How to avoid January self-assessment stress

31st January

January is well and truly upon us. Most of us have completed our first full week back in work and the challenges of the New Year are facing us.

January holds more significance for freelancers than most, and that’s thanks to the 31st January self-assessment online submission deadline looming large on the horizon. The first month of the year can be stressful for freelance contractors and the self-employed as you rush to collect everything your need to avoid being lumped with a hefty fine if you miss that all important deadline.

If you’re new to the process, or you’re struggling a bit in the organisation department, then read on for some of our top tips to avoid self-assessment stress this month.

Ensure you’re registered

If you’ve just gone freelance then this is an essential step. You only have to register with HMRC once to let them know you need to file a self-assessment. From then you will be reminded by HMRC every year that you need to complete your assessment.

First time registration deadlines are October 5th of the current tax year. Failure to register will incur further fines. However, if you manage to submit your self-assessment in full by the 31st January then you can reduce or even avoid late registration fees.

To successfully register you need to provide your National Insurance number and the details of your company or relevant personal details. When you’ve registered your will receive a Unique Taxpayer Reference number. This is an important piece of information so keep it safe as you will have to use this number on all subsequent self-assessments.

Keep a paper trail

There is nothing worse than the January rush, scrabbling to pull together records and evidence of your finances. It is at this point in the year that it pays to be fastidious and diligent all year round by keeping a water tight record of your incoming and outgoing expenses.

Getting into the practice of collecting business receipts and keeping a log of the relevant business transactions that accompany them is wise. It will prove to be the perfect antidote to the January rush and will make filling out your online self-assessment that little bit easier.

In terms of the type of thing you need to be keeping hold of for your records come this time of year, there really is no limit on what is important and pertinent. One missing statement can cause delays in submitting your self-assessment so it pays to be cautious. You can find a comprehensive guide to keeping documents for tax purposes on HMRC’s website here.

Don't Forget

Don’t leave it too late

This would be a good time to note that leaving your self-assessment too late is likely to cause you unnecessary delays and unwanted fines. Of course, the key to avoiding the hurry is in staying organised and planning well.

If you’re not so hot on forward planning then it’s at this point we should probably mention late penalties. If you miss the 31st January deadline then you’ll be presented with an immediate £100 fine. Not a great start to the year. Further to that, if you leave it another 90 days then you’ll start to accrue a £10 a day penalty on top of the £100 fine. So start early to avoid being cleaned out thanks to late submission!

Don’t be afraid to ask for help

If you want to avoid the flop sweat developing at 11:55pm on 31st January while you curse your lack of book-keeping skills, then it does pay to acquire the help of an accountant. Tax is, by its very nature, a complex beast and any good business person knows how to delegate. If you can keep on top of your records then a recommended accountant should be able to help you when it comes to completing your self-assessment.

There’s plenty to get your teeth into as a freelancer. From chasing clients to drumming up new business and getting your name recognised, there’s always a lot to think about. However, keeping on top of your financial records and making sure you’re fully registered with HMRC is one of the most important things you can do if you want to avoid the pitfalls of a stressed and rushed January.

What methods do you use to avoid the typical January rush to submit your self-assessment return? Are you super organised and early to the self-assessment party or do you take advantage of a good accountant to remove the pressure a bit? Let us know in the comments how you’ll be handling self-assessment stress this year!

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.

Summarising the Autumn Statement

Autumn Statement

Unless you’ve spent the last few days hiding in a cave (and if you have, we’re not judging you) you’ll have heard something about this year’s Autumn Statement by now. After drip feeding out key policies and figures for the last week, today was the day that George Osborne delivered his statement in full. Traditionally a modest update on the state of the economy, this year’s statement felt like a second Budget in all but name. It’s fair to say that Osborne delivered it with two eyes firmly on the looming General Election in May, its weighty spectre creeping ever closer. BBC Political Editor Nick Robinson termed Osborne’s headline announcements as “real electioneering” and he wasn’t wrong.

This statement was Osborne’s chance to cut Labour off at the pass, and his attempt to gazump one of their key election cornerstones, the so-called ‘Mansion Tax’, led to the announcement that stamp duty will be undergoing a complete overhaul from midnight tonight. Essentially, the changes will allow those buying cheaper properties to pay less and those purchasing more expensive homes to pay more (12% for the most expensive houses), equalling a tax cut of £800m, which will benefit 98% of homebuyers. As always, the statement felt more like a game of high stakes brinkmanship than anything else, but the vast majority of the outcomes were positive. Alongside that headline news, below you’ll find a brief summary of the key figures and policies Osborne announced today (courtesy of the New Statesman), as well as an analysis of how exactly the changes might impact contractors and freelancers:

Figures:

  • The economy is predicted to grow 3 per cent this year, up from the 2.7 per cent predicted in the budget.
  • Osborne will be borrowing £12.5bn more than forecast in the budget nine months ago.
  • The deficit is forecast to rise by more than expected over the next two years: £91.3bn this year and £75.9bn the following year.
  • The Office for Budget Responsibility says the deficit will pick up and fall faster than expected in following years, hitting a surplus of £23bn in 2020.

Policies:

  • A “roads revolution”: £15bn to be spent on new road funding in England. This includes a 1.8-mile tunnel to relieve congestion by Stonehenge.
  • National Insurance abolished for employers that take on apprentices aged under 25.
  • Income tax threshold to increase to £10,600.
  • A new Sovereign Wealth Fund for the north of England, so that the shale gas resources of the north are used to invest in its future, and a commitment to “northern powerhouse” plans.
  • Cutting £15bn from the Whitehall budget, and the government will spend £10bn less this year.
  • Banks will pay £4bn more in tax over the next five years.
  • Freezing universal credit, working-age benefit for two years, and ending unemployment benefits for migrants who have no prospect of work.
  • Libor fines will continue to support military and emergency service charities, including buying new helicopters for the Great Western and Kent, Sussex and Surrey Air Ambulance.
  • Extend cathedral renovation fund.
  • Refund VAT for search ambulance charities and for hospice charities.
  • Extending theatre tax break to orchestras.
  • Air Passenger Duty on flights for under-12s scrapped from next year, and from 2016, it will be scrapped for all under-16s.
  • Funding the NHS: a pledge to spend an extra £2bn a year on the NHS.
  • Pensions: completing the reforms already announced, bringing total savings of £1.3bn a year.
  • Repayment of the national debt incurred by fighting the First World War.
  • 25 per cent tax on profits generated by multinationals from economic activity here in the UK which they then artificially shift out of the country (the so-called ‘Google Tax).
  • No increase in petrol duty.
  • A new garden city in Bicester, Oxfordshire: up to 13,000 new homes to be built there.
  • Flood defences: £2.3bn investment.
  • Helping SMEs: a near £1bn boost for small businesses.
  • Reform business rates: a review into the structure of this controversial tax on small firms. Double small business rate relief for another year.
  • An overhaul of stamp duty, coming into place at midnight tonight: allowing those buying cheaper properties to pay less and those purchasing more expensive homes to pay more, equalling a tax cut of £800m, which will benefit 98 per cent of homebuyers.
  • A postgraduate loans scheme: government-provided loans offering funding of up to £10,000.

George Osborne

So, what does it mean for freelancers and contractors? In general, Osborne’s business focus is good news for small businesses. The planned restructuring of business rates will be welcomed warmly, and the continuation of a freeze on fuel duty has obvious benefits for microbusinesses across the country. However, this government’s continued myopia with regard to improving the UK’s digital infrastructure (the pressing need to improve the issue of poor broadband in rural areas for example) is still a cause for concern.

The crackdown on tax avoidance should also be applauded, but we second Andy Chamberlain of IPSE’s comment that “any changes to umbrella companies [should] provide real benefits to those using these structures and do not inadvertently affect the genuinely self-employed.” The good news on this front is that the government’s review of umbrella companies should weed out the unscrupulous practitioners (those, for example, who offset expenses against income so their taxable income is below the national minimum wage). As Rob Crossland, founder of Parasol, noted: “This could be the landmark moment that policymakers finally take the time to properly understand our industry, differentiating between unethical cowboys at one end of the spectrum and compliant, professional providers…at the other. Any umbrella company that fails to offer genuine employment rights or pay the minimum wage deserves to be placed under the spotlight. Such practices are unacceptable – they do a disservice to workers, our sector and the UK economy as a whole.” If you’re just starting out on your own and are thinking of going through an umbrella company, then make sure to do your research before hand. Get feedback and make sure they’re trustworthy and reputable. If you find a company with your best interests at heart rather than their own then you’ll be in a good place.

In addition to the above, the small companies’ rate of Corporation Tax remains unchanged at 20% (for companies with profits under £300,000), still making it an attractive proposition for sole traders who are considering incorporating their business. There were a few changes made to National Insurance too. For limited company contractors, the lower earnings limit will increase from £111 to £112 from 6th April 2015. For sole traders, Class 2 National Insurance contributions will increase from £2.75 to £2.80 from 6th April 2015. Class 4 National Insurance Contributions are currently payable at the rate of 9% if your annual profits exceed £7,956. From 6 April 2015 this will increase to £8,060. The upper earning limit (at which point the rate reduces to 2%) will increase to £42,385 from April 2015 from £41,865 in 2014/2015.

There issues raised in today’s statement are sure to rumble on over the coming weeks, and the fact remains that the Conservatives will have borrowed £219bn more in this parliament than they promised in 2010. What’s more, a lot of the issues the freelance and contractor community had hoped to see raised (rate cuts for work hubs, for example, or tax breaks for training) were neglected. The abolishment of National Insurance for employers who take on apprentices under the age of 25 is welcome news, as is the promise of government backed loans for post-graduate students, but with HMRC’s VAT MOSS issue ongoing there’s still much work to be done. Head on over to the BBC and the Guardian for a further breakdown, and check in with a few of our favourite Twitter users to see what their thoughts were as the statement was unveiled.

Tax and the modern freelancer

Tax Return

You’ve established yourself as a freelance contractor; you’ve networked, you’ve set up your home office, and you’ve completed your first contract with a new client. Now it’s time for the best bit – receiving your first cheque.

Don’t get too attached to that number, though. You need to make sure you factor in the tax you owe, now that your tax isn’t being collected on a pay-as-you-earn basis. When you’re starting out as a freelancer, it’s really important that you get your head around the realities of your tax situation in order to ensure that you don’t incur the penalties associated with paying the wrong amount of tax.

Read on to find out the kind of things that are worth considering when it comes to tax and the modern freelancer.

Consider: Registering with HMRC

Anyone who sets up as a freelancer or as self-employed has to register for business tax with HMRC. This will allow you to provide your business information and set up records for self-assessment and National Insurance on behalf of your business. Failure to do this will result in financial penalties.

You also need to arrange to pay Class 2 National Insurance contributions as soon as you start freelance work. If your profits rise above £7,956 you will be required to pay Class 4 National Insurance contributions.

Consider: Your business situation

Are you a sole trader? Are you registered as a Limited Company? Or are you self-employed? Each status has an impact on the way you pay tax and how much. For example, if you are registered as a limited company, a preference for freelancers, then you will be subject to Corporation Tax and will have to provide a Company Tax Return at the end of your company’s accounting period. If you are self-employed or a sole trader then you must fill out self-assessment tax returns and submit them by 31st October and ensure you pay any tax you owe by the annual tax deadline of 31st January.

Consider: Keeping financial records

It’s vital that you keep detailed records of your financial activity as a freelancer. It’s good practice in general but it is essential for tax purposes. There are no hard and fast rules on the format in which your records can be kept – you can do it either on paper or electronically. If you’re not naturally organised, then it’ll pay to become so because maintaining records is one of the most important things you can do.

The types of details you need to record include profit and loss information, bank statements, orders, expenses and relevant communication. The list is extensive so start as you mean to go on and keep a record of all of your business’ incomings and outgoings to help stay on top of your tax obligations.

Consider: Working with an accountant

Some of us are more comfortable with numbers than others, which is why hiring an accountant to help you with your tax obligation is a personal choice. If you’re not comfortable with the numerous regulations of freelancer tax then working with an accountant could help translate some of the more obscure rules into a language you understand and help to save you money. If you do choose to appoint an accountant, try to source recommendations from fellow freelancers.

Tax can be a daunting subject to broach when you are starting out as a freelancer, but burying your head in the sand is never a good option. Stay organised, keep on top of your records and if you’re unsure about anything, ask the people in the know!

Do you have any tips on keeping abreast of your tax situation? Let us know in the comments below.

Money

Wednesday 19th November sees the sixth annual National Freelancers Day; a day designed to put freelancing in the spotlight and to discuss the significant contribution independent professionals make toward the UK economy.

To celebrate a day just for freelancers, Kingsbridge are running a special competition on Twitter to show some love to freelancers across the UK.

Entering our competition is simple. All you need to do is Tweet us directly at @KingsbridgeProf and finish this sentence, ‘I love freelancing because…’ using the hashtag #NFD2014.

From the best answers we’ll pick five runners up, who’ll each win £20 in Amazon vouchers, and the winner will be the proud recipient of a brand new iPad mini 2.

Winners will be announced on Twitter on Friday 21st November. So get thinking, get creative and send us your best efforts to be in with a chance of winning!

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.

News Round Up: the latest contracting news from around the web

See below for our latest round up of contracting news from all over the internet.

Report finds majority of contractors want to work abroad

Energy Global reports this week that over three quarters of contractors surveyed by international recruiter Procorre said that they would like to work abroad. Higher take home pay and a better work-life balance were revealed as the main reasons why 77% contractors wish to relocate for work. However, high levels of red tape, such as acquiring work permits and security concerns over dangerous locations were cited as the main blocks to actually making the move.

Read more…

New network established to attract women to oil and gas industry

Senior figures in the oil and gas industry have formed a new network aimed at persuading a greater number of women to establish their careers in the industry. Herald Scotland writes that the new initiative, named the AXIS Network, aims to raise awareness of blocks to women entering the industry and to address how women can help solve the impending skills shortage currently threatening the industry.

Read more…

Rebrand for Professional Contractors Group

Freelancer membership organisation Professional Contractors Group (PCG) has announced it is rebranding in to the Association of Independent Professionals and Self-Employed (IPSE). Contractor Calculator reports that the move is intended broaden the scope of the organisation’s membership to include a greater number of self-employed and sole traders as part of their community.

Read more…

Report claims up to £1 trillion in oil and gas in Scotland’s water

The Scotsman reported this week that a study, conducted by oil and gas recruitment specialist oilandgaspeople.com, found that there could be up to a trillion pounds of oil and gas reserves still left in Scotland’s water. Industry experts have disputed this number, saying geological conditions make these reserved harder to extract. The question lingers as to whether oil and gas reserves could be an independent Scotland’s economic saviour.

Read more…

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.

October Contractor News Round Up

Your monthly round-up of October’s top contractor news.

The intention to hire contractors has doubled over the last year and trebled in the last two.

A study by the Recruitment and Employment Confederation has shown that clients’ intention to hire contractors had doubled over the last two years as well as 36% of them admitting that they planned to increase their use of contractors over the next three months. Not only that, but another third said they planned to increase their work with contractors over a 4-12 month timescale. Read more…

The number of British women freelancers has grown by a fifth over the last four years.

More great news in the growth of the contracting and freelance sector. The latest statistics show that there are 21% more female sole traders than there were back in 2008. Last year stats showed that 31% of all sole traders were women and Middlesex saw the highest rise (23%) in growth. Read more…

The outlook is positive for the construction industry.

In the UK construction industry, a number of limited companies are reporting they have increased orders and profit margins. These improvements in the market mean that firms are looking for ways to expand their business – whether that means adding new locations or branching out into new sectors like power and energy. Read more…

Contractor demand across Scotland is polarising.

IT, engineering and construction industries are surging well ahead of other contracting disciplines. All the signs of a contracting skills crisis are showing, as clients and recruiters are struggling to hire engineers and technicians. This news comes from the Bank of Scotland’s report on Jobs which highlights that growth is strong although the rate of growth slowed in the month of September, and in some sectors it dipped below the national average. Read more…

Contractors could be among the small businesses losing billions every year as a result of simple mistakes.

The study by Exact shows that as many as 1 in 5 small firms may have forgotten to invoice a client for goods or services more than once. This suggests that that some of these small companies could be hindering their success with inefficient internal processes. A quarter of these small businesses said they had forgotten to invoice for a job worth anything between £500 and £1000. Read more

Top Ten Freelancing Misconceptions

Making the decision to begin freelancing is definitely not one to be taken lightly. However, there are certainly a lot of misconceptions that come with the territory. We’ve taken ten of the most common presumptions and blasted them wide open, for a happy, successful freelancing career.

1 – Freelancing gives you a lot more free time

When you announce that you’ve made the decision to go freelance, you’ll undoubtedly be met with ‘supportive’ soon-to-be-ex colleagues gushing about the fact that ‘at least you won’t have any more early mornings!’.

Sadly, that’s not necessarily the case. Whilst some days you might be able to sneak in an extra half hour in bed, if you want to keep on top of things, you should be working the same office hours as everyone else. This is mainly so that clients can get hold of you, but it also gives you some structure to your day and keeps you in the habit of working 9 to 5.

2 – Being a freelancer makes you loads of money

We’ve yet to meet a freelancer who cashed in during their first few weeks of leaving their office job, so you will probably have to stick at it for a good while before you can afford that second home in the Caribbean.

Whilst some people do charge quite a high hourly rate, the reality is that you’re not working every hour of every day, so it’s a bit of a moot point. There’s also only a certain amount of work/clients that you can service on your own, so it’s important to take it just one step at a time.

 3 – Freelancing means you don’t have a boss

You may be glad to get rid of that stuffy CEO who is stifling your creative flow, but just because you’re a freelancer doesn’t mean that you don’t have anyone to report to.

Clients and others who are paying for your time are expecting a return on investment for their cash, so not doing the work you have agreed means that you’ll certainly have someone to answer to.

Not meeting deadlines is frustrating for those who are expecting a finished product, and it will also earn you a less than desirable reputation. Treat those who you are doing work for as if they are your boss, and it should help to keep you on track.

4 – Freelancing is much less stressful

Another regular misconception that a lot of people have is that freelancing is far less stressful than ‘regular’ employment. We hate to break it to you, but this one isn’t true either.

Your schedule hours are a lot more flexible, and you do have a certain amount of freedom, but these do not necessarily a walk in the park make.

Not only do you have to be constantly on the look out for new work, you also have to structure your own time, organise your workload and then find the time to do all that work… by yourself. There’s little delegation in the freelance world!

5 – Being a freelancer means you’re lonely

A life without colleagues isn’t the be all and end all, and freelancing doesn’t necessarily have to be a lonely profession.

Not having the constraints of office life means you can arrange to meet clients and other business contacts for lunch and coffee, getting you out of your homemade office.

Thanks to the wonders of social media, there are thousands of meet-ups around the country, so why not investigating what networking events and meet-ups are going on in your area? It’s a great way to meet new people, make friends and try and snare some new business!

6 – You have to take any work you can get

No-one wants to turn away business, but just because you’re a freelancer doesn’t mean that you have to accept that job for your Aunty Jackie’s sister’s brother’s new plumbing venture.

Don’t get us wrong, it’s lovely when people think you’re worthy enough of supporting their business, but just because you’re not based in a regular office job doesn’t mean that you have to take it.

We all like doing a couple of feel-good jobs for free to help out friends and family, but sticking to your professional network will probably mean more success on the new business side of things.

7 – Anyone can do it

Similar to the assumption that freelancing is easy, a lot of people think that it’s possible for anyone to be a freelancer. However, we’d have to disagree.

You need a variety of skills to be a freelancer, just as you need a variety of skill in any other job. Good time management and organisation skills are key, and you have to be confident in what you do and how well you’re doing it in order to win new business.

Freelancing isn’t just a job that you can fall back on, and if you don’t put in a considerable amount of effort, then it’s unlikely you will succeed.

8 – You don’t have to pay taxes

Getting yourself an accountant is one of the first things you should do when you become a freelancer, as registering as self-employed with HMRC can be confusing to say the least.

You need to take responsibility for both income and tax and National Insurance, which are calculated by reference to your profits as a stand-alone business.

Even beginning to think about tacking taxes by yourself can end up leaving you a bit frazzled, so we’d definitely recommend getting a professional in to help, at least while you’re finding your feet.

9 – Freelancing limits future career opportunities

A number of people worry about life after freelancing, but moving into self-employment doesn’t mean that you have to stay there for the rest of your life.

Being able to be successful as a freelancer shows a lot of skills, many of which will impress a potential future manager. Many freelancers also see job opportunities with people that they’ve worked for on a freelance basis, so often you don’t even have to go through the tedious application stage.

Depending on the length of your freelance career, you should have a number of happy clients who are willing to give you an excellent reference.

10 – Get as many clients as possible on your first day

Don’t worry if you haven’t filled your books on your first day. You need to make sure you’re dedicating time to nurturing your business, as well as finding new clients.

Taking a few hours to make your website look top notch, spending a little bit extra on the design for some business cards that are going to make you really memorable and writing up a business plan are all things that will benefit in the long run, and mean that you can continue to grow your business.