Kingsbridge Autumn Statement 2015 Reaction

Autumn Statement 2015

IR35

Despite numerous rumours to the contrary over the past few weeks, professional contractors broadly came out of the 2015 Autumn Statement unscathed (for now at least). Recent reports from HM Treasury had suggested that contractors would no longer be able to work for a single client for an uncapped period and would have to move onto the payroll after one month, but no mention was made of this in the Chancellor’s speech or in the ‘blue book’ released immediately afterwards.

It seems likely that any proposals for changes to IR35 legislation will be pushed back to April 2017. A press release from APSCo, circulated shortly after the conclusion of the Autumn Statement, stated: “It appears that, following the overwhelming negative response from business as a whole and a rigorous press and lobbying campaign by APSCo, the Government has chosen to think more carefully about the unintended consequences of the proposals.”

Samantha Hurley, Head of External Relations and Compliance at APSCo, followed up by saying:

“Of course, the lack of an announcement in the Autumn Statement doesn’t mean that the Government won’t go forward with this proposal in the future, but it does almost certainly mean that it won’t come into effect in April, 2016, which is what we feared.”

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Autumn Statement 2015 Preview

George-Osborne

Wednesday 25th November will be a big day for the contracting community. George Osborne will be delivering the first purely Conservative Autumn Statement. Following on from a summer Budget which wasn’t exactly contractor friendly, it’s heavily rumoured that the Chancellor will be addressing the contentious issue of IR35 – either offering a proposal for further reform, or at very least the introduction of further consultation. Of course, despite all the speculation, what will actually be said currently remains unknown.

It seems as though changes will be announced that will see PSC contractors no longer being able to work for a single client for an uncapped amount of time. Although earlier rumours suggested that contractors would be obliged to move onto the payroll of their client after one month of work, it now seems that will not be the case as long as they pass a new version of the ESI test. However, who must decide whether or not the contractor is inside IR35 (i.e. which contractual party will stop proceedings as early as four weeks in) remains unclear.

Join us from 9am on Wednesday 25th as we live Tweet the Autumn Statement, followed by our reaction later in the day and an in depth look at exactly what kind of impact the current Conservative government has had on the contracting community.

Should I get my contract reviewed for IR35 compliance?

IR35 For Contractors

We’re taking another look at IR35 on the Kingsbridge Contractor Insurance blog today. This week – should you get your contract reviewed for IR35 compliance?

IR35 is the legislation on everyone’s lips and it’s a subject that we have covered a number of times.  Since its passing into law in 2000, it’s been a priority for freelancers and contractors to make sure they don’t get caught in the IR35 net.

Some professional organisations now offer independent reviews of your contracts that check for IR35 compliance, giving you the peace of mind from the outset that you are not at risk of being caught out. This week, we’re going to investigate if these contract reviews are really worth it for independent professionals today.

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A Contractor’s Guide to IR35 Legislation

IR35 Legislation

At Kingsbridge Contractor Insurance, sometimes we like to revisit blog posts we’ve done in the past. It might be that you didn’t see the post first time around, or that you’ve only recently taken out an insurance policy with us. For this post we’re going back to October 2014, to take another look at our Contractor’s Guide to IR35 Legislation.

The Intermediaries Legislation, or IR35 as it is more commonly known, has been a topic of conversation for many in the world of contracting. With HMRC this year promising to reduce IR35 case investigation time, this key piece of legislation is now a topic that no contractor can afford to ignore.

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What Are The Benefits Of Holding Insurance?

Benefits Of Contractor Insurance

Our comprehensive insurance policy package includes professional indemnity insurance, public liability insurancepersonal accident cover, directors’ and officers’ liability, and employers’ liability. But covering you as you go about your work is only part of what we do. There are numerous other benefits to holding the correct insurance:

It’s a key IR35 indicator:

There’s enough to discuss about IR35 to make another blog post entirely (in fact, we’ve done just that). But, to put it simply, it’s a piece of government legislation aimed at uncovering ‘disguised employment’. What’s that? In essence, ‘disguised employment’ is when a freelancer works on a contract through their limited company, but their working conditions and contract indicate that they are working in the same way as a traditional employee.

If you get caught up in this legislation then your income will be subject to normal income tax and National Insurance contributions, meaning that you’ll lose the advantage of the low salary, high dividends tax arrangement that many contractors benefit from.

If HMRC decide to investigate the validity of your contract against the stipulations of IR35 legislation then they’ll carry out a series of Business Entity Tests. These tests function as one of the ways to prove that your contract is at low, medium, or high risk of being caught out by IR35.

Being covered by professional indemnity insurance (one of the elements of the Kingsbridge policy package) can improve your IR35 stance significantly, and forms a significant part of the Business Entity Test.

Ensuring you are fully covered as a freelance contractor is a vital step towards covering yourself at every level. At Kingsbridge we have designed our core insurance package to cover the risks you’re exposed to as a freelance contractor. This includes Professional Indemnity, Public Liability and Employers’ Liability cover, all at levels that suit the needs of the modern freelancer.

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Should I get my freelance contract reviewed for IR35 compliance?

IR35

IR35 is the legislation on everyone’s lips and it’s a subject that we have covered a number of times.  Since its passing into law in 2000, it’s been a priority for freelancers and contractors to make sure they don’t get caught in the IR35 net.

Some professional organisations now offer independent reviews of your contracts that check for IR35 compliance, giving you the peace of mind from the outset that you are not at risk of being caught out. This week, we’re going to investigate if these contract reviews are really worth it for independent professionals today.

IR35 – the risks

IR35 is aimed at uncovering ‘disguised employment’. This affects people that provide their services through a limited company, known as a personal services company. ‘Disguised employment’ is when a freelancer works on a contract through their limited company, but their working conditions and their contract indicates that they are working in the same way as a traditional employee.

If one of your contracts is caught by IR35 legislation i.e. – your work appears to be more like that of a traditional employee –  your income will then become subject to normal income tax and National Insurance contributions and you will lose the advantage of the low salary, high dividends tax arrangement that many freelancers benefit from.

IR35

The Assessment

If you are selected by HMRC to undergo an IR35 compliance investigation they will investigate both your contract and your working arrangements. That means that the way you work and the language of the contract you are working under need to be in agreement.

This is where the skills of a professional contract assessor really come to the rescue for a busy freelancer. Employment status experts will investigate the terms of your contract as well as delving into your working practices through the eyes of an HMRC investigator. That means that you have an objective onlooker examining your compliance for IR35 without you having to get bogged down in the finer details of this often very hard to understand legislation.

This way, you can be secure that both the wording of your contract, and the way in which you actually complete the work in the contract, are compliant with IR35, limiting your exposure to the risks of having an unexamined contract.

This, to us, is the biggest advantage of having an employment status professional review your contract and the way in which your services are delivered. It’s sure to give you peace of mind that a professional can help you prove to HMRC that you’ve taken reasonable steps to IR35-proof your contract.

When HMRC investigate the validity of your contract against the stipulations of IR35 legislation they carry out a series of Business Entity Tests.  These tests function as one of the ways to prove that your contract is at low, medium or high risk of being caught out by IR35.

Being covered by Professional Indemnity (PI) insurance can improve your IR35 stance and forms part of the Business Entity Test. That means that ensuring that you are fully covered as a freelance contractor is a vital step to cover yourself at every level. At Kingsbridge we have designed our core insurance package to cover the risks you’re exposed to as a freelance contractor. This includes Professional Indemnity, Public Liability and Employers’ Liability cover, all at levels that suit the needs of the modern freelancer.

If you wish to discuss your cover requirements then simply call our friendly, professional team at Kingsbridge on 01242 362160 and we will be happy to discuss your needs with you. Or, you can apply online to get access to cover almost instantly.

A brief history of IR35

Rules Regulations

We’ve written about IR35 before; the tax and National Insurance legislation that affects freelance contractors operating as limited companies. Aimed at uncovering what HMRC terms ‘disguised employment’, it is the legislation on everybody’s lips.

But when and where did IR35 originate and why is it becoming such a key piece of legislation? We’re taking a look back to find out when IR35 entered the political agenda and how it has evolved to become the legislation we know today.

1999

1999. It was the year Prince sung about and Gordon Brown was Chancellor of the Exchequer. As part of the year’s budget, he announced the introduction of measures to crack down on those avoiding tax by working through limited companies while still working in a similar arrangement to a traditional employee.

2000

IR35 became law in April 2000, as part of The Finance Act. The legislation didn’t come in to force until the beginning of the financial year, but the act was backdated. This made its official commencement date 6th April 2000.

Officially known as Intermediaries Legislation, the new regulation came to be commonly known as IR35.

Opposition increases

Since the passing of IR35 into law, the legislation has been hotly debated, garnering much attention and opposition. Several bodies have been particularly vocal in their criticism, including the Professional Contractor Group, a representative organisation for freelance contractors.

Many felt that the legislation was too complex to be applied to a large variety of cases, harmed small companies that weren’t set up for the purpose of avoiding tax and actually enforced higher levels of tax on those found to be within IR35, as they are also liable for Employers National Insurance contributions.

Tax simplification and the coalition government

The Cameron Ministry saw a new Chancellor at number 11 in the shape of George Osborne in May 2010. One of his initial acts as Chancellor of the Exchequer was the creation of the Office for Tax Simplification.

One of the key objectives of the newly formed task force was to put IR35 under review and suggest to Osborne if the legislation should be drastically changed or scrapped altogether. IR35 was deemed far too important to do away with altogether and so a re-vamped version was developed.

The main changes to the law included publishing clear guidelines for freelance contractors, creating a dedicated helpline run by IR35 experts and the creation of a series of business entity tests, designed to provide contractors with an idea of the risks posed should they be selected for an IR35 investigation.

IR35 today

Since the OTS investigation, HMRC have promised to increase the number of IR35 investigations per year while reducing investigation time. There is now a whole industry of professionals that offer IR35 review services to assist freelance contractors in assessing their IR35 position.

The decision to keep IR35 and to enforce it more strongly has had an enormous impact on freelance contractors across the UK. There is no doubt that the legislation is controversial and highly contested and is likely to remain so.

Has your business been effected by the introduction of IR35? Have you invested in having your contract independently assessed by an IR35 expert? Tell us about your experiences in the comments below!

Contract Tax

Having Professional Indemnity (PI) insurance can improve your IR35 profile. It is an all-important element of cover for businesses, protecting against claims of professional negligence.

Here at KPSol we have designed our core insurance package to cover the most common risks faced by freelance contractors. This includes Professional Indemnity, Public Liability and Employers Liability cover.

If you have any questions or need to discuss your requirements then simply call our friendly, professional team on 0124 236 2149 and we will be happy to discuss your needs with you. Or you can apply online to get instant cover.

A contractor’s guide to IR35 legislation

HMRC Building

The Intermediaries Legislation, or IR35 as it is more commonly known, has been the topic of conversation for many in the world of freelance contracting. With HMRC this year promising to reduce IR35 case investigation time, this key piece of legislation is now a topic that no contractor can afford to ignore.

What is it?

IR35 is a key piece of tax and National Insurance legislation that directly affects freelance contractors operating through a limited company. The aim of the legislation is to uncover what is known as ‘disguised employment.’

The legislation requires HMRC to create a ‘hypothetical contract’ between the end client and the individual undertaking the work by ‘removing’ the intermediaries of which the intermediary referenced in the legislation is the contractor’s limited company (often referred to as a ‘personal service company’ or PSC).

The reason the contract is hypothetical is that there are no contractual terms between the end client and the ‘worker’. The contractual chain is often End Client → Agency → PSC → Worker, but IR35 applies equally where there is no agency in the contractual chain because the PSC is the key intermediary.

The End Client and Agency are both engaging limited companies as it isn’t possible to ‘employ’ a limited company, and as such are off the hook as far as IR35 is concerned. The focus therefore falls upon the PSC which, in essence, will have failed to operate Pay As You Earn on its employee in respect of an engagement where HMRC can argue that IR35 applies. HMRC, in this situation, would be able to successfully argue that the hypothetical contract represents a contract of service (i.e. one that resembles an employment relationship).

What does this mean for the contractor?

When a contractor is trading through a limited company, the contractor can organise their remuneration in such a way that they receive a small salary and high dividends. The contractor therefore benefits from a slightly lower tax rate on the dividends, but the real saving comes from the fact that dividends do not attract employer or employee National Insurance Contributions (NIC). However, they should only do this for engagements that are deemed to be ‘outside of’ or ‘not caught by’ IR35.

IR35

Why is it important?

As a contractor, if your engagements are caught by IR35 legislation as being ‘disguised employment’, then your company becomes liable for the tax and NIC that would be due plus interest on the amount and even a penalty if HMRC can argue that you have not undertaken any form of due diligence. This obviously places a huge financial burden on a contractor, the effects of which could last for years.

How is IR35 applied?

When considering any kind of employment status issue, the first question asked will always be: “Is there a contract of employment?” The reason is that there is no legal definition of a “contract for services” (self employment), but there is sufficient case law to be able to determine what constitutes a contract of employment. Logically, if there is not a contract of service, then there must be a business to business relationship.

There are three key tests of employment which are used to investigate individual engagements, and these help to determine whether or not a contractor’s engagement falls within or outside of IR35 legislation.

The wording of your contract is key here. A genuine freelance contract will be a contract ‘for services’, whereas an employee contract will be a contract ‘of services’. This distinction is hugely important in proving that you are in fact a genuine business, providing a service to another business. In this instance, it pays to be diligent and have an independent IR35 specialist assess your contract.

Another test used to establish if a contract is IR35 friendly is the issue of control. A genuine contractor should have full autonomy over how the work they are contracted for is completed. There are also subsidiary elements to control that can be considered. It is sometimes the case that the contractor will have a considerable input into what the engagement will be (although that is usually the client’s decision), but often the contractor can determine the location. Perhaps the client has multiple sites and the contractor will determine from where he/she operates, or the contractor can work from their own offices. If a contractor has control over where the work is undertaken, they are also likely to have control over when it is undertaken.

Nevertheless, just because the client has determined the project and requires that the engagement must be undertaken on their site (whether due to security reasons or because that is where the equipment/people are), and that the site can only be accessed during certain times, this does not mean that the client is exercising control. The key issue is whether the contractor has control over how the work is undertaken.

There are two further important areas that are considered when assessing the IR35 status of engagement. The first is a right of substitution clause. If a contractor has a clause written in to their contract that a similarly skilled worker can replace them on a contract, the contractor is not obliged to provide their personal service. Having to provide one’s personal service is a key indicator of an employment relationship; having the right to substitute denies personal service and therefore indicates a self employment relationship.

The second is what is known as Mutuality of Obligation (MoO). An employee in a typical employer-employee contract will be paid each month and, in return, will be expected to work across a range of tasks at the discretion of their employer.  An arrangement such as this does not exist for limited company contractors engaged in a contract for services. Instead, a contractor will be engaged for a limited and specific project and when that contract comes to an end they are not obliged to remain working for their client. Indeed, if mutuality is to be fully denied, there should be no expectation that the contractor will work for the client on any given day or even be obliged to see an engagement through to conclusion.

Of course, IR35 investigations vary on a case by case basis and no preventative measures will ever cover every eventuality. However, it remains advantageous for all contractors to take the threat posed by IR35 seriously and remain prudent in ensuring that they can confidently prove that they are in business on their own account.

Having Professional Indemnity (PI) insurance can significantly improve your IR35 profile. PI insurance is an all-important element of cover for businesses as it protects against any claims of professional negligence.

Make sure that you are ticking an important business entity test off your list by ensuring that you are fully covered as a freelance contractor. At KPSol we have designed our core insurance package to cover the risks inherent in freelance contracting. This includes Professional Indemnity, Public Liability and Employers Liability cover; our product can help you avoid getting caught out by IR35.

If you wish to discuss your cover requirements then simply call our friendly, professional team at KPSol on 0124 236 2149 and we will be happy to discuss your needs with you. Alternatively, apply online to get cover instantly.

False Self-Employment Legislation For Contractors

The Finance Bill 2014 has now been published, setting in motion the changes to tax law which were announced in 2013.

As you’d expect with any new HMRC legislation, there’s been significant concern and confusion around one particular element, the new False Self-Employment legislation.  Aimed at specific sectors within the contracting industry it’s still under scrutiny from industry professionals.  Not all contractors will be affected but it is worthwhile being aware of the changes in case of any tweaks to the draft.

Why is it happening?

HMRC are concerned that there are a growing number of workers operating as self-employed or as a sole trader who may, in fact, be ‘disguised employees’, sometimes hidden by intermediary companies, who are either incorrectly listed as freelance or are purposely listed that way to avoid the correct taxation. They also believe that many of these sole traders aren’t completing income tax forms and so aren’t being taxed the right amount or in some cases aren’t paying any tax or NI at all.

Also it’s worth noting that in recent years there has been a rise in the number of ‘intermediary’ companies which act as middle men between the worker and the recruitment agency. These intermediaries have previously been bearing the PAYE risk but managing it with agreed terms with the worker.

What is it?

The legislation HMRC plans to put in place will implement a new way to check up on sole traders and contractors. The plans mean that the matter of compliance passes hands to the recruitment agency rather than the intermediary (as mentioned above); this is because the agencies converse directly with clients and have more influence over how the worker is paid. HMRC will be checking up on intermediaries and looking out for those that are enabling tax avoidance to happen. They have also proposed that a statutory returns and record keeping practice be put in place.

As part of the legislation a TAAR (Targeted Anti Avoidance Rule) will be introduced, The TAAR will be designed to enable HMRC to consider the motive for setting up the employment status arrangements; whether a business is incorporated purely with the motive of avoiding income tax and also whether it achieves the motive of tax being paid or not.

When does it come into practice?

Immediately. Many concerns were raised by stakeholders who worried that the consultation period about the changes was too short a time and that it was being introduced much too quickly. They suggested that it should in fact be implemented in April 2015; however, the government believes that delaying its implementation will allow too much time for new avoidance arrangements to be put in place.

How will it affect me?

Overall, it seems pretty conclusive that limited company freelancers and contractors will not be affected. So if this is you, there is not currently anything to worry about.

Those who will feel the effects are mostly the recruitment agencies that will now have to bear the brunt of any compliance issues with hired workers. It also plans to target intermediaries that supply self-employed workers whilst denying them employment rights and avoiding NI payments. If you are a contractor who is in contact with anyone in a supply chain on a contract for services then you are liable for PAYE as HMRC will presume that you are a controlled worker. It is worth thinking if this is the case for you as you may be affected if you cannot prove that you aren’t a controlled worker.

Another section of those affected will likely be low skilled workers and may not even be aware of their self-employed status. The examples HMRC gave are construction workers, delivery drivers and ‘shelf-stackers’.

What is the industry response?

There are many doubts in the industry that this legislation will have the impact that is expected. There are worries that agencies will be hesitant in placing limited company contractors into work engagements with the changes in place, but hopefully with clear guidance from HMRC this will not be a problem. PCG in particular say that they will be keeping an eye on legislation to make sure that it is not rushed through without proper consideration.

APSCo strongly urged HMRC to consider including the following within the final legislation: statutory guidance on the compliance actions a recruitment firm should take. Statutory defence in the event that they undertake such appropriate compliance checks and a definition of a personal service company (“PSC”).

Following stake holder reactions to the legislation, agencies and other intermediaries will now have until August 2015 to make their first submissions to HMRC, and the definition of ‘intermediary’ will be tightened up to exclude genuine service providers.

A Contractor’s Guide To Self-Assessment Tax Returns

As if you weren’t excited enough about Christmas, every freelancer and contractor’s favourite time of year is fast approaching too…..Tax Season!

Whether you’re a seasoned pro, or just starting out, self-assessment can be intimidating, particularly when the press is full of horror stories about fines, recent government policy changes and HMRC taking measures to answer to the recent criticisms they’ve been facing around avoidance. Hopefully we can help with our guide to self-assessment.

1 – First you’ll need to register with HMRC for self-assessment.

You can register online, by post or by phone; find more details here. To register for self-assessment you’ll need your National Insurance Number as well as all the details of your business and your personal details.  Registration (if you haven’t already done it) needs to be submitted by 5th October after the end of the tax year for which you need a return. If you are new to self-assessment you will receive a UTR (Unique Taxpayer Reference) which stays with you to keep you linked to your self-assessment records. If you aren’t new to this then you’ll need you reference number to hand to complete the forms.

2 – You need to keep your records in order.

They key to submitting your assessment on time and correctly is in keeping accurate financial records.  Just some of the financial records you should have to hand when you are completing your self-assessment are:  your self-employment income, any dividends, any income that may have come from partnership and interest paid on things such as loans and credit cards. This only the basics so be prepared to also list any additional income or expenditures.

Don’t forget, you always have the option of speaking to a professional and having them help with your accounts and financial information.

3 – Timing is important

You may have already guessed that leaving your self-assessment to the day before its due is not the best idea.  The earliest you can realistically submit it is the beginning of the new tax year.  You do, however need to make sure you have all of your tax forms from the previous year, P60, P45 and P11D, for example, so whenever you have received those you can get cracking. The advantages to early filing are the fact you’ll know how much tax you owe so you can plan the rest of the year on the back of that, knowing in advance can also prepare you for any shocks and having to pay out of your own pocket!

4 – Completing your self-assessment

So, you’ve organised all your papers, you feel prepared and ready, next comes the task of actually filling out the assessment. You can now register online (if you haven’t done it before) and receive your UTR (which we mentioned earlier).  Next you’ll use that code activate your account online and you’re ready to go. You can check this HMRC guide if you’re stuck at this point. If you’ve filed a return online before you’ll have an Id and password and you can get started straight away.

If you’re already prepped it’s an easier task of simply copying data from your records and documents into HMRC’s system. It’s simply form filling. Keep all of all your forms in front of you and once one form has had its data inputted online put it to one side, once all the forms are aside, you’re done!

The great thing is that the online system saves your progress so you don’t have to complete the assessment in one sitting and if there are things you need to double check you can always go back before you decide to submit it. Once you’ve double-checked everything and are happy that you’ve completed the forms you can submit.

5 – Finally, don’t miss the deadline of January 31st.

If you let the deadline go by you’ll be hit with an on the spot £100 fine and be given an extra three months to work through the online forms. If you miss the second deadline the fine will then go up to an additional £300, or a 5% fine of the tax you owe, whichever is greater. So it pays to be prepared for your self-assessment.