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.

We are delighted with the response we had to our latest refer-a-friend giveaway.

Lots of you took the time to share our services with your friends and colleagues, but only one person could ultimately win…

Jamie Sutherland from Fetcham, Leatherhead in Surrey

Jamie spent last week sunning himself on the golf courses and beaches of Playa De Las Americas, Tenerife but couldn’t wait to get home and enjoy his favourite shows on the 50’’ 4K Smart TV.

Luckily, we caught him just before he jetted off to the Canaries. He was first out of the hat in our prize draw and had the telly by 6pm that evening… and is delighted with it!!

He told us that he was looking at new TV’s at Costco just before he went away but luckily decided to hold off until he returned from holiday… a very wise decision Jamie!

Jamie is a keen golfer playing most weekends and when he isn’t on a golf course, he ends up sleeping in front of the TV. He watches a lot of Sky Sports and Netflix… whilst he is awake!

He has been a client of ours for over 20 years.

Not only did he win the TV but Jamie will soon be receiving £100 for the introduction of his Wood colleague last month, Martyn Phillips, who subsequently signed up and will also get £100, simply for joining Cogent!

Thanks to everyone for sending over your referrals to us.

You too can be a winner by referring your friends, colleagues and contacts to us… watch out for our next Cogent promotion coming soon!!

Meanwhile, for each successful referral we receive, you will get £100 – and the person being referred gets £100 too!

Remember, you don’t have to be a contractor to use our services. We act for all types of businesses from small traders to large companies. It doesn’t matter whether the person you refer operates as self-employed, is in a partnership or is a director of a limited company, we are ready to help them.

If you have any questions about the services we offer or our referral scheme, please feel free to contact us.

As we look ahead into 2023, there is no question that the UK economy has work to do to shake off the issues that overshadowed much of 2022. However, we believe the year ahead looks positive for our contractor clients.

The ‘experts’ tell us that the UK economy is heading into a downturn, which historically has seen an increase in the use of temporary workers. We see from our clients that new projects are pushing ahead in 2023 which is good news all round.

Although it has been widely reported that unemployment rates are presently at record lows, many firms are reluctant to increase headcount by employing permanent employees.

The flexible workforce is a vital lifeline for the UK economy, in times of boom or bust, so there is no doubt it will once more be needed to fill gaps and provide knowledge in many sectors.

Many companies across the supply chain are taking a more pragmatic approach to IR35 as they realise how important contractors are to their business.

Although it will be two years in April since the private sector reforms were introduced, we are seeing a constantly increasing number of clients finding outside of IR35 contracts and working through their own limited company.

Please contact us if you need any help or advice on working through your limited company.

If you’re looking for a flexible and rewarding career path, contracting might be the right choice for you.

Contracting allows professionals to work on a project-by-project basis, offering greater control over their work-life balance, career trajectory, and earning potential.

There is a wide range of reasons why contracting may suit your life plans, but here are some advantages for you to consider:

Greater Flexibility

One of the primary benefits of contracting is the flexibility it offers. As a contractor, you can choose when and where you work.

You can decide which projects to take on, and you have more control over your schedule, including enjoying extended breaks between contracts.

Additionally, many contractors have the freedom to work from home, which can save time and money on commuting.

Control Your Career Trajectory

Becoming a contractor gives you the ability to take on a variety of projects, which can help you gain new skills, gain new contacts and expand your experience in your field.

You also have the ability to choose the type of work you want to do, allowing you to focus on projects that align with your professional interests and goals – as well as earning ambitions.

This can help you build a more diverse and well-rounded portfolio of work, which can be beneficial when seeking future opportunities – whether in or outside of contracting.

Greater Earning Potential

Contractors typically charge higher rates than employees, which means they have the potential to earn more money.

Contractors working outside of IR35 have a high degree of responsibility for their own taxes, insurance, and other expenses that are typically covered by an employer.

Additionally, as a contractor, you can negotiate your rates more easily, which means you can earn more money for your work.

The flexibility offered by being a contractor can help you achieve higher earnings quickly.

Enhanced Work-Life Balance

Contracting allows professionals to have greater control over their work-life balance. As a contractor, you can choose the projects you take on and the hours you work, which means you can create a schedule that works for you.

Additionally, you have the ability to take time off between projects, which can be particularly beneficial for those who want to take extended breaks for personal or family reasons.

Contracting offers a range of benefits that can be particularly attractive for professionals seeking greater flexibility, control, and earning potential.

While contracting may not be the right choice for everyone, it can be an excellent option for those who are willing to take on the responsibilities and challenges of working independently.

If you’re interested in exploring contracting as a career path, it’s important to do your research and speak with other professionals who have experience in the field.

Please contact us for help and advice on going into contracting and setting up a limited company.