From 6 April 2025, approximately 14,000 medium-sized firms will be reclassified as small businesses due to changes in company size thresholds.

This reclassification means that these businesses will no longer be responsible for managing the off-payroll working rules, with IR35 compliance shifting back to limited company contractors.

For contractors, this marks a return to the pre-2021 IR35 rules, where they are responsible for determining their own IR35 status and bear the tax liability.

For smaller businesses, this change removes an administrative burden that has often led to overly cautious determinations, pushing contractors into umbrella companies or ‘inside IR35’ engagements.

As a result, many smaller firms may now be more open to engaging limited company contractors outside IR35, given that the tax liability is no longer on them.

What are the new company size thresholds?

The new thresholds, effective from 6 April 2025, are as follows:

A business is classified based on meeting at least two out of the above three criteria.

What does this mean for smaller firms engaging contractors?

With the reclassification, many businesses that previously had to determine IR35 status and take on tax liability for incorrect assessments will now be relieved of this responsibility.

This could lead to a change in how smaller firms engage with contractors, as they will no longer be deterred by the compliance risk associated with IR35.

Many of these businesses are likely to become more open to engaging limited company contractors outside IR35, given that the financial risk is now entirely with the contractor.

For limited company contractors, this presents a potential increase in opportunities to work outside IR35, as businesses previously reluctant to engage them may now be more open to doing so.

How will we help you with these changes?

With IR35 liability switching back to contractors, ensuring compliance is more important than ever.

We will be working with our clients to carry out full IR35 assessments where applicable to ensure that contractors and businesses are correctly classifying engagements.

If a business now classed as ‘small’ wishes to engage limited company contractors outside IR35, we will ensure compliance checks are in place to safeguard you from any potential tax liabilities or risks.

For contractors, the changes offer the potential for increased flexibility and the ability to work outside IR35 again.

We will be working closely with our clients to ensure that any engagement outside IR35 is properly assessed and compliant, mitigating risks for all parties involved.

If you need advice on IR35 assessments or the upcoming changes, contact our Admin team – admin@cogentaccountants.co.uk –  about how we can support your business.

HM Revenue & Customs (HMRC) has never been known for its speed and efficiency, but recent reports show its service levels have hit rock bottom.

The latest Public Accounts Committee (PAC) findings reveal a worsening crisis, with businesses, accountants, and taxpayers alike facing ever-growing frustration when trying to get the answers they need.

The problem – Long waits, dead ends, and no accountability

The numbers speak for themselves. From April 2023 to April 2024, HMRC only managed to answer around two-thirds of customer calls, a record low.

Waiting times now average 23 minutes, with some unfortunate callers spending over an hour on hold, only to be cut off.

This is an unacceptable failure in a system that businesses and individuals rely on to meet their legal obligations.

Tax compliance should not feel like a battle against an organisation that seems increasingly unreachable.

A failing system

The PAC report outlines several alarming trends:

• Unanswered calls – A third of taxpayers who call HMRC never even get through.
• Excessive waiting times – An average wait of 23 minutes means many people lose valuable work hours trying to speak to someone.
• Increased reliance on outdated systems – Despite years of promises about digitisation, HMRC still processes millions of paper documents, leading to slow responses and lost paperwork.
• No clear transparency – The PAC has urged HMRC to reinstate a call waiting time target, but so far, little has changed.

The consequences of HMRC’s inefficiencies

This breakdown in service has wide-reaching consequences:

• Taxpayers struggling to get basic queries answered are left guessing, increasing the risk of mistakes and penalties.
• Businesses facing compliance deadlines cannot afford to waste hours chasing HMRC for simple clarifications.
• Accountants and tax professionals, who are supposed to act as a bridge between taxpayers and HMRC, are met with the same delays and inefficiencies, making their jobs harder.

A service in crisis

The Government claims HMRC is improving its digital services to reduce the burden on phone lines, but this does not solve the underlying issue: a tax authority that is failing in its most basic function of serving taxpayers.

Until HMRC addresses these systemic problems, expect more delays, more frustration, and a system that feels increasingly unfit for purpose.

For contractors, navigating the IR35 legislation and choosing the right way to operate can be challenging.

Many contractors, faced with roles that fall inside IR35, turn to umbrella companies to continue working. However, this is often far from the best solution.

While umbrella companies promise convenience, the reality is they can erode your earnings, reduce financial control, and expose you to unnecessary risks.

If you want to maximise your income, securing an outside IR35 contract and operating through your own limited company remains the best option.

Why umbrella companies aren’t as good as they seem

At first glance, umbrella companies appear to offer a hassle-free way to contract – they handle tax deductions and payroll.

However, the downsides often outweigh any convenience.

Reduced take-home pay

When you work under an umbrella company, you are effectively an employee, but without the benefits of full employment. The umbrella company deducts PAYE tax, employer and employee National Insurance Contributions (NICs), and their own fees before you receive your income.

A contractor operating through an umbrella typically takes home 20–30 per cent less than one working through a limited company in an outside IR35 role. Over a year, this could mean losing tens of thousands of pounds in unnecessary deductions.

Less control over tax planning

Unlike running your own limited company, where you can pay yourself via a mix of salary and dividends to optimise tax efficiency, umbrella companies operate on a strict PAYE model. This means you have no flexibility over how your income is taxed, resulting in higher deductions.

Lack of financial security

Not all umbrella companies are compliant, and many have been caught mismanaging contractor funds or engaging in questionable practices. If an umbrella company collapses, contractors lose unpaid earnings, and in some cases, face liability for unpaid tax and holiday pay.

Why securing an outside IR35 role is the best option

The best way to protect your income and maintain control over your finances is to secure a contract that falls outside IR35.

This allows you to operate through your own limited company, benefiting from:

• Higher take-home pay – Keeping a larger share of your income compared to an umbrella company.
• Tax efficiency – The ability to structure your income using a mix of salary and dividends.
• Control over your business – Retaining decision-making power rather than handing it over to an umbrella.
• Limited liability protection – A safeguard against personal financial risk.

Don’t let an umbrella company hold you back

Umbrella companies limit your earning potential and reduce tax efficiency.

However, if you are serious about maximising your income, securing an outside IR35 role and operating through a limited company is the way forward.

With the Self-Assessment deadline now behind us, contractors should remain extra vigilant against phishing scams and fines.

HM Revenue & Customs (HMRC) has reported a record-breaking number of Self-Assessment tax returns submitted before the 31 January deadline, with over 11.5 million taxpayers managing to file on time.

However, for many, this came as a last-minute scramble, with nearly 780,000 submissions made on deadline day alone.

Some 33,000 taxpayers left it until the final frantic hour between 11 pm and midnight, while the busiest period was between 4 pm and 5 pm, when 61,549 returns were submitted just before the end of the working day.

The cost of missing the deadline

Despite the high number of timely submissions, 1.1 million taxpayers missed the cut-off, immediately incurring a £100 fine.

However, this is just the beginning of the penalties for late filers:

• £10 per day after three months, up to a maximum of £900
• A further 5 per cent of the tax due or £300 after six months, whichever is greater
• An additional 5 per cent of the tax due or £300 after 12 months

Separate late payment penalties and interest charges will also apply for unpaid tax bills. With HMRC expected to collect at least £110 million in fines, the cost of missing the deadline can quickly escalate.

The rise of phishing scams

Every year, HMRC sees a spike in fraudulent activity following the 31 January deadline as scammers attempt to exploit taxpayers who are expecting tax refunds or fear penalties for late filing.

Fraudsters are becoming increasingly sophisticated, making it crucial to recognise the warning signs and protect yourself from potential financial loss.

How do phishing scams work?

Phishing scams typically involve emails, text messages, or phone calls that claim to be from HMRC.

They often:

• Promise a tax refund and request personal or bank details.
• Demand immediate payment for an “unpaid tax bill” to avoid legal action.
• Ask for HMRC login credentials under the pretence of verifying information.
• Contain links to fake HMRC websites that look legitimate but are designed to steal your information.

HMRC has confirmed that it will never ask for payment details or personal information via email or text.

If you receive a message that seems suspicious, do not respond, click any links, or provide any details.

Stay secure and stay informed

Fraudsters are becoming increasingly sophisticated, but by staying alert and following best practices, you can protect yourself from phishing scams. If you’re ever unsure about a tax-related message, consult us before taking any action.

The promise of higher take-home pay can be tempting, especially in a tax system that already feels complex and burdensome.

However, for contractors, falling into a tax avoidance scheme – whether knowingly or not – can have serious consequences.

Already in 2025, HMRC has identified five new tax avoidance schemes.

It is, therefore, worth reinforcing the message that these schemes are still widespread, particularly in the umbrella company sector.

If you contract through an umbrella company, it is essential to understand the risks of tax avoidance schemes, how to spot them, and why staying compliant is always the best option.

How do tax avoidance schemes work?

Tax avoidance schemes artificially structure income to reduce or eliminate tax liability. These schemes are often marketed as “HMRC-compliant” or “fully legal,” but this is rarely the case.

A common method used is disguised remuneration, where a portion of a contractor’s income is paid through loans, advances, or other non-taxable methods rather than salary. For example:

• A contractor is told they will receive a small salary taxed under PAYE, but the rest of their income will be paid as “bonuses,” “loans,” or “credits”, supposedly exempt from tax.
• The umbrella company deducts minimal tax but promises higher take-home pay, claiming their structure is approved by HMRC.
• In reality, all earnings should be taxed as salary, and when HMRC investigates, the contractor is held responsible for unpaid taxes.

Why you should avoid these schemes

Whilst it may seem fairly obvious why these schemes should be avoided, here are a few takeaways to consider:

• You, not the scheme operator, are liable for unpaid tax – HMRC takes the position that contractors are responsible for their own tax affairs. If you unknowingly enter a tax avoidance scheme, you cannot pass the blame to the umbrella company or agency that introduced you to it. You could face:
• A large tax bill covering unpaid Income Tax and National Insurance Contributions (NICs).
• Interest and penalties on the amount owed.
• Potential legal action if HMRC believes there was deliberate tax evasion.
• Tax schemes rarely withstand HMRC scrutiny – HMRC is constantly identifying and shutting down tax avoidance schemes, adding new non-compliant providers to its official watchlist. Even if a scheme seems legitimate today, there is a strong chance that HMRC will investigate it in the future, leaving you exposed.
• Reputational damage and career impact – If you are caught up in a tax avoidance scheme, it could affect future contracts. Some businesses are already conducting supply chain due diligence to ensure contractors comply with tax rules. Being linked to a tax scheme could make you less attractive to future clients.

How to protect yourself

If you operate through an umbrella company, be cautious of any scheme offering unusually high take-home pay. A legitimate umbrella company will:

• Pay your entire salary through PAYE, with normal tax deductions.
• Provide a transparent payslip showing tax and NIC deductions.
• Not offer payments via loans, credits, or other tax-free arrangements.

Staying compliant is always the best approach

While tax avoidance schemes may promise quick financial benefits, the long-term risks far outweigh any short-term gains.

***PLEASE IGNORE THIS REMINDER IF YOU HAVE ALREADY SENT US YOUR QUESTIONNAIRE***

We are fast approaching the deadline for filing your Self-Assessment tax return, which is Friday 31 January 2025.

If you would like Cogent to prepare your tax return, please complete and return the Self-Assessment Tax Return Questionnaire for the tax year 2023/24 as soon as possible.

As we are now very close to the key 31 January date, we cannot guarantee to complete the tax return to meet the deadline, so it is important that you complete the questionnaire as soon as possible.

Outstanding Balancing Payments for 2023/24 and the First Payment on Account for 2024/25 are also due and payable by 31 January 2025 and interest will be charged on late payment.

You can request a questionnaire for 2023/24 by emailing tax@cogentaccountants.co.uk

The standard charge, including VAT, for a basic tax return, is £250 as we have passed the deadline to receive this service at a discounted rate. Please note, more complicated tax returns, where additional work or supplements are required, will be subject to additional charges.

If you have a second shareholder, they may also need to file a tax return, even if they haven’t previously. For further advice, please contact our Tax Department.

Penalties for late filing of tax returns can be as much as £1,600, even when there is no tax due, so please ensure your tax return is filed on time, whether you ask us to prepare it for you, or you have made other arrangements.

Please return your completed questionnaire together with any attachments by email only to our Tax Department – tax@cogentaccountants.co.uk

You are required to file a tax return if:

• You have been asked to file one by HMRC
• You have a tax liability for the year (e.g. additional and higher rate tax, student loan in repayments, high-income child benefit charge or if you have any income which has not been taxed at source)
• You have a new source of income that needs to be declared.

***PLEASE IGNORE THIS REMINDER IF YOU HAVE ALREADY SENT US YOUR QUESTIONNAIRE**

With the dust settling on last year’s Budget, it’s time for limited company contractors to look ahead with optimism.

We know that recent history and the introduction of IR35 to the private sector has made things more challenging, but the landscape for operating under a Personal Service Company (PSC) via a limited company structure is getting brighter by the day.

Here is why we think contractors should reconsider their approach in the year ahead.

The turning tide of taxation and legislation

Recent developments suggest a shifting focus that could revive the appeal of the limited company model for contractors.

The Autumn Budget introduced measures that, although initially daunting, pave the way for a resurgence in the attractiveness of working through a limited company.

Positive changes for end-clients

Possibly one of the biggest incentives to take on contractors via a limited company is the change to National Insurance.

From April 6th, 2025, end-clients will face higher employer National Insurance contributions for their permanent staff.

This increase might prompt a reconsideration of engaging contractors through more cost-effective limited company arrangements.

Potential reform of IR35

With the government revisiting the effects of IR35 and related legislation, there’s also potential for what could be seen as a fourth phase of IR35 reform.

This time, the focus might shift towards a more refined, fair approach to contracting. It is early days in regards to changes in this area, but the evidence is growing on its impact on a wide variety of sectors.

Optimism for the contracting sector

When these factors combine, they amplify the potential benefits of contracting via a limited company in 2025 and beyond.

This isn’t just a temporary shift. It’s a substantial move towards a more structured and favourable environment for limited companies.

The outlook for 2025 is promising, signalling that it might just be time to reconsider the LTD route for its potential benefits and the new opportunities it may bring.

Let’s embrace this change and make the most of the new contracting landscape!

***PLEASE IGNORE THIS REMINDER IF YOU HAVE ALREADY SENT US YOUR QUESTIONNAIRE***

If you would like Cogent to prepare and file your 2023/24 tax return and you have not yet sent us your completed Self-Assessment Tax Return Questionnaire, you will need to do so by 31 December 2024 to benefit from our discounted fee.

If you have a second shareholder, they may also need to file a tax return, even if they haven’t previously. For further advice, please contact our Tax Department.

The standard charge including VAT for a basic tax return is £250. Questionnaires received by 31 December 2024 will receive a discount on the basic tax return, charged at £130.

Any questionnaires received after 31 December 2024 will be charged at the full rate of £250.

Please note that more complicated tax returns where additional work or supplements are required, will be subject to additional charges.

Our deadlines have been set so that we can complete your return in time to meet the HM Revenue & Customs’ (HMRC) online filing deadline of 31 January 2025.

Penalties for late filing of tax returns can be as much as £1,600, even when there is no tax due, so please ensure your tax return is filed on time, whether you ask us to prepare it for you, or you have made other arrangements.

You can request a questionnaire for 2023/24 by emailing tax@cogentaccountants.co.uk

Please return your completed questionnaire together with any attachments by email only to our Tax Department – tax@cogentaccountants.co.uk

You are required to file a tax return if:

• You have been asked to file one by HMRC
• You have a tax liability for the year (e.g. additional and higher rate tax, student loan in repayments, high-income child benefit charge or if you have any income which has not been taxed at source)
• You have a new source of income that needs to be declared.

***PLEASE IGNORE THIS REMINDER IF YOU HAVE ALREADY SENT US YOUR QUESTIONNAIRE***