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.

Thanks,
Victor Korman
Managing Director
Cogent Accountants

***HELP STOP THE PROPOSED NEW IR35 LEGISLATION***
click https://petition.parliament.uk/petitions/262354 to sign the petition NOW!!

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.”

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 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.

Victor Korman, Managing Director of Cogent Accountants, has had an in-depth look and studied the proposed new legislation on IR35 and the Off-Payroll Tax and has detailed his thoughts and findings in the article below in order to explain the new legislation and provide a Defence Tool for contractors.

New legislation on IR35 is due to come into law in April 2020. It is important for all in the freelance contracting work chain to understand what the new legislation is and equally what it is not.

The new legislation is NOT a new way of assessing the employed or self-employed status of a freelance contractor. The law is essentially the same as it has been for 20 years since IR35 came in to play and the same criteria needs to be reviewed to make a status assessment.

What IT IS – is a switch of the liability for IR35 taxes from the freelance contractor’s own company to the end client or agency fee payer.

This means that your end client and agency will be very concerned about your status and may have an interest in assessing you as IN-IR35 so that they don’t take on board any tax risk. This status will cost you between 15% – 25% of your current net take home pay.

You and your colleagues need to be starting a conversation with your agency and end client to see what their views are and confirming to them your freelance OUT-IR35 status.

Please see the full Cogent IR35 and Off-Payroll Defence Tool here.

We at Cogent are happy to come out and see you and colleagues to discuss what you can do about the Off-Payroll tax legislation. Call us and arrange a free appointment for an expert opinion. NOW IS THE TIME TO PREPARE.

***HELP STOP THE PROPOSED NEW IR35 LEGISLATION***
click https://petition.parliament.uk/petitions/262354 to sign the petition NOW!!

HM Revenue & Customs (HMRC) has once again been defeated in another high profile IR35 tribunal case.

Paul Hawksbee, a veteran radio presenter and comedy writer, successfully challenged the tax authority after he was told that he owed £140,000.

A presenter on ‘The Hawksbee and Jacobs Show’, his services were engaged by broadcaster TalkSport from 2012-2015 through his limited company Kickabout Productions Limited (KPL).

During the recent tribunal, Hawksbee appealed an IR35 status determination spanning KPL’s engagement with TalkSport during this period.

His limited company had entered into two separate contracts, with each requiring that Hawksbee provide his on-air services for a minimum number of days per year from 1-4pm.

Hawksbee received a fee per programme for these services. Each contract also stipulated that the parties would enter into good faith negotiations regarding an extension at the end of each contract.

The arrangement between KPL and TalkSport had been established in 2000 when the presenter started out on what is now the longest running show on the station.

HMRC claimed that his time at the station as a presenter indicated that he had a significant degree of stability in his employment and that his regular presence made him ‘part and parcel’ of the radio station.

Despite HMRC’s arguments, the tribunal found that while Hawksbee had a regular show, he was never subject to appraisals nor disciplinary processes.

It also said that his time at the station, as defined by his contract, was dependent on the success of his programme and that his contract via KPL could have been terminated at the end of each contract.

The tribunal ruled that Hawksbee displayed a high degree of economic dependency, even though HMRC had said that Hawksbee wasn’t in business on his own account.

It was also revealed that he had turned down the opportunity to work as a writer on ‘Taskmaster’ as it would have clashed with his presenting responsibilities, showing that there was financial risk in his role as a presenter.

TalkSport had held control over the “where” and “when” Hawksbee worked but he was “afforded an extremely high degree of autonomy by TalkSport”. None of the contracts offered a substitute in his absence, but “TalkSport were contracting for the unique expertise and work product of Mr Hawksbee”.

This is another important case for contractors and the self-employed as it once again demonstrates the flaws in the IR35 regime and how determinations can be challenged.

More than 10 years ago, the European Union introduced new legislation with the aim of protecting agency workers from exploitation.

The legislation they created, known as the ‘Agency Conduct Regulations’, aimed to give workers additional rights, but it was met with criticism from contractors who believed the regulations would make them less attractive to clients.

As a result of this, contractors were given the option to opt out of the regulations. This leniency has played a key role in the increased use of contractors and consultants, as well as the agencies that employ them.

By opting out, agencies have been able to use contracts that contain provisions that would have been prohibited by the regulations, such as withholding pay where work has not been done properly, and charging transfer fees beyond the regulatory limits.

Agencies have been able to ensure the regulations protecting vulnerable agency workers are enforced properly without having an effect on contractors who chose not to have that protection.

Despite seeming to be a bad deal for contractors, evidence indicates that many continue to benefit from what the opt out offers.

In fact, the DTI and BEIS have regularly reviewed the regulations and at no stage has there been any suggestion of repealing them.

So, how do the forthcoming changes to IR35 in the private sector affect the opt out?

Where a person is paid via PAYE, they cannot opt out. This means that contractors deemed by the fee payer to be inside IR35, will have to be provided with the protection of the Agency Conduct Regulations.

Agencies may still want contractors to opt out, however they will not be able to do so if they are deemed to be inside IR35.

Off-duty pilot, Michael Bradley, has been praised by his fellow passengers and easyJet after he stood in to fly a delayed plane from Manchester to Alicante.

Michael, who works for easyJet himself, had been waiting at Manchester Airport for the flight when he learned that the original captain had not turned up.

Thinking ahead, he had packed his licence and ID, just in case and when he found out about the delay, he made a call to see if his services were needed.

As passengers waited on the tarmac, Michael stood up and announced that he had offered to step in and fly them all to Alicante in order to avoid a further delay.

Recalling the incident over the public address system, he said: “So I phoned up easyJet and said: Hiya, I’m standing in the terminal doing nothing… and I’d very much like to go on holiday – and if you need a favour, I’m standing here ready to go.”

The easyJet representative phoned back 38 seconds later with their official request: “Please, please, pretty please with a big cherry on top, could you fly the airplane to Alicante.”

In a statement, easyJet said it was “grateful” to Mr Bradley for volunteering, adding: “This is fully in line with regulations as he had his licence and ID with him. Safety is always our highest priority.”

“[Mr Bradley] was well rested, having previously had four days off and was legally permitted to fly the aircraft.

“Clearly, this is exceptional, but shows the commitment and dedication of our crew wanting to go the extra mile.”

Victor Korman, Managing Director of Cogent Accountants, has had an in-depth look and studied the proposed new legislation on IR35 and the Off-Payroll Tax and has detailed his thoughts and findings in the article below in order to explain the new legislation and provide a Defence Tool for contractors.

INTRODUCTION

New legislation on IR35 is due to come into law in April 2020. It is important for all in the freelance contracting work chain to understand what the new legislation is and equally what it is not.

The new legislation is NOT a new way of assessing the employed or self-employed status of a freelance contractor. The law is essentially the same as it has been for 20 years since IR35 came in to play and the same criteria needs to be reviewed to make a status assessment.

What IT IS is a switch of the liability for IR35 taxes from the freelance contractor’s own company to the end client or agency fee payer. In HMRC’s own words, they have not been winning in the way they have been prosecuting IR35. By switching the liability to the fee payer, they believe they are likely to collect more in taxes from risk adverse fee payers, much as PAYE and Construction Industry Scheme (CIS) deductions do. HMRC hopes to sit back and let others do the work in paying the IR35 taxes. In order to do so, they have created this new legislation which is a one size fits all solution that ignores the specifics of each individual freelance contractor’s position. Government is powerful and if they don’t like the results coming out of the courts as decided by experienced learned judges, they can just change the law putting the very complicated legal arguments into the hands of non-expert HR departments who as mentioned will be looking to avoid risk and potential tax liability.

We at Cogent have joined in with Contractor Calculator in the #StopTheOffPayrollTax campaign as this legislation is aggressive, not well thought through and will affect the economic power and flexibility of UK plc at almost the worst possible time. It should be stopped at this crucial economic time and considered properly. Government can be good at making changes that serve an immediate political or economic outlook, without properly understanding the new legislation (how many MPs can understand or currently make the time to understand this difficult tax) and considering the unintended consequences of their actions. “Forgive them Father, they know not what they do”.

To make your voice heard, there is an online petition facility which allows anyone to submit details of a cause and, if 100,000 signatures are received, it will be considered for debate in Parliament.

Sign the petition here: https://petition.parliament.uk/petitions/262354

However, the purpose of the Cogent IR35 Defence Tool is to be pragmatic and in the likelihood that the legislation will be with us from April 2020, it sets out to provide our clients with an understanding of how the legislation is likely to affect them and what they can do about it.

How off-payroll IR35 will work from April 2020

From April 2020, the end client will have the responsibility to determine the employment status of the contract with the worker. They will decide if the contract should be IN-IR35 or OUT-IR35. They will then have to pass that status determination with explanations as to how they reached that decision to the agent and the worker. The agent who pays the company doing the work (your personal company) will, in the case of an IN-IR35 status determination, need to deduct normal tax and NI as if you were an employee or, in the case of an OUT-IR35 status, pay gross as has been the case up to now.

However, as the client or agent will from April 2020 bear the tax liability if they get the status determination wrong, they are very likely to be biased towards assessing status the way HMRC has recommended. They are not IR35 experts and are being forced by this new legislation to try to make a decision on the correct treatment of IR35 or bear the heavy tax consequences themselves. So it is likely they will play safe. However, the legislation says they must take reasonable care in making the status determination, although there is no definition or guidance as to what they must do to pass that duty of care. So it is possible that some end clients will be risk-averse and look to play safe by assessing IN-IR35 as a default.

ACTION PLAN

So here is a plan of action for defending your OUT-IR35 status (as advised by our IR35 specialists):

1. Take the initiative

In the event that your client or recruitment agency hasn’t been in touch regarding IR35 changes, you can take the initiative and reach out to them with a view to discussing their plans for reform. With a clear idea of how your client and agency intend to administer IR35, you will be in a position to decide whether you want to continue working on that specific contract post-April 2020 or source one with an engager that will assess status accurately.

2. Communicate with your fellow contractors

The saying ‘two heads are better than one’ is certainly applicable here. As a contractor, it’s well worth getting in touch with other independent professionals working with the same client to find out if they have held any talks with the engager about IR35.

Consider approaching your client together as a group to stress how important it is that they prioritise well-informed status decisions. If a business understands the implications that blanket IR35 assessments, for example, will have on its ability to attract contractors, there is a chance that it will reconsider its approach.

3. Confirm your arrangements

Explore the possibility of securing a Confirmation of Arrangements (CoA) document. Signed by your client, a CoA effectively confirms that all parties in the supply chain (including the recruitment agency), are in full agreement of a contractor’s IR35 status.

Granted, a CoA could be tricky to obtain, given it will soon be the client who carries the liability — much like in the public sector. That said, should you achieve this, theoretically it will become difficult for your client to change your IR35 status on or after 6th April without good reason. Please see below a link to get a template for the Confirmation of Arrangements document:

https://www.qdoscontractor.com/ir35/confirmation-of-arrangements

4. Prioritise ‘Substitution’

The right to provide a substitute in a contract is often focused on in IR35 investigations. And while one factor on its own doesn’t typically deem you inside or outside the scope of the legislation, it’s worth ensuring your contract has a genuine right of substitution. Better still, actually exercising this right to provide an able substitute will strengthen your case for belonging outside IR35.

Given engagers are being advised by HMRC to use the taxman’s very own Check Employment Status for Tax (CEST) tool – which may wrongly automatically class a contractor inside IR35 if there is no substitution clause – it’s important to ensure your contract allows for this.

5. Stay aware of ‘Control’ and ‘Mutuality of Obligation (MoO)’

While Substitution is important, that’s not to say you should ignore two of the three other key status tests, Control and Mutuality of Obligation (MoO). To ensure you have the best possible chance of being considered outside IR35, it’s also crucial that you are able to show you are not under the direct control of your client, and there is no mutual obligation for the client to provide paid work and for you to accept it.

6. Seek independent advice

To strengthen your IR35 position, consider having your contract reviewed by an IR35 specialist who will be able to offer objective advice. Armed with an in-depth status review carried out by an expert with no financial gain on the outcome of the assessment, you will be better placed to head off any potential risk-averse decisions that might be made by your client. Clients of Cogent can obtain an enhanced IR35 status assessment from specialists QDOS at a discounted price of £85+VAT (normal rate £125+VAT). Contact us if you wish to carry out this IR35 assessment.

7. Demonstrate you run a legitimate business

Make it clear that you operate as a legitimate business – an important albeit not typically definitive factor taken into consideration when determining IR35 status. From taking out business insurance to having your own office address, company website and even stationery, it’s vital that you’re able to demonstrate to your client and, if required, HMRC, that your company is not a vehicle used to disguise employment.

Final thought

As the clock ticks down to the arrival of private sector reform, it’s important that you take these steps in an attempt to protect your IR35 status regardless of the fact that from next April you will not be the party tasked with setting it.

We at Cogent are happy to come out and see you and colleagues to discuss what you can do about the off-payroll tax legislation. Call us and arrange a free appointment for an expert opinion. NOW IS THE TIME TO PREPARE.

***HELP STOP THE PROPOSED NEW IR35 LEGISLATION***
click https://petition.parliament.uk/petitions/262354 to sign the petition NOW!!

Please sign the petition now and ask all your friends and family to do the same. The more signatures, the more chance the legislation can be stopped.

Nigel Scragg, a contractor, has decided to take the Government head on over IR35 and has launched a public petition to get the matter discussed in Parliament.

So far Mr Scragg has managed to secure over 25,000 but will need to gain 100,000 if the matter is to be debated in the House of Commons.

His petition states: “Freelance workers and contractors have been treated unfairly by this ill-conceived legislation since it’s conception.

“It has been incorrectly used to investigate and prosecute many hardworking self-employed business owners, striving to be successful in today’s world. IR35 is anti-business!

“This is legislation that encourages envy because of supposed benefits to being self-employed by some who are not self-employed themselves.

“Why should a self-employed person working under IR35 be treated the same as an employee regarding taxation? The self-employed under IR35 are not entitled to paid holiday or sickness and by implication have no job security.

“HMRC make more money from VAT, Corporation Tax, Income Tax and Dividend Tax than from PAYE. IR35 is about discouraging strivers!”

In response, the Treasury has issued a long statement on behalf of the Government, part of which reads: “The off-payroll working rules do not apply to the self-employed. They ensure that individuals who work like employees but through their own company pay broadly the same taxes as the directly employed.

“The off-payroll working rules have been in place for nearly 20 years. They are designed to ensure that individuals working like employees, but through their own limited company, pay broadly the same tax and National Insurance contributions (NICs) as those who are employed directly.

“The rules support a fair tax system by ensuring that two individuals working in a similar way for the same employer pay broadly the same tax and NICs, even if one of them structures their work through a company.

“The rules apply only to individuals who are working like employees through their own company and do not apply to the self-employed.

“Non-compliance with these rules is widespread. HMRC estimate that only 10 per cent of those who should be applying the rules do so.

“People who are not complying with these rules are not paying their fair share of employment taxes resulting in projected costs to the Exchequer of £1.3 billion a year by 2023/24. This money would otherwise go into funding hospitals, schools and other public services.”

We at Cogent recently joined hundreds of campaigners outside Parliament to protest against the off-payroll tax planned implementation in April 2020 – we would strongly advise that you sign this petition by clicking here.