IR35 tax reforms put on hold

The introduction of controversial IR35 tax reforms has been delayed by a year as a result of the coronavirus pandemic.

The decision was announced along with a £330bn financial package for the UK economy that includes a business rate holiday and emergency loans for companies.

It is a delay that will be welcomed in most quarters. Even before the current situation there had been calls for the measures to be put on hold.

There had been growing concern from a number of sectors over the new tax regulations for self-employed workers and the risk of them damaging the economy.

According to some industry bodies the changes will lead to a third of self-employed contractors stopping freelancing over non-compliance fears.

Also known as ‘off-payroll’ the rules allow HMRC to tax sole traders as employees if it deems their working arrangement are akin to regular staff.

Figures show that the rule change will affect some 230,000 contractors in the UK. And sectors heavily reliant on freelancers have raised growing concerns over its impact.

The rules are intended to tighten non-compliance with off-payroll working regulations. They shift responsibility for determining the tax status of contractors from the workers to the end users – in this case, private sector medium and large organisations and charities.

Announcing the delay, the Chief Secretary to the Treasury Steve Barclay said: “The government is postponing the reforms to the off-payroll working rules, IR35, from 6 April 2020 to 6 April 2021.”

He said the suspension was in “response to the ongoing spread of COVID-19 to help businesses and individuals,” but insisted it will still go ahead as planned the following year.”

However, he stressed: “This is a deferral, not a cancellation, and the government remains committed to reintroducing this policy to ensure people working like employees but through their own limited company, pay broadly the same tax as those employed directly.”

And that is the important thing to take from the announcement – these reforms are still planned to go-ahead.

And though it has moved down the priority list, given everything else that is happening at the moment, businesses that will be affected still need to plan for next April.

To discuss how the rule changes will affect you please contact me on 01772 430000

Using finance to balance the books

A new report has revealed that balancing the books is the number one use of small business credit as figures show late payments have now topped the £20bn mark.

“Managing cashflow” is the most common use of external finance, according to the latest Federation of Small Businesses’ Small Business Index.

Four out of ten UK small businesses that made successful finance applications in the last quarter used the cash for that purpose rather than investing in their firms.

Less than one in four used finance to update equipment with just 16 per cent using the funds to expand their business.

Earlier research has revealed that the UK late payment crisis is leading to the closure of 50,000 small businesses a year at a cost of £2.5bn to the economy.

And the latest figures from Pay.UK show that the balance of outstanding late payments almost doubled to £23.4bn in 2019.

And that is despite continual and vocal campaigning in recent years to end late payments and “supply chain bullying” and to create a new more positive payments culture.

As FSB National Chairman Mike Cherry says it is troubling that so many external finance applications are driven by concerns over cashflow.

He says: “This really shouldn’t be the case – you wouldn’t dream of doing your weekly shop and telling the cashier that you’ll pay for it in 100 days, but corporations take this approach to small businesses in droves.

“The uncertainties facing big businesses over the past few years will have no doubt increased the temptation to use small firms as free credit lines. We need to put that attitude to bed, for good.”

He adds: “We fought hard for a package of late payment reforms under the last administration. Frustratingly, it was put on ice due to the general election. We’ll be working closely with the new small business commissioner to resurrect it.”

There is also more work to be done to make smaller businesses aware of all the finance options available to them.

It’s also worth looking once again at ways businesses can avoid bad debt problems. Here are some top tips. We’ve published them before but they are worth returning to:

  1. Know your client. When you take on a new customer check them out, get to know their financial situation, and their track record of payment. If they’ve left a previous supplier find out why. Take your time and be thorough.
    The Small Business and Enterprise Act 2015 and the Payment Practices and Performance Regulations were launched in April 2017. Larger companies are now required to publish twice-yearly the average time they take to pay invoices and the percentage not paid in the agreed terms. Suppliers can use the Payment Practices Reporting website (Check-payment-practices.service.gov.uk/export), to learn more about the reality of engaging in business with a larger firm.
  2. Get a signature. It is important to have proper Terms of Business in place. They should deal with payment terms in clear and precise terms – and set out your rights of remedy if payment is defaulted. Make sure your customers know your terms and get a signed acknowledgment from them that they have read and understood them fully. It pays to get help and advice when you are drafting them to make sure that your terms are enforceable.
  3. Chase debt early. Act with speed if you suspect a customer is in trouble. It can make all the difference in recovering what’s owed to you. Even if just one invoice is overdue consider if it’s in your company’s best interests to continue to work for them. You do not want to rack up the debt.
  4. Put procedures in place to recover bad debt. It’s vital that you have processes in place to chase what is owed to you. Some SMEs outsource this and it can be very effective for smaller businesses, putting distance between them and their client. A systems-based process is vital to this, and experts will chase unpaid debts all the way to court action and enforcement if needed. It’s important to have this process in place because poor cash flow can threaten the future of your company.
  5. Consider court of insolvency procedures. These are the formal steps you can take if all else has failed to get what you are owed. Again, look which is the best route to take – and one that gives you a realistic prospect of getting your money. If you get a successful judgement you still need to enforce it.

To discuss any issues raised by this article please contact me on 01772 430000

IR35 – the concern grows

New Chancellor Rishi Sunak has been urged to suspend the looming IR35 new tax regulations for self-employed workers or risk damaging the economy.

According to some industry bodies the change will lead to a third of self-employed contractors stopping freelancing over non-compliance fears.

Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self-Employed (IPSE), told the City AM newspaper that the new regulations would “have disastrous consequences for the wider economy”.

He said: “The changes to IR35 due in April are a clear and imminent danger not only to contractors, but also the businesses that engage them and the wider economy.”

The disquiet over the April changes has also seen protests by hundreds of freelance workers outside Parliament.

Also known as ‘off-payroll’ the rules allow HMRC to tax sole traders as employees if it deems their working arrangement are akin to regular staff.

Figures show that the rule change will affect some 230,000 contractors in the UK. And sectors heavily reliant on freelancers have raised growing concerns over its impact.

Tej Parikh, chief economist at the Institute of Directors, told the Financial Times newspaper: “Many firms remain unprepared for the legislation, given its complexity.”

The recruitment industry is also concerned. The Recruitment and Employment Federation has called for delay until 2021 and for the Chancellor to “pause and think again on IR35 changes”.

Chief executive Neil Carberry said: “The extension of IR35 into the private sector, as it currently stands, will punish ethical businesses, harm workers and provide the environment for non-compliance to thrive.”

As part of a review into changes to the operation of the off-payroll working rules, announced earlier this yar, the taxman has made an announcement to give business more time to prepare.

Earlier this month HMRC said changes to the operation of the off-payroll working rules will only apply to payments made for services provided on or after April 6 2020.

The announcement came ahead of the publication of the review. In a statement HMRC said: “A common issue raised over the course of the review has been businesses’ concerns over what payments the rules apply to and from when.

“The government has listened and taken action early to give businesses certainty and more time to prepare to ensure the smooth and successful implementation of the reforms that come into force in April.

“The rules, also known as IR35, will now apply only to payments made for services provided on or after April 6 2020.

“Previously, the rules would have applied to any payments made on or after 6 April 2020, regardless of when the services were carried out.

“It means organisations will only need to determine whether the rules apply for contracts they plan to continue beyond 6 April 2020, supporting businesses as they prepare.”

It added: “The off-payroll working rules have been in place since 2000. They are designed to make sure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions as those who are employed directly.”

The rules are intended to tighten non-compliance with off-payroll working regulations. They shift responsibility for determining the tax status of contractors from the workers to the end users – in this case, private sector medium and large organisations and charities.

HMRC says that the purpose of the review being carried out is “to address any concerns from businesses and affected individuals about how the rule changes will be implemented”.

It will also assess whether any additional support is needed to ensure that the self-employed, who are not in scope of the rules, are not impacted.

If you have any questions about your status, please contact me on 01772 430000

Will the Budget be good for your business?

The countdown is on to March’s Budget – the first since Boris Johnson’s general election victory – and the big question is what it will mean for business in the post-Brexit world?

New Chancellor Rishi Sunak has already indicated that when he stands up to deliver his speech it will be very much focused on the Conservative’s campaign messages of levelling up the economy and “unleashing the country’s potential”.

To that end we may see some headline making pronouncements on infrastructure projects and regional investment – which may be good news here in the North West of England.

Any positive announcements on improving east-west communication links – particularly on Northern Powerhouse Rail – would be a massive boost for the region’s economy.

Small business owners will also be looking with interest to see what measures it will contain for them. And which of the Tory’s manifesto pledges are turned into action.

During the campaign the Conservatives committed to aiding small business through a range of measures, including helping firms with spiralling labour costs.

The party also said it would end the late payment crisis by introducing a reform package put on pause by the election. That would be widely welcomed by small business.

Hard-pressed businesses operating in the high street will be looking for movement on business rates – including a “fundamental” review of the current system at the earliest opportunity.

The Tories committed themselves to no increases in the rates of income tax or national insurance. They have said VAT will also remain at the current rate and that is likely to remain the case.

When it comes to corporation tax the possibility of a fall is remote. It is more likely to stay at 19 per cent after plans to cut it to 17 per cent were put on hold shortly after Boris Johnson’s victory.

There may be some announcements in respect to business property relief and entrepreneur’s relief. The Tories’ manifesto promised to “review and reform” the latter.

One controversial move being predicted by some commentators surrounds pension tax relief – which has been a core incentive in encouraging people to save for their retirement.

There has been speculation that the Chancellor is looking to strip higher earners of their 40 per tax relief, equalising everybody at 20 per cent or possibly levelling rates at 30 per cent.

That would see an £80,000 earner putting £15,000 a year into their pension losing £3,000 if the rate drops to 20 per cent. Analysts say the move would raise £10bn a year for the Treasury.

There have also been reports that the freeze on fuel duty could end – with the first hike in a decade. Again, that would be a controversial change in policy from a Tory government.

To discuss any aspect of this article and any tax issues please contact me on 01772 430000

Sorry, a hamster ate my post!

Who says that the taxman hasn’t got a sense of humour? In the run up to the January 31 self-assessment deadline HMRC has decided to share with us the strangest excuses and expense claims received over the past decade.

And the list of bizarre excuses for missing the deadline, coupled with what can only be described as questionable expenses claims, certainly raised a smile in the WNJ office.

HMRC’s top 10 most bizarre excuses and questionable expenses claims of the last decade, in reverse order, are:

• caravan rental for the Easter weekend
• I was up a mountain in Wales, and couldn’t find a post box or get an internet signal
• my dog ate the post … again
• claiming £4.50 for sausage and chips meal expenses for 250 days
• my hamster ate my post
• I’ve been cruising round the world in my yacht, and only picking up post when I’m on dry land
• a music subscription so I can listen to music while I work
• pet food for a Shih Tzu ‘guard dog’
• a DJ was too busy with a party lifestyle – spinning the deck….in a bowls club
• my mother-in-law is a witch and put a curse on me

Needless to say, all the excuses and expenses listed above were unsuccessful.

Angela MacDonald, HMRC Director General of Customer Services, says: “Each year, we try to make it as easy and simple as possible for our customers to complete their tax returns and the majority make the effort to do theirs’ right and on time.

“But we still come across some unusual excuses and expenses, which range from problems with a mother-in-law to yachts set on fire.

“We always offer help to those who have a genuine excuse for not submitting their return on time. It is unfair to the majority of honest taxpayers when others make bogus claims.”

The penalties for late tax returns are:

• an initial £100 fixed penalty, which applies even if there is no tax to pay, or if the tax due is paid on time
• after three months, additional daily penalties of £10 per day may be charged, up to a maximum of £900
• after six months, a further penalty of five per cent of the tax due or £300, whichever is greater
• after 12 months, another five per cent or £300 charge, whichever is greater

There are also additional penalties for paying late of five per cent of the tax unpaid at 30 days, six months and 12 months. Interest will be charged on all late payments.

To discuss any tax issues you may have, please contact me on 01772 430000

A growing appetite for private equity

One of the business buzzwords of 2019 was ‘uncertainty’ and when coupled with Brexit it was little wonder there was a sense of trepidation when it came to dealmaking.

However, despite that uncertain feeling, it seems that businesses in this part of the UK didn’t let the political landscape deter them when it came to looking for and seizing investment opportunities.

Latest figures from the Centre for Management Buyout Research (CMBOR) show that private equity deals in the North of England actually rose by 17 per cent in 2019 with 46 completed transactions, compared with 39 in 2018.

The research also showed that the North is climbing the ranks when compared to its regional counterparts, accounting for one quarter (46) of total UK deals (186) this year, after having contributed just 18 per cent in 2018.

The fact that the volume of Northern deals is making its way up towards the numbers seen in the south has to be an encouraging sign.

However, it has to be said that many PE houses are still failing to fully explore the promise that exist outside major cities such as Manchester and Leeds.

Across the whole of the North there are strong, innovative businesses looking for the support and the capital to take them to the next level. And we are not just talking about the tech sector.

They are here in all industries from manufacturing to marketing. The key is putting them together with the right investors.

PE houses have their part to play in this, they need to cast their nets wider, get out of the big cities and look at what is happening in parts of the world like Lancashire and Cumbria and see the opportunities out there.

Given the political picture is now an awful lot clearer after December’s general election and the UK is on its path towards Brexit, it will be very interesting to see if 2020 brings a surge of private equity deals in the North as the future becomes more certain.

The appetite for management buyouts has remained pretty constant throughout recent times and in 2019 the North West saw a number of high-profile deals. Again, there is no reason why 2020 should be any different.

And whatever the wider political or economic climate the basics to a successful MBO remain the same.

Having a quality management team in place, with an understanding of the key issues facing the business remain vital to attracting equity investment. Planning is also crucial.

To discuss any issues arising from this article please contact me on 01772 430000.

Off-payroll rules under the microscope

The government has announced a review of the extension of the off-payroll taxation rules into the private sector. However, it may be too late to prevent their implementation in April, despite growing disquiet.

The rules, known as IR35, are intended to tighten non-compliance with off-payroll working regulations.

They shift responsibility for determining the tax status of contractors from the workers to the end users – in this case, private sector medium and large organisations and charities.

Also known as ‘off-payroll’ the rules allow HMRC to tax sole traders as employees if it deems their working arrangement are akin to regular staff.

In April 2017, responsibility for deciding whether IR35 should apply to self-employed workers shifted from contractor to employer in the public sector.

From April the same change is set to take effect in the private sector. It is a move that has already had an impact.

Some large companies affected by the extension of the off-payroll IR35 rules have started to curtail their use of contractors working through personal service companies (PSCs)

And a survey at the end of last year revealed that as many as 20 per cent of UK businesses are axing contractors completely in order to ensure they are fully tax compliant ahead of the IR35 changes.

The government review follows growing concern over the move among business organisations and politicians.

The taxman says that the purpose of the review is “to address any concerns from businesses and affected individuals about how the rule changes will be implemented”.

There is very little chance that the roll-out faces cancellation. In its statement announcing the move HMRC said that the exercise will determine if any further steps can be taken to “ensure the smooth and successful implementation of the reforms.”

It will also assess whether any additional support is needed to ensure that the self-employed, who are not in scope of the rules, are not impacted.

Uncertainty around the rules has been compounded by several Tax Tribunal cases both won and lost by HMRC.

Groups representing those working through personal service companies have lobbied the government that the implementation of the extension poses serious financial risks to those affected.

One key contentious issue is HMRC’s online employment status test tool. The CEST tool (check employment status for tax) has been widely criticised as lacking nuance and being skewed towards employment status rather than self-employed.

In 15 per cent of cases, the tool was unable to provide a determination. In December, HMRC released an update to the tool, including a raft of new and updated questions, with feedback invited from over 300 stakeholders.

The government review will be carried out until mid-February, and will include meetings with stakeholder groups of contractors and businesses.

Analysis of the impact of the initial roll-out to the public sector will be included, as well an evaluation of the revised CEST tool.

With only weeks before the new tax year, this intervention may create more uncertainty for those affected by the off-payroll reforms.

If you have any questions about your status, please contact me on 01772 430000

A worrying tax gap

The tax policies of the main political parties came under the microscope during the general election and were the subject of wide and vigorous debate.

However, while the pundits argued over the fine print it appears that most people still find the whole subject taxing, to say the least.

More than 2,000 people were asked a series of tax questions and awarded a knowledge score based on their correct responses.

Worryingly, the results revealed that the average person in the UK scored only 10.6 out of a possible 30, while almost half of people scored 10 or less.

Age had a significant impact on performance, with 18-24-year-olds achieving the lowest average score of 6.9. Results steadily increased with age, with over 55s achieving the highest average score of 12.3.

People performed strongly when asked whether additional sources of income were taxable.

A high percentage knew that tax is paid on income (over a threshold) from letting out a second property to holidaymakers and advertising income made by an influencer on Instagram.

The majority also knew that no tax was due on low income from items sold on eBay and not at all on lottery winnings.

However, people struggled when asked about issues such as tax codes and rates. Less than a fifth knew what the top rate of income tax was when quizzed for the survey, which was carried out for professional services group Deloitte.

Almost half were unable to identify that a tax code of 1250L corresponds to an annual allowance of £12,500.

Gift Aid was another area where people struggled. Nearly a third of those quizzed were unaware that a Gift Aid confirmation enables a charity to claim 25p back in tax for every £1 that is donated.

Just 16 per cent of those earning £50,000 or more understood that they could claim back a further 25p in tax for every £1 donated to a charity.

So is there an argument for more education – particularly in the classroom – to give young people more of a chance to understand a subject that will be important to them throughout their adult life?

There certainly seems to be an appetite. According to the survey, 76 per cent of those who took part said that there should be more tax education in schools.

This argument for more education in the classroom is compelling. Helping young people understand more about their money and how to manage it should be an essential part of lessons.

Understanding tax can only make life easier. Now really is the time to tackle the ‘Tax Education Gap’.

Tory majority: what it may mean for business and tax

The results are in and Boris Johnson and the Conservatives have emerged from the general election with a substantial majority.

Political commentators are predicting a Budget from the new government early next year and small business owners will be looking with interest to see what measures it will contain for them. And which of its manifesto pledges are turned into action.

During the campaign the Conservatives committed to helping small business through a range of measures, including helping firms with spiralling labour costs and expected Living Wage rises by increasing the Employment Allowance from £3,000 to £4,000.

The party also said it would end the late payment crisis by introducing a reform package put on pause by the election.

The Tories also spoke of extending and expanding existing business rates discounts, while launching a review aimed at reducing the financial burden of rates.

Tougher new anti-tax avoidance and evasion legislation may also now been on the cards along with a review of the support given to the self-employed.

The Tories have committed themselves to no increases in the rates of income tax or national insurance. They have said VAT will also remain at the current rate.

They have also pledged to increase the threshold at which national insurance starts to be payable to £9,500 from April 2020, with the aim of increasing this to £12,500.

And they spoke of a one-year national insurance holiday for firms hiring ex-service personnel.

When it comes to corporation tax, as previously announced by Prime Minister Johnson, the planned cuts to corporation tax next April, from 19 per cent to 17 per cent, will be put on hold.

A rise in the amount of tax relief provided to companies undertaking R&D was also on the party’s agenda, with a proposal to increase the R&D tax credit rate for large companies from 12 per cent to 13 per cent.

While no plans were unveiled for any significant changes to Inheritance Tax and when it came to Capital Gains the Conservatives proposed to review and reform Entrepreneurs’ Relief.

Other changes we may see include the introduction of a stamp duty land tax surcharge of three per cent for non-residents purchasing UK residential property.

To discuss any points raised in this article please contact me on 01772 430000.

Planning for the future

Lancashire-headquartered planning consultancy De Pol Associates continues to build momentum as it works with its clients to deliver development schemes across the county and beyond.

The Farrington-based consultancy has recently submitted plans for two major housing schemes in Wyre as the resurgence in residential property grows in this part of the world.

Investment in resources, focusing on growth sectors, and raising the firm’s profile within Lancashire are all now paying dividends for the planning practice, which is actively recruiting senior staff.

Established in 1986, De Pol works in all sectors – residential, commercial, industrial, retail, leisure and rural – and it counts among its growing client base Pure Leisure, Rowland Homes, Northern Trust, Create Developments, Iceland, and Recycling Lives.

The practice has submitted an outline planning application for a 16-hectare site in Great Eccleston.

The application, on behalf of land promoter Metacre, involves provision for a new school, medical centre, community hall, convenience store, public open space, employment area and up to 350 new homes.

The site forms part of a wider 33.7-hectare site allocated in the Wyre Local Plan for a residential-led mixed-use development.

De Pol Associates has also submitted an outline application for 330 homes in Poulton-le-Fylde. Drawn up on behalf of landowner Blackpool Council, the site at Woodhouse Farm lies to the south of Blackpool Road.

The greenfield plot was released from the Green Belt by the Wyre Local Plan in February 2019.

Managing director Alexis De Pol says the two applications highlight the level of planning expertise and experience that the practice brings to projects. Consultation with local communities is also an important part of its approach.

Alexis says: “We have a track record which provides the reassurance that clients need, along with a hugely personable team with more than 82 years’ experience between us.

“Our aim in all the work we do is to give the advice that is really making a difference to our clients’ businesses, whatever their sector or wherever their scheme is based, and that’s what will continue to drive us.”

He adds: “The team is expanding as we deal with higher volume from existing clients and as we grow.

“At present we are looking for people at senior planner level to join us. We offer flexible and part-time working hours.”

Any senior planners interested in a career with De Pol Associates can contact Alexis@depol.co.uk for more information