported by the available evidence, which shows that self-employed numbers in the UK had reached 4.2 million by March of this year. These figures are provided by the Office for National Statistics.

Many mortgage advisors who have CeMAP training are already aware of the need to look to specialist lenders to meet the mortgage needs of self-employed clients and others with complex circumstances.

Source: Beacon Financial Training

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Union urges contractors to follow Kier lead on sick pay

Campaigning by Unite has secured sick pay of up to £100-a-day for Kier workers.

Union bosses are now calling on other contractors to follow suit and boost their terms beyond the statutory rate which can be as little as £16 per day.

Unite regional officer for the construction sector Malcolm Bonnett said: “Unite has been campaigning hard to end the discrimination on sick pay for construction workers so we’re delighted by this victory.

“Statutory sick pay in the UK is the lowest in Europe so it was vital we persuaded the employer, a wealthy business, that they had a duty to pay when workers are ill.

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“From here, we build further. Unite is determined that other construction employers act to end sick pay discrimination, too.”

A Kier spokesperson said: “At Kier, we recognise that our people are our greatest asset and our teams have been working hard to provide industry-leading policies and measures to support our people.

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“In the last 12 months, we have launched improved family-friendly policies, our new and enhanced standard for sick pay for all and we have become signatories of the Real Living Wage.

“All of these actions reflect the plans we put in place as a result of our strategic review. They form part of our Performance Excellence culture and underline our focus and commitment on doing the right thing.”

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By Grant Prior

Source: Construction Enquirer

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The ‘gig economy’ is not the home buying hurdle you may think – Whitear

One of the most common misconceptions among the self-employed is that securing a mortgage to buy a home is fraught with obstacles, therefore making it extremely difficult or practically impossible to get onto the property ladder.

Despite this sometimes being the case in the past, the market has evolved significantly to make it easier for those with a self-employed status or irregular income to obtain a mortgage.

In fact, catering for the borrowing needs of the self-employed has become vitally important as this demographic represents a strong proportion of UK population. This was highlighted in April 2022 figures from Statista which showed that there were approximately 4.21 million self-employed people in the UK.

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Multiple incomes
Traditionally, a self-employed status has been commonly used to refer to freelancers, contractors and sole traders, yet it can also extend to company directors, individual partners and anyone not in a salaried employee position. In addition, the emergence of the gig economy – where people earn an income per project or task – means that those earning multiple incomes can also fall under the self-employed umbrella.

And this is an area which is enjoying an impressive growth spurt.

According to ‘Fuelling the Global Gig Economy’, a report produced by Mastercard, an estimated 7.25 million are predicted to be working in the UK gig economy by the end of 2022. Which means that understanding and catering for this growing demographic is more important than ever.

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Tailored underwriting
For intermediaries looking to secure a mortgage for a self-employed client, one of the most important elements to consider is whether a lender can assess each application on its own merits rather than adopting a one-size fits all approach. This is because the fluctuating nature of self-employed income levels means no two applicants are the same, so tailored individual underwriting rather than the use of a blanket automated underwriting system can prove crucial.

In many cases, the mortgage products on offer to self-employed clients are to the same as those for employed borrowers: it’s how the loans are assessed that varies.

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Strategies vary
Different companies have varying strategies on managing balance sheets, cash flow and the distribution of profits and dividends, which is why individual assessment by the lender is necessary. A manual underwriting process can provide lenders with the ability to look beyond a more ‘basic’ overview of incomes and creditworthiness for such borrowers.

Affordability is all about what the future will look like based on past performance and this is an area where specialist lenders and such an approach can make a real difference.

Traditionally, two to three years’ worth of audited accounts were required on application, with net profits and director’s remuneration plus dividends considered as income for those running a limited company.

However, different lenders have differing approaches. For example, at Foundation Home Loans, we consider a minimum of one year’s accounts, and where a company director owns 20 per cent or more of the company shares, they will be classed as self-employed.

Self-employed lending
Mortgages for the self-employed are a particularly important area for brokers to market because of the lingering misconceptions around them. In our own borrower survey, 62 per cent said they believed it was significantly more difficult to secure a mortgage as a self-employed person, although only 14 per cent had been turned down because of it.

A range of competitive and responsible lending options remain available to this essential component within the UK work force. It will be mortgage intermediaries who open those doors for those clients the specialist lending marketplace who will continue to lead the way in delivering the types of solutions which can make a real difference for the self-employed population.

By Mark Whitear

Source: Mortgage Solutions

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Ensure your contract keeps you out of IR35

What can contractors and freelancers learn from HRMC’s win against Sky Sports presenter Alan Parry? Here are tips to make sure you stay out of IR35.

Earlier this month Sky Sports pundit Alan Parry lost his IR35 appeal against HM Revenue & Customs over a £356,000 tax bill. The football commentator, 74, contested an HMRC claim that the contract held between his own company, Alan Parry Productions Ltd, and BskyB over the five years to April 2019, amounted to an employee relationship, rather than self-employment.

Under IR35 rules, a set of tax laws which govern off-payroll freelancers, if a contractor is deemed to be a “disguised employee” for tax purposes, and not genuinely self-employed, they must pay PAYE and national insurance contributions.

HMRC’s IR35 win came down to how tightly worded Parry’s contract was, giving BskyB more control than it needed, according to Parry’s lawyer Chris Leslie.

Commenting on the case, Dave Chaplin, chief executive of tax compliance firm IR35 Shield, told the Financial Times that contractors and employers should be aware that “the contract is king”.

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What the Alan Parry case means for freelancers
HMRC’s win against Alan Parry will no doubt be uncomfortable reading for freelancers. Once again it brings into sharp focus, HMRC’s intent on tax equality and its use of the off-payroll rules. While a fair tax system is a good thing, the legalities are difficult to navigate.

If there is one thing to learn, it’s that you must also take responsibility for managing a status determination of inside or outside IR35 yourself and avoid any reason for doubt in the contract. Quoting Chris Leslie, the lawyer who represented Parry, Parry’s contract contained ambiguity which gave Sky “more control than was needed or wanted”.

This word “control” should be the biggest learning from this. You must ensure you are the controlling party, not the hirer, so take responsibility for generating a contract to reflect it. As the Parry case shows, standard company contracts won’t work when it comes to IR35.

Instead, they must reflect the work you will undertake, how you will do it – e.g. with your own equipment in your own working hours, and that you have the right to substitute yourself for another professional.

Substitution clauses are a helpful way to show you are operating as a business and not as a quasi-employee, as Lorraine Kelly successfully argued when she proved she was instrumental in determining who covered for her when she was on holiday.

Here are some other things you can do to ensure you stay the right side of the law:

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Recognise that off-payroll represents a risk to a client
They want and need to get it right, because they don’t want a tax bill for getting it wrong. It’s true that when off-payroll first came into the private sector, there were some companies that were so concerned about getting determinations wrong that they banned contractors altogether. The world has moved on, as the impact of not having access to flexible contingent skill hit home.

Despite seeing some blanket use of inside IR35 contracts to manage the risk, it’s starting to become the anomaly.

Overall, the decision to engage contractors and freelancers has been good news not just because it opens options for work, but because it’s highly likely that a company will be ready to discuss the arrangement and create a contract which clearly falls outside IR35. But you need to be informed to do this and understand the nuances of the legislation.

There are three specifics to prioritise:

Mutuality of obligation
People who get a contract right are using statement of works to set out exactly what they will do by when. This also meets another HMRC test called “mutuality of obligation” (MoO) whereby you show that you are not like an employee and paid simply for being at your client’s disposal, instead you are paid to deliver a specific piece of work.

Overall, being savvy about how MoO helps determine a status will help you get into a position where you can confidently negotiate – there’s evidence that the more informed you are, the more likely you will secure an outside status determination which will hold with HMRC.

Many self-employed professionals find it helpful to undertake their own assessment of all the rules first, so they can adjust their approach to working with a client and create a watertight seal.

Understand being in business on your own account
In the high-profile Kaye Adams case, Kaye demonstrated that she was in business on her own account, and this was pivotal to being deemed outside IR35. Things that will help you show this are to have multiple concurrent clients, a dedicated office, and even employees.

Show you are not part and parcel of the organisation
Working practices are critical to compliance. If you behave like an employee, then you will be treated like one, giving HMRC more justification.

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Quick wins to stay out of IR35

Quick wins to avoid scrutiny are:

  • Develop a brand, and have a dedicated website and social media presence
  • Trademark your company name
  • Invest in your own phone, computing equipment, printer etc
  • Invest in yourself through training and memberships to professional bodies
  • Ensure you have things like professional indemnity and liability insurance.

Things to avoid to stay out of IR35

For all the do’s there are also a lot of do nots. Here are just a few of the things that can get you into hot water:

  • Going to company training and social events
  • Getting involved in appraisals or any HR matters
  • Accepting performance bonuses open to employees, or take advantage of things like gym memberships
  • Being misrepresented as an employee – make sure it’s clear you are a contractor or associate on your ID badge, email address and org charts
  • Taking on new work before you have adjusted the terms of the existing contract
  • Taking days off with permission – you should inform your client you’re not available
  • Working the same working pattern as staff

These things combined with knowledge and understanding, and following good practices and behaviours, will stand you in good stead when it comes to running an IR35 status assessment with a client. The way you conduct business and engage with them should be clear and correlate to an outside determination.

James Poyser is CEO of inniAccounts and founder of OffPayroll.org.uk

By James Poyser

Source: Small Business

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Contractors at risk of being taken in by bogus badges from ‘sham’ accreditation outfits

Contractors must start double-checking the badges that umbrella companies display on their website, experts are appealing to readers of ContractorUK.

The advice to check that the provider’s badge is a stamp of approval from a genuine, verifiable accreditation body featured in a new umbrella company checklist for contractors.

But an avoidance scheme blacklisted by HMRC – Peak PAYE Ltd — has since been observed using a badge emblazoned with ‘The Institute of Freelancing & Contracting Professionals.’

The institute describes itself as: “The UK’s most prominent professional membership association; promoting compliance, maintaining standards, and certifying the UK’s leading umbrella companies, contractor accountants, and payroll providers for freelancing contractor professionals.”

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‘Accreditation from unverified parties’
But established in 1999 and visible lobbyist against IR35 ever since, the Association of Independent Professionals and the Self-Employed has never heard of the institute.

“IPSE has not been previously aware of ‘IFCP’ and is not therefore in position to verify its legitimacy, or otherwise,” says a cautious Andy Chamberlain, IPSE’s policy director.

He further told ContractorUK: “We…advise contractors to take great care when choosing a provider. We would also add that contractors should be wary of any claims of accreditation from unverified parties.”

‘Unconvincing attempt to provide a veil of legitimacy’
Attempts to verify the institute’s legitimacy are complicated by the institute itself however, as it also calls itself, ‘The Society for Professional Freelance Contractors and their Associates.’

Its website has a third name, ‘Independent of Freelancing and Contracting Professionals,’ and a fourth (minus the “of ” blooper), ‘Independent Freelancing and Contracting Professionals.’

A long-standing adviser to the self-employed has heard enough.

“This is fairly obviously a very unconvincing attempt to provide a veil of legitimacy to at least one non-compliant operator,” said the adviser.

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‘Sham organisation’
Declining to be named the adviser added: “I [have been advising the self-employed for 12 years] and don’t know of anyone who works [at the IFCP].

“And as far as I can [see]…no evidence of them [exists] on Companies House, and even their ‘links’ to their Twitter and LinkedIn profiles don’t actually take you anywhere. It’s a sham organisation – so contractors beware.”

Also having tried to run some checks on the IFCP is WTT Consulting – an HMRC dispute advisory recommended in last week’s umbrella company checklist as a bonafide assessor.

‘Paper-thin entity’
The advisory’s tax director Graham Webber described the ‘organisation’ to ContractorUK last night as a “paper-thin entity” appearing to have “little or no substance.”

Lucy Smith, managing director of Clarity Umbrella agrees.

“When a contractor looks at a website and there is very little information available on the site, it [should] lead [them] to question why.”

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‘Question what they have to hide’
Referring to Peak PAYE Ltd but applying equally to the IFCP, Ms Smith continued: “The website is very bare, says very little and would lead me to question what they have to hide.

“If a….[provider] has nothing to hide then they should have no issues in explaining it all via the website.”

But equally, an abundance of explanations or claims, particularly those like the ones made on the institute’s website, can verge on the comical — or they would do if the risks to contractors of being hoodwinked were not quite as grave as they are.

‘Etc, etc’
Recruitment lawyer Adrian Marlowe of Lawspeed explained: “Peak PAYE [being outed] by HMRC is highly topical as tax avoidance [is] very much back on the agenda [at HMRC].

“But Peak PAYE’s website shows it is accredited by an outfit called the Institute of Freelance Contractor Professionals which claims to be [lots of good-sounding things] like ‘independently audited’, and ‘fully disclosed to HMRC.’ Etc. Etc. Someone clearly has a sense of humour.”

Neither Peak PAYE Ltd nor the Institute of Freelancing and Contracting Professionals responded to questions or written requests for comment.

By Simon Moore

Source: Contractor UK

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Contractor sector sceptical of potential tax cuts from an under pressure Boris Johnson

Contractors being potentially among the one in three adults who can afford basics but not always luxuries isn’t making the contractor sector into Boris Johnson’s whispered tax cuts.

Reportedly recommended to the prime minister as a way to heal rifts after he narrowly survived a confidence vote, any tax cuts would usually be embraced by contractors.

After all, contractors are “up against IR35 reform, dividend tax rises and [potentially] an incoming hike to corporation tax,” Qdos’s Nicole Slowey pointed out yesterday.

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‘Token gesture’
But another specialist in contractor taxation, Graham Webber of WTT Consulting, says he expects any tax cut from Mr Johnson to be only a “token gesture”.

The PM’s trying political circumstances, plus the government’s tendency to legislate against contractors rather than incentivise it via tax cuts, makes his expectation creditable.

But in a thread featuring both the tax specialists, a Test Analyst said that if any of the tax cuts resemble Spring Statement’s 5p cut in fuel duty, the government can “keep it.”

‘Forced bribe’
“At this stage [from Mr Johnson], it would be a forced bribe,” said the analyst, a self-employed contractor. “It would only be announced to make Boris look better, not to help us”.

The prospect of tax cuts has prompted Mr Johnson’s most supportive national newspaper, the Daily Telegraph, to identify a fuel duty reduction as the most important of five he may make.

The right-leaning broadsheet said a close second would be for the PM to abolish the 5% VAT charge on heating fuels — as Mr Johnson has previously promised to do.

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‘Attacks on contractors’
Yet a consultant posted yesterday that it’s not ever Number 10’s decision to cut taxes – it’s Number 11’s.

“[Chancellor] Rishi [Sunak] and the Treasury are in charge of taxes, not Boris,” the consultant said.

“[Following the many] broken promises and attacks on contractors over the last few years, it will take a lot [for either Mr Sunak or Mr Johnson] to win back support — and trust.”

‘Government handling taxation badly’
A YouGov reading of June 2nd shows 69% of adults believe the government to be handling of the issue of taxation “badly.”

Income tax is the levy which people would least like to be increased by the government, followed by council tax, and then National Insurance, the pollster found in May.

Speaking since the findings, Keith Gordon QC has pinpointed what he would most like to see in relation to the contractor sector’s most notorious tax rule.

In a phone-in with LBC about the off-payroll rules, the tax barrister said: “I hope someone will go back to the drawing board and decide IR35 is not fit for purpose.”

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‘Unwelcome letters from HMRC’
A revoking of the Intermediaries legislation is even more of an outside bet than tax cuts from the prime minister, so accountants say it’s ‘business as usual’ this tax return season.

“With tax returns on the mind of many pro-active taxpayers, something often forgotten on the tax returns of those submitting early, is benefits-in-kind,” advises Adam Dove, senior client accountant at Orange Genie.

“With P11Ds not due for submission until July 6th 2022, it is important to ensure your employer has submitted your P11D and you have the details before you complete your self-assessment tax return, to avoid any unwelcome letters from HMRC with amendments, interest and, or, penalties.”

By Simon Moore

Source: Contractor UK

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Accountant’s advice on getting a mortgage if you’re self-employed

The property market is booming, but not for the first time, flourishing for a select group of people. Unfortunately, for those that are counted as self-employed, it is harder than ever to achieve the dream of owning your own home.

More than four million people in the UK are classified as self-employed and recent industry research found 71 percent of participants in a survey of UK freelancers, said that they are worried about saving for later life or buying a home following the pandemic, with women most likely to be affected.

There has been rapid growth in people who are their own bosses seeking advice on how to secure that ever elusive mortgage and get the first step onto the property ladder. In response, accountancy and tax platform founder Darren Fell, of Crunch, has shared his top tips on how to get a mortgage while being self-employed.

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Top tips from an accountant

Speak to brokers: Not all brokers will offer you the same deal and have the same connections. Shop around and get as many quotes as you can. Some lenders may have more lenient or strict lending criteria and it is important not to commit yourself to a bad deal.

Check your credit rating: Ensure your credit file is in the best possible shape by getting on the electoral roll, staying away from short-term high-interest loans and if possible staying out of your overdraft.

Make sure your accounts are up to date: To earn the best rates you can, make sure all your accounts and tax filing history is up to date. Though a struggle for some self-employed businesspeople, it pays off when applying for a mortgage.

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Minimise credit checks for other insurance or credit applications: Multiple credit checks in a short space of time can reduce your overall credit score, according to some experts. Using comparison sites for insurance quotes could potentially affect your credit history as well as applying for new credit cards, as can often end up running various checks which might then affect your credit history.

Get yourself an agreement in principle: Some estate agents in charge of in-demand properties may not allow you to even view a property without a decision in principle. By getting this decision, which effectively gives you a definitive budget, you can house-hunt with confidence.

Knowing your budget and sticking to properties within it will make your mortgage application more likely to be accepted.

By Robbie Purves

Source: Daily Record

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Majority of lenders accepting applications from self-employed borrowers

New research from the Intermediary Mortgage Lenders Association (Imla) shows that most – 88% – of lenders are willing to extend funds to the self-employed.

Imla asked 24 lenders a series of questions regarding underserved borrowers, finding that, “Despite ongoing consumer concerns that only borrowers with straightforward incomes and perfect credit histories can access mortgage lending,” many lenders are in fact open to borrowers with more complicated financial histories.

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Specifically related to the self-employed, Imla discovered that criteria here has changed over the last 18 months.

The report show that 16% of lenders have reduced the period for which earnings must be shown, with 21% disregarding the 2020/21 tax year in favour of pre-covid accounts. And 25% of lenders will accept predicted revenues on these applications.

Moreover, 21% of lenders have changed their criteria for the sake of borrowers on furloughed income or those who had to go on a mortgage holiday, and 29% of lenders have altered their criteria to accept bonus, overtime or commission income in mortgage applications.

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Overall, 71% of lenders will consider borrowers with ‘irregular’ income and 63% will accept applications for multiple borrower products. Just under half, meanwhile – 46% – will look at potential borrowers with credit impairments in their history.

And regarding lenders themselves, 67% said that, since the start of the pandemic, they have invested in expanding their underwriting teams and 42% have grown their overall staff.

Just under half – 46% – have made investments in technology, meanwhile.

Imla executive director Kate Davies says: “2020 was the year everything was turned upside down – including the mortgage sector.

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“Lenders and intermediaries responded very well given the difficult circumstances and were able, in a remarkably short timescale, to continue to offer support and services to customers. This included millions who accessed payment holidays. This meant that, for a brief period, the range of mortgages offered needed to be reduced, but lenders are back in business with a full and very competitive range of products back on the market.

“Lenders are also very aware that, as we emerge from the worst of the crisis, borrowers who may previously have had non-standard financial circumstances may now have even more complex profiles. Lenders have responded to this – and there are now around 5,000 mortgage products on the market.”

By Gary Adams

Source: Mortgage Finance Gazette

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Self-employment crisis as a discrepancy between HMRC’s CEST & IR35 noted

HMRC has been questioned by one expert about its processes, as data appeared to reveal a “discrepancy” in its CEST employment tool and advertised IR35 jobs.

HMRC first introduced changes to IR35 back in April 2021, after a year of delays due to the pandemic. IR35 is legislation which is designed to identify contractors and businesses which are not currently paying the correct tax due to avoidance measures. As a result of the changes, medium to large businesses have now been required to alter their processes when it comes to tax.

It means these organisations are required to assess the contractors they employ, as well as independently setting their tax status.

The changes, however, were resisted by some who suggested this would create harder work for organisations, who may consequently become reluctant to imply contractors or freelancers.

For IR35, even before changes took place, Britons were advised by the Government to use what is known as the Check Employment Status for Tax (CEST) tool.

CEST enables individuals to find out if they, or a worker on a “specific engagement” should be classed as employed or self-employed for the purposes of tax.

However, experts have highlighted a potential issue which has arisen when looking at the latest data.

It has been suggested there is a “discrepancy” between usage of CEST and the number of contractor jobs which have been put forward as “outside IR35”.

Being outside IR35 means one is operating as a business where off-payroll working rules will not apply.

This means someone can pay themselves a salary and is responsible for their taxes – with HMRC viewing them as an employee for tax purposes.

Matt Fryer, Head of Legal Services at Brookson Legal, commented on the matter.

He 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.

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“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 to 56 percent of all contractor roles clearly fall outside of IR35, with another 19 to 21 percent in a grey area the tool is unable to determine.”

Data from Jobfeed, however, Mr Fryer added, currently indicates only 26 percent of contractor roles are being advertised as outside IR35.

This was true as of the week commencing June 7, 2021.

It is feared, then, that the CEST tool is not wholly doing the job it is meant to be doing, and many are concerned about potential ramifications.

Mr Fryer went into further depth to provide clarity on the situation.

He added: “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 they can provide roles outside of IR35 to beat the competition.”

Mr Fryer concluded, however, by posing why more of these roles are not currently being advertised.

One potential answer to that question, he states, may lie in the idea that many businesses do not have faith in solutions they have put in place for meeting the deadline.

But in this case, Mr Fryer stated, hirers who have planned ahead and in detail, are likely to “reap the rewards” of their efforts.

An HMRC spokesperson 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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