tax | UK Business Advisors

HMRC taxing Contractors deemed as Employees (IR35)

January 9, 2020 By Edward Tudor

IR35 in the Public Sector

How could this affect your business?

Introduction

IR35 is a piece of legislation that allows HMRC to collect additional payment where a contractor is an employee in all but name.

If a contractor is operating through an intermediary, such as a limited company, and but for that intermediary they would be an employee of their client, IR35 applies.

New rules for IR35 will apply from the 1^st of April 2020 in the Private Sector as they have been applied in the Public Sector for the last two years.

Each business needs to assess the Risk and implications of these new rules and make the necessary changes to procedures before early April 2020.

Who will be affected in the Private Sector?

Medium and Large Companies will be the initial target of the IR35 rules and they will follow the rules that now apply in the Public Sector.

Small businesses do not have a definition for IR35 but the definition will probably follow the criteria in Companies Act 2006.

How will IR35 affect your Business?

Changes will affect businesses who engage Personal Service Companies (PSCs) to provide workers. This will include intermediaries including Private Limited Companies, Limited Liability Partnerships and Partnerships. The new rules require the private sector organisation to assess the intermediary to see if the IR35 rules apply to the service contracts they enter into with a PSC.

Where IR35 applies the employer must apply PAYE and NIC deductions to the payment for the worker’s services.

This means that the worker is a deemed employee for tax purposes. This also means that you must also account for Employer’s National Insurance and possibly the Apprenticeship Levy.

These changes will almost certainly increase the operating costs of your business:

As a result of being the Fee payer
Because intermediaries will increase their charges to mitigate the increases in tax and National Insurance.

There is an outstanding consultation on employment status which has had no response from government yet.

We suspect that HMRC will expect businesses to use the CEST test to make the assessment.

CEST is short for Check Employment Status for Tax.

It’s a digital tool designed by HMRC to help public authorities decide if a worker falls inside or outside the scope of IR35

When to use the tool

Use the tool to check employment status when:

you are hiring a worker directly
you or the intermediary you work through accepts a new engagement with a client
you are a public authority or limited company hiring a worker and paying for the services of a worker who works through an intermediary
you are an agency or other third party supplying a worker who works for a public authority through an intermediary
there has been a change to an existing contract or service agreement
your worker disagrees with a determination you have provided them

Choose answers that best match the usual working practices of the engagement.

Before you start

You will need to know:

details of the contract
the worker’s responsibilities
who decides what work needs doing
who decides when, where and how the work is done
how the worker will be paid
if the engagement includes any corporate benefits or reimbursement for expenses

If you do not know who the worker is, the tool will not ask questions about the worker’s circumstances. You will still get a determination that HMRC will stand by.

Preparing for IR35 in the Private Sector

The new legislation comes into force in April 2020 which is only a few months away so you should consider the impact on your business and how it will affect your payroll and PAYE compliance procedures.

To start, establish:

The Personal Service Companies you use.
Where you use them I your business.
How you use them
Their importance to the functioning of the parts of your business.
The current contracts you have in place and their Terms of Service.

Once you have this information you should review the contracts to ensure that you comply with IR35.

It is critical that you know which parts of your business are affected by PSC’s as this will affect your business risk assessment.

You may need to renegotiate the contact with the PSC or have to employ a worker to take over the work.

These reforms could increase your operating costs considerably and have an affect on the way your business will operate.

The earlier you start this IR35 assessment the more time you will have to ameliorate the affects of IR35.

How can we help?

UK Business Advisors can work with you and your key suppliers to identify any risks in your business. We can help you assess the financial impact on your business and help you change your operational procedures where necessary to minimise the impact of the new legislation. This will provide a basis for compliance with future changes.

If you need help preparing for IR35 within your business, get in touch with Edward.tudor@hcbusinessadvisors.co.uk to discuss your requirements.

My business is driven by technology – can I claim R&D Tax Credits? My business is driven by technology – can I claim R&D Tax Credits?

March 6, 2017 By Linda Eziquiel

Maybe you are creating apps or adapting existing software for cloud delivery (SaaS), or creating tools to make sense of big data, or using CNC machines to mill complex parts, or developing wearable tech or designing new medical devices …… the list is endless.

Whatever your angle you will know that technology and what you can do with it, is constantly evolving. But what you may not know is that the skills and knowledge you are investing into technology could mean you can claim generous Government support.

The questions to ask are:

Do I design innovative products or processes?
Do I employ technical staff or technical subcontractors?
Is there some uncertainty in how to go about getting the outcomes I’m seeking?
Do I spend staff time and money on my designs and developments?

If you do, then you really should check your R&D tax credit eligibility. It’s quite easy to find out, quick to do and will cost you nothing.

How do I check my eligibility for R&D tax credits?

Actually it’s very easy…. most R&D tax credit specialists don’t make any charge for an initial assessment – and it can be done in as little as 10 minutes over the phone. All you have to do is call one!

What happens next?

You will want to know how much your claim is worth and again, most good specialists will make no charge to advise you on the potential cash benefit.

They earn their fee from providing you with support once you have decided to go ahead. They’ll help you to make the case for your claim to maximise the total value. Since the fees you pay for assistance are commonly contingent on success, it’s a low risk process.

What does it cost?

A competitive rate is around 18% of the successful claim value, although some R&D tax credit specialists charge much more… often because they use their internal accountant which adds to the cost. Usually, you can ask your own trusted accountant to submit the R&D claim for you and most accountants actually prefer that.

Any benefits you get go straight onto the bottom line, so they are a welcome ‘windfall’ especially considering that you did not know you were eligible in the first place.

Checking whether you can claim is quick, painless and costs nothing.

Interested in finding our more about R&D Tax Credits for your business? Then email Linda Eziquiel at linda.eziquiel@lgbusinessadvisors.co.uk or call her on 020 8856 9835 for a ‘no obligation’ chat about your eligibility.

Why a patent may be more valuable than you think…..

December 2, 2014 By Mushroom Internet

Patents for your innovation, very expensive to many small businesses.

“The problem with having a patent is that if I challenge a multinational in court for breaching my Intellectual Property, then it will cost me a bomb in legal fees. And of course ‘Big Co’ can afford more expensive lawyers than I can afford“.
It is a fairly common comment from Business Owners and Innovators. And of course it is even more expensive if you have cover in Europe, or World Wide.

Of course, Company owned patents are seen as assets when it comes to Company valuations, but this may not be easily reconcilable during day to day business.

The goalposts changed on 1st April 2013, and it is amazing how many innovators and small Business Owners do not know about the Patent Box. Whilst nothing changes regarding the ‘vulnerability of Big Co to try to bypass your patent’, matters have changed regarding the incentives for doing so.

Profits from items with a Patent are now subject to a lower rate of Corporation tax.

So, let us say that 50% of your profits are derived from items with Patent protection, then tax related to this is reduced to 10%. Prior to April 2013, all profits associated to Patents were subject to the higher Corporation Tax rate.

Of course you need to work out the sums in your financial projections to see if it is worthwhile.

If you need help with weighing up the pros and cons, call us, or drop us an e mail. Discretion guaranteed.

0333 444 8522
ian.thomas@sgba.co.uk
peter.johns@sgba.co.uk
bob.francis@sgba.co.uk

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