A Monthly Feature from The Desk Of Our MD…

A Monthly Feature from The Desk Of Our MD…

This month…

As the clock ticks towards April 2020 and the start date of the new Off-Payroll Tax legislation, it is a good time to share my current thoughts with you.

I cannot stress enough that IR35, which has been with us for 20 years, is not changing. What is changing is the tax liability for IR35 will transfer from the individual Personal Service Company (PSC) to the end client/agency. This has huge implications on potential tax liability for these organisations who up to now were happy for each contractor in their own PSC to make the IR35 status assessments. So, it is understandable that some will approach this very conservatively.

However, as end clients consider their approach, this last month has seen a number of our contractor clients contacting us with positive updates from their end clients and agencies on how they are dealing with the proposed legislation. Many are advising that they will be using specialist tax consultancies to help them make the complicated IR35 status assessment.

This is better than if they were to opt to use the HM Revenue & Customs (HMRC) online tool Check Employment Status for Tax (CEST) which, in the opinion of most industry experts, does not lend itself to a fair IR35 assessment.

So, each contractor should be acting NOW to have an influence on the way their end client/agency are planning to deal with the new legislation in April 2020.

  1. Consider your options and what you will do if, despite everything, your end client deems you to be IN IR35 from April 2020. The net cost to you would be in the region of 25% of current net pay.
  2. Discuss this with contractor colleagues at the same end user with the objective of lobbying your end client/agency to show why you believe you are OUTSIDE IR35 and that you expect a fair assessment to be done, and to know NOW how they expect this assessment to be done.
  3. Speak to us here at Cogent to provide guidance on what you have received from your end client/agency and how to approach the discussions with them.

Do not leave this until March 2020… it may well be too late once decisions have been made without your knowledge. NOW is the time to act on this and we at Cogent are here to provide guidance.

Victor Korman
Managing Director
Cogent Accountants

 https://petition.parliament.uk/petitions/262354 to sign the petition NOW!!

HMRC IR35 victories lead to ‘confusion’

A judgement against BBC presenters in relation to their IR35 status has revealed how confusing and complex the tax regulation is, according to IPSE.

Joanna Gosling, David Eades and Tim Wilcox, presenters at the BBC, were told to pay £920,000 by the Courts after HMRC claimed that the money was owed.

Having considered the evidence for the three presenters, judges at a High Court tribunal found that the ‘imbalance of bargaining power’ at the BBC was a significant factor in the case.

They stated that ‘the BBC was in a unique position and used it to force the presenters into contracting through personal service companies and to accept reductions in pay’.

However, despite making this finding, the tribunal ordered the money to be paid following a split decision, ruling that ‘the assumed relationships were ones of employment’ as the BBC told the presenters how, where and when to work. This means that the presenters were bound by the IR35 rules even though they were forced into this position by their employer.

The BBC has said that ‘it wants to help presenters resolve any historic tax issues they face because of the way their employment status is now being assessed’.

Andy Chamberlain, from freelancer trade body, IPSE, said: “That this case has taken eight years and ended up with an uncertain split decision shows how confusing and unfit for purpose IR35 is.

“We will look at the judgement in detail but the uncertainty in the decision is likely to add to the chaos around this legislation. Recently, HMRC has lost the majority of these cases. There is little evidence that they or other experienced tax specialists are confident in how it works.

“We remain at a loss how the Treasury expects medium-sized businesses to accurately apply IR35 to their contractors from next year when HMRC and tax judges struggle.

“These BBC cases are high profile but not typical of IR35 issues. Most involve freelancers and contractors working on innovation and productivity projects. Burdening business with the complexity of IR35 only damages the UK economy and the overall tax take. Instead, the Treasury should focus on reforming our telegram-era tax code to be fit for the broadband age.”

Can contractors offset IR35 reform’s impact with an increased income?

Where IR35 is applied to a contract, it is more than likely that contractors will find themselves less well-paid due to how the rules are applied and their ability to manage tax liabilities.

As a result, in order to enjoy the same standard of living, contractors may have to seek an increase in their income when they take on work.

However, it may be a challenge for contractors to request 20 per cent more because tax reforms from April 2020 will increase costs by at least 15 per cent and up to 20 per cent, according to some estimates.

It is important that they approach the project sensibly with engagers and agencies to ensure they obtain the right amount at the start or during an ongoing contract.

Everything is likely to come down to supply and demand. If some contractors are prepared to work for less, then competition will become fierce and it may be difficult to negotiate improved pay.

It will be the contractors who are able to sell themselves effectively and justify their rates that will minimise the impact of the new IR35 landscape by obtaining an increase. The strength of a pitch and an ability to demonstrate added value to a client will be key.

This is why it is important that contractors act now to increase the focus on ‘selling themselves’ as the best, most cost-effective candidate.

Paramount to this is using networking skills to develop relationships with relevant stakeholders and decision-makers. This means connecting online and offline through regular communication so you remain visible to engagers.

Contractors should also look to set out a list of business benefits delivered to previous clients and present this to potential engagers. This is about demonstrating value to businesses and why service costs can be justified. It is outcomes like this that will drive the value of a contractor’s work.

Having strong negotiating skills is very useful if a person is to succeed in the contractor market. Negotiations tend to focus on who has the most to lose if the other side walks away.

When it comes to face-to-face negotiations, contractors should be prepared and have evidence at hand. Creating a ‘career autobiography’ beyond just a standard CV is a great way to achieve this.

Contractors should prepare a negotiating strategy and know what they want, but they shouldn’t be afraid to walk away. There is no point being stuck in a contract that doesn’t pay sufficiently when a contractor could be working on a more profitable project.

Too many people simply ask for more money and fail to justify why it is deserved. During these difficult times, it will be possible to secure a more lucrative contract if it is deserved.

A celebration of ‘Nigelness’

A pub in Worcestershire recently played host to more than 430 Nigels from around the world – including some who travelled from as far away as the US.

The mass gathering of people named Nigel was designed to “celebrate Nigelness” after a recent study by the Office for National Statistics (ONS) data suggested there had been no babies named Nigel in the year 2016.

The event was hosted by the pub’s landlord Nigel Smith, who hopes that the event will help to raise awareness of the name.

He said: “I’ve always felt that the name’s much-maligned – people would say to me when I was young: ‘Nigel, that’s got to be a joke name hasn’t it?’

“So, it was really just to get a few Nigels together in the same room, to share Nigel stories and celebrate our Nigelness – that was the original intention.”

He arranged the event in Bretherton and, after an advert on Facebook was circulated worldwide, he was delighted with the turnout.

“We got some 433 Nigels there last night, plus about another thousand non-Nigels who’d just come along for a laugh,” he said.

Nigels who attended had to prove their namesake by showing a passport or driving licence and were rewarded with a free pint and a Nigel badge.

Smith said: “We had a singer, a busker – both called Nigel – and a comedian called Nigel. We had Nigel awards for the furthest travelled, the youngest, oldest. We picked a collective noun for Nigels, which is a niggle of Nigels.

“We basically registered all the Nigels into the building so we knew how many were there so we could claim at least an unofficial record if nothing else.”

Smith added: “There were no Nigellas, which was a bit sad really – the whole thing was a ruse to try and get Nigella Lawson along. We didn’t have any celebrity Nigels but it’s their loss. Maybe the next time round, they’ll make the right decision and come along.”

Despite the Nigel-free year in 2016, ONS statistics have since shown that there have been nearly 20 babies who have been given the name.