Working off-payroll


From 6 April 2020, a change to the off-payroll (IR35) rules is expected. Draft legislation has already been published and further HMRC guidance is expected.

The new rules will affect you if you work via your own personal service company (PSC), and off-payroll workers should be aware that their clients are likely to investigate the profile of the contractor workforce more closely than before, as part of a review of compliance, strategy and spend. But the changes could be felt more widely: anyone supplying personal services via an ‘intermediary’ could be within scope of the IR35 rules. An intermediary can be an individual, a partnership, an unincorporated association or a company.

Contracts caught by the rules

The change could impact you if you supply personal services to large and medium organisations in the private and voluntary sector. If the client is a ‘small’ business, the rules are unchanged. A ‘small’ company meets two of these criteria: its annual turnover is not more than £10.2 million: it has not more than £5.1 million on its balance sheet: it has 50 or fewer employees. If you contract with an unincorporated organisation, the new rules only apply if its annual turnover is more than £10.2 million.

Who decides?

Under the new rules, responsibility for making the decision as to whether IR35 rules apply passes to the business you contract for. The key question is whether, if your services were provided directly to that business, you would then be regarded as an employee. You may be used to this if you undertake contracts in the public sector, where similar provisions already exist. If you or your client use CEST, HMRC’s online check employment status for tax tool, HMRC undertakes to stand by the results if information provided is accurate, and given in good faith. At present, however, HMRC considers CEST is unable to determine status in 15% of cases, and many commentators consider the failure rate much higher. HMRC is working to improve CEST with the forthcoming changes in mind.

In future, your client will have to provide you with the reasons for its status decision in a ‘Status Determination Statement’ (SDS). If you disagree, you can challenge the status determination with the business, and it should respond within 45 days, either withdrawing or upholding the decision, again supplying reasons.

Implications

Significant tax implications arise. If IR35 applies, the business or agency paying you will calculate a ‘deemed payment’ based on the fees charged by your PSC. Broadly, this means you are taxed like an employee, receiving payment after deduction of PAYE and employee National Insurance Contributions (NICs). If you operate via a PSC, the PSC will receive the net amount, which you can then receive without further payment of PAYE or NICs. The potential tax advantages of working under such a contract, especially for PSCs, are much reduced.

Review your position

This is a good time to take stock of your options. Are clients likely to query your employment status? Should you consider restructured work arrangements, or renegotiating fees? If working via a PSC, is it still the best business model? With clients checking that contracts comply with the new rules, employment status for contractors is likely to come under increasing scrutiny. Please contact us for specific advice on your options and the tax consequences.

Welsh government publishes Draft Budget


The Welsh government has published its Draft Budget, setting out revenue raising and capital spending plans for 2020/21.

The Draft Budget confirms no changes are proposed to Welsh income tax rates, or Land Transaction Tax rates and bands. The Draft Welsh spending plans for the longer term will depend on the next UK Budget and comprehensive spending review scheduled for 2020.

Internet link: GOV.WALES Budget

Call for review of High Income Child Benefit Charge


The Low Incomes Tax Reform Group (LITRG) is calling on the government to address issues with the High Income Child Benefit Charge (HICBC).

The HICBC is designed to claw back child benefit where the claimant or their partner earns in excess of £50,000. According to LITRG some households think making a child benefit claim is not worthwhile if it will be clawed back in full via the tax charge, with the added administrative burden of needing to complete a tax return. LITRG warns that this trend will have unforeseen consequences for the lower-earning partner and for the child.

LITRG is calling for the Government to reconsider the £50,000 threshold at which the HICBC  starts to apply, if it is retained in its current form.

Victoria Todd, Head of LITRG Team, said:

‘Despite its name, the high income child benefit charge can have consequences for the lower earner in a couple even though the liability to the tax charge falls to the higher earner. This is because where the tax charge applies a household may decide, quite understandably, not to claim child benefit at all. But this means that the lower earning individual may miss out on National Insurance credits, due for the first 12 years, which help to build entitlement towards a state pension.

‘The Government’s solution is to allow couples to claim child benefit regardless and, if they wish to avoid the charge, they can choose not to receive payments – but this is not widely known and to many, claiming and receiving a benefit are the same thing.

‘This is a problem which is affecting an increasing number of families because the £50,000 threshold has remained static since the charge was introduced in 2013. At that time, the HICBC was intended to affect only the top 10 percent of earners, but each year the proportion of those affected increases as wages rise. LITRG recommends that the next Government considers uprating the £50,000 threshold, just like some other tax thresholds and allowances, to minimise the adverse consequences for those families it affects and ensure the policy works in the way originally intended.’

Please contact us for help and advice on HICBC.

Internet link: LITRG press release

Guidance on Structures and Buildings Allowance


The latest HMRC Agent Update includes guidance on the Structures and Buildings Allowance (SBA). This capital allowance is designed to provide tax relief for businesses and to support investment in constructing new structures and buildings and improving existing ones.

The SBA relieves the construction costs for new structures and buildings used for qualifying purposes and the improvement of existing structures and buildings, including the cost of converting existing premises for use in a qualifying activity.

The SBA is available at a flat rate of 2% a year, for up to 50 years, on the eligible costs of building, converting or renovating non-residential structures or buildings that have been brought into qualifying use. Certain costs are specifically excluded such as those costs that qualify for plant and machinery allowances, planning permission, landscaping, cost of land and integral features and fixtures.

For a claim to be valid the date of the earliest contract for construction of the structure or building must be on or after 29 October 2018. The first use of the structure or building must be non-residential.

The Agent Update confirms claims for the allowance must be made on a tax return. However for tax returns up to April 2020 there is no specific box for SBA claims. HMRC advise affected taxpayers to follow the guidance contained in the notes to the returns.

Internet link: GOV.UK Agent Update 75