Former Lord Chancellor Robert Buckland has urged the Government to abandon the controversial IR35 reforms in an attempt to win back public support ahead of the upcoming general election.

Buckland, along with several other influential Conservative party members, has expressed concerns over the tax legislation’s detrimental effects on the contracting industry and the wider economy.

In an article published on the Conservative Home platform, Buckland described IR35 as a “Frankenstein’s monster”.

He said it was a rule which, despite its noble intention to curb tax avoidance, has become burdensome.

He believes that it threatens dynamism, entrepreneurship, jobs, and growth and should, therefore, be repealed or reformed further.

IR35 controversy

Buckland argues that IR35 discourages independent professionals from taking on projects and curtails their ability to negotiate terms and work arrangements freely.

The legislation also places a substantial administrative and financial burden on businesses engaging contractors.

The ambiguity of IR35 makes it difficult for companies to make accurate employment status determinations.

The rise of IR35 avoidance schemes

The introduction of the off-payroll rules has also led to a proliferation of non-compliant tax avoidance schemes.

Experts say that the Government must act swiftly to halt these operations, which result in massive tax avoidance and go against the initial objectives of IR35.

The ongoing debate around IR35 highlights the need for balance in tax legislation — a balance that protects the rights of contractors enables businesses to thrive and ensures tax fairness.

As we are well aware, one of the key issues surrounding IR35 is the ambiguity inherent in it’s tests for determining a contractor’s employment status.

The legislation uses phrases like ‘mutuality of obligation’, ‘control’, and ‘substitution’ to decide whether a contract falls inside or outside of IR35. These terms, however, are subject to interpretation and can often result in inconsistent outcomes. This creates an environment of uncertainty and confusion for contractors.

Additionally, contractors caught inside IR35 face the worst of both worlds. They pay taxes equivalent to those of a full-time employee but without the same employment rights. They do not have access to benefits such as paid annual leave, sick pay, maternity/paternity leave, pension contributions, etc. This leaves them with the worst of both worlds as they have neither the flexibility of contracting nor the benefits of full-time employment.

It is this inconsistency and unfairness which has caused the Association of Professional Staffing Companies (APSCo) to call on the Government to reform IR35 legislation in order to give a boost to the contractor workforce which in turn will help revitalise the economy.

Let us hope the government finally listens to reason.

One of the biggest news stories in the country right now is the ongoing cost-of-living crisis. This crisis has caused inflation to rise relentlessly, and the Bank of England’s measures to curb this inflation have seen the base interest rate rise to 4.5 per cent, with another expected rise to be announced on Thursday.

The interest rate increase has had an immediate impact on the mortgage market, as lenders have started to raise their rates.

According to data from the Office for National Statistics (ONS), the monthly cost of a new mortgage for the average semi-detached house in the UK rose by 61 pfer cent in the year to December 2022. Bank of England figures for April 2023 have shown that the number of net mortgage approvals for house purchases has fallen to 48,700 from 51,500 in March 2023.

For contractors looking to purchase a house or remortgage in the near future, the current trends can be worrying.

We understand that many of our clients will need advice about contractor mortgages and finding a better deal, especially under the current financial climate.

We can recommend you to a quality firm providing professional mortgage advice that you can trust and who will work hard to find the best solution for you, whatever your requirements.

We have developed a close relationship with Windfall Finance so that you can draw on their experience and expertise to meet all of your mortgage needs.

Please contact Jeremy – jeremy@cogentaccountants.co.uk – for further details. You may receive preferential rates from Windfall Finance if you are a client of Cogent.

The complexities around IR35 rules are well known to most contractors and this is highlighted with the final conclusion of the six year case against Gary Lineker after being wrongly accused by HMRC for underpaying £4.9m in tax.

The first-tier tax tribunal hearing for Gary Lineker’s case was heard by Tribunal Judge John Brooks and the appeal was upheld, meaning HMRC were wrong to pursue him.

The HMRC investigation against Gary Lineker was launched in 2017 and only now in 2023 has he finally won his case.

Hopefully, this result will give contractors increased hope of winning any IR35 case brought against them by HMRC.

As a contractor, one of the most important decisions you will make is how you structure your business.

Opting for a Personal Service Company (PSC) can provide you with numerous benefits, such as reduced tax liability, increased control, and a more professional image.

Setting up a limited company can be a complex process, however here at Cogent Accountants, we take the burden away from you, leaving you free to concentrate on what you do best. Below, we take a look at the necessary steps required to successfully establish your own PSC.

Choose a Company Name

If timing is important we can arrange an ‘off-the-shelf’ company for you. However, if timing is not an issue, you may want to choose a unique company name. If you decide to choose your company name, make sure to consider it’s relevance to your line of work. Once you have chosen the name, it will be necessary for us to check that it is not in use and significantly different to any other name that already exists.

Register with Companies House

Next, we will need to register your PSC with Companies House. As part of this process, we will be required to supply them with the following information:

• Company name
• Registered office address
• Director’s details (name, date of birth, nationality, occupation, and address)
• Additional director / shareholder’s details (if applicable)
• Details of the company’s shares and share capital

Create a Memorandum and Articles of Association

A Memorandum and Articles of Association are required to establish the rules and regulations for running your PSC.

The Memorandum is a brief document stating that the initial shareholders agree to form a company, while the Articles of Association outline how the company will be governed.

You can rely on us to ensure the Memorandum and Articles of Association are appropriate for your new company.

Set Up a Business Bank Account

It is essential to separate your personal and business finances by setting up a dedicated business bank account. This will help you manage your finances more efficiently and ensure you retain sufficient funds for your tax liabilities. We have tie-ins with a couple of bank institutions you may wish to choose from in order to fast-track the application process.

Register for Corporation Tax

As a PSC, you will be liable for Corporation Tax on your company’s profits. We will register your company for Corporation Tax as part of our set-up process.

Register for VAT

If your PSC’s annual turnover exceeds the current VAT threshold (£85,000), you must register for VAT. This involves charging VAT on your services and claiming it back on your business expenses.  We will register your company for VAT and file your quarterly returns.

Establish Payroll and National Insurance

As a director of your PSC, you will be both an employee and an employer. This means you must use a payroll system to process your salary and National Insurance contributions. We will register your company with HMRC and submit the monthly RTI on your behalf.

 Obtain Business Insurances

Having the right insurances in place is crucial to protect your PSC against potential risks. At a minimum, you should have professional indemnity insurance, public liability insurance, employer’s liability insurance and legal expenses insurance.  We can help arrange this for you.

Maintain Accurate Records

To ensure your PSC remains compliant with HMRC regulations, it is vital to maintain accurate financial records. This includes keeping track of income, expenses, invoices, and receipts. This is our strength and you can relax in the knowledge that everything is being taken care of.

Setting up a Personal Service Company can be a valuable move for contractors looking to maximise their income and gain greater control over their business. With Cogent Accountants by your side, you can establish your PSC with confidence and enjoy the benefits it offers.

As the new 2023/24 tax year begins, there are several personal tax changes taking place.

Whilst most of the personal tax rates remain frozen until 2028, with the base rate and higher rate thresholds remaining at £12,570 and £50,271 respectively, there is a more significant change for higher earners.

As of 6 April 2023, the additional rate threshold has dropped from 150,000 to £125,140. As a result of this, more people pay the highest 45p rate of tax sooner.

This will have a significant effect on many higher earners as the income level at which an individual will not have any personal allowance remains unchanged.

This means that £1 of the personal allowance is withdrawn for every £2 of income above £100,000.

According to HMRC, this change in the threshold will result in an additional 232,000 taxpayers drawn into additional rate tax for the first time – with those who have income between £125,140 and £150,000 losing an additional £621 to tax.

At first, the pool of people affected by these changes seems small.

However, when you consider rapidly rising rates of salary as a result of inflation in recent years, then it is easy to not only see how more people will be drawn into the top rate of tax but also how the freeze will cause others to enter new marginal tax bands.

Given these changes, or lack of change in the case of freezes to the basic and higher rate of tax, it is more important than ever to seek tax planning advice from us.

As a contractor in the UK, finding the right work contract can be a challenging task, especially if you are new to contracting and have little previous experience.

A wide range of factors come into finding the perfect role, not least the potential cost and complexities that come with the IR35 tax regulations.

However, before we look at this, what are some of the other considerations that may come into selecting the right work contract for you?

Pay

A key consideration when choosing a contract is how much it pays. Some contracts naturally pay more, especially if certain skills are in high demand.

While it may be tempting to just go with the highest-paid contract available at any given time, it is important that you understand what is expected of you and that other factors don’t make the role difficult or untenable. Money isn’t everything.

Flexibility

There is a natural level of flexibility for contractors, but some businesses may have expectations about where you work and the days that you need to be working. It is best to clarify this so that it fits in with your requirements.

Length

Every contract will have varying lengths. Some will be clear and give a definite beginning and end date, others may be less certain.

If you have plans to take time out from contracting during particular parts of the year, which isn’t uncommon, you should make sure that these arrangements don’t clash with your plans.

People

It is worthwhile knowing what kind of people and business you will be working for. Before agreeing to a contract, it helps to speak with the people you will be supporting and understand how the business operates.

A little due diligence can prevent you from being stuck in a contract that is dull, difficult or involves working with challenging characters. It never hurts to speak with agencies or other contractors that have previously worked for the business to get a measure of the company.

IR35 – What to consider

IR35 is tax legislation designed to deal with a form of tax avoidance known as disguised remuneration.

This is where individuals attempt to avoid paying the full rate of Income Tax and National Insurance Contributions (NICS), by providing their services through an intermediary, such as a Personal Service Company (PSC).

Under the previous IR35 rules, the intermediary was required to determine the status of the person providing the service. However, this person was typically the sole director of the PSC, i.e. the intermediary itself.

Since 6 April 2021, the rules have changed and it is now the responsibility of the businesses engaging the services of these individuals, who are responsible for determining whether they are inside or outside of IR35.

These changes to IR35 legislation represent one of the most significant changes to contractors’ relationships with medium and large-sized businesses that are affected.

Some contracts you come across may be advertised as inside or outside of IR35. This is because in some cases the business engaging your services will have already determined whether the role available is within the rules.

Regardless of how a contract is advertised, a business must carry out a status determination exercise for each contract agreed with an agency or worker, even where you have worked with them previously.

The Status Determination Statement (SDS) should clearly outline the decision on whether the off-payroll working rules apply and the reasons for the decision, which must be provided to you.

When considering the status of an employee they must consider:

• What are the worker’s responsibilities?
• Who controls the individual (i.e. when, where and how do they work)?
• How they are paid?
• Are they directly in receipt of any benefit or expense?

Evidence suggests that some large employers in the public sector have taken a blanket approach to include all contractors under the rules to avoid a penalty or reputational damage.

However, employers should take a cautious approach when applying the rules and take time to identify each person’s status on an individual basis to prevent legal action from being taken against them.

Speak to your clients

Status determinations or advertised roles are rarely set in stone and so there may be some room to reassess a contract if you are interested in taking a position within a business.

As mentioned, many employers have been cautious and have taken the decision to apply blanket IR35 determinations.

If you can make a reasoned argument to them on why your contract is not within the rules, many employers may be willing to consider your position.

Seek professional advice

If you are still unsure about your IR35 status or if you need help finding the right work contract, it’s a good idea to seek professional advice.

We here at Cogent Accountants or a recommended specialist contractor advisor can help you navigate the IR35 rules and find the right work contract for you.

Those who listen to financial and investment news or follow Martin Lewis the MoneySavingExpert will be aware that there is currently an extension to the opportunity to boost your state pension by buying additional National Insurance (NI) years.

A limited time opportunity to buy missing years from 2006 to 2016 has been extended from the original 5 April 2023 deadline to 31 July 2023, because Department for Work and Pensions (DWP) phone lines had been unable to cope with demand.

In order to receive a full UK state pension, most people currently need to have 35 qualifying years of NI contributions. If you have fewer than 10 qualifying years, you will probably not be entitled to any UK state pension at all and there could be other state benefits that you are not qualified for.

Why would you be short of qualifying years?

• If you have worked overseas or offshore for much of your working life and have not been on a UK payroll or elected to pay voluntary UK NI.
• If you have been studying for many years and any earnings have been below the NI threshold.
• If you have been self-employed, you may have paid insufficient NI.
• If you have been a stay-at-home carer – although a parent claiming child benefit will be credited with free qualifying years up the child reaching age 12.

Can I check my state pension forecast?

If you are considering retirement but not yet at pension age, you can apply online for a state pension forecast using your Government Gateway login.

https://www.gov.uk/check-state-pension

Can I check my NI record?

You can do an online contribution record check which again requires your Government Gateway login.

https://www.gov.uk/check-national-insurance-record

This service will also activate your Personal Tax Account if you have not already done so.  The Personal Tax Account is a useful way of keeping on top of your self-assessment status.

What does this mean for me?

When considering salary levels, Cogent Accountants are very conscious of the salary required to achieve a qualifying national insurance year so hopefully most clients will have achieved qualifying years while working through their companies with us.

Whether to top up for missing years is basically an investment decision and not something that we can advise you on. There is an assortment of guidance available online, the information on the MoneySavingExpert website seems to be especially comprehensive or you may wish to speak to an IFA if you have one or would like us to refer you to one.

If you are tax resident in the UK

If you are UK tax resident and you sell residential property in the UK on which there will be Capital Gains Tax (CGT) to pay, then you must report this sale to HM Revenue and Customs (HMRC) within 60 days of the completion of the sale and must also pay the CGT within 60 days of completion. This report is made by filing a special online return through a Capital Gains Tax on UK property account.

A residential property is a flat, house, or other property which is for living in.

You do not need to report the sale through this 60 day reporting regime if there is no tax to pay – for instance:

• if the property was always your principal private residence (main home) and you hadn’t made an election for another property to be treated as principal private residence.
• or if you have made a loss on the sale of the property.
• or if you have no earlier CGT disposals in the tax year and the gain on the property will be covered by the annual CGT exemption (reduced to £6,000 from 6 April).

If you normally file a self-assessment tax return, then the sale will also still have to be included in that tax return.

If you are tax non-resident in the UK

If you are claiming non-residence for UK tax purposes, for instance because you are working full-time overseas for an extended period or because you have returned to your home country or have retired overseas, then you also have to file a 60 day CGT return and if you sell a UK residential property.

The requirement for non-residents is more stringent in that the return must be filed regardless of whether any UK CGT is payable.

Disposal by gift

A disposal by gift is also subject to CGT and these reporting requirements but with the added disadvantage that there may be no money to pay the tax.

Common misconceptions

The solicitor dealing with the property sale will deal with this – Not True

Not only is the 60 day CGT return not part of the service provided by the conveyancing solicitor, it is likely that they won’t even mention the requirement for such a return.

If I move into my rental property for a few months before the sale, that will make it a CGT free principal private residence – Not True

Where a property has been used as your home for part of the period of ownership and as a rental for part of the period of ownership, the capital gain is time apportioned between the two periods and taxed accordingly.

If I am living overseas, I don’t need to worry about UK taxes – Not True

Even if you have left the UK with no intention of ever coming back, then you are still likely to be subject to UK tax on UK based income and capital gains.

What does this mean for me?

If you are planning the sale of a UK residential property which has been a rental or second home, tell your accountant / tax adviser in advance that a sale is planned so that they can tell you how to set up the special Capital Gains Tax on UK property account, what information you need to collect together to calculate the gain and prepare a draft CGT calculation for you if you wish.