The impact of IR35 has forced many contractors to use the services of umbrella companies for the first time, often through the agencies and recruiters, through which they advertise and provide their services.

Whilst there are many legitimate umbrella companies out there supporting freelancers and contractors, there is a growing concern about what has been labelled ‘mini-umbrella’ companies.

It is thought that as many as 600,000 temporary workers in the UK are employed through an umbrella company.

However, in some cases, there are fears that these organisations are being used to misappropriate billions of pounds in unpaid wages and tax fraud.

A Guardian investigation into some ‘mini-umbrella companies’ used to recruit freelancers for the Government’s pandemic test-and-trace system found that although people had been hired to work for the likes of Serco and G4s, a complex network of opaque smaller companies, often fronted by overseas directors had led to contractors losing out.

In it’s investigation, the newspaper found that some people had been repeatedly placed on an emergency tax code so that they were charged more tax than they owed and had to reclaim it at the end of the year, while some staff reported problems with obtaining holiday pay that they were due.

In fact, separate research indicates that umbrella companies have been estimated to withhold holiday pay worth £2.5 billion a year.

This often happens because workers do not actively claim it before the end of a tax year, meaning that it is often then claimed by unscrupulous umbrellas rather than workers themselves.

Several campaign groups have now written to the Government calling for action against these umbrella companies and a review of labour market enforcement to ensure contractors and freelancers aren’t abused.

While there are many effective and fair umbrella companies in operation, it is important you check that you are being paid fairly and within the current regulations. Please speak to us if you need advice on using an umbrella company.

HM Revenue & Customs has announced that they have arrested a man and woman in Bradford on suspicion of using the Coronavirus Job Retention Scheme to defraud the public purse of £3.4 million.

The arrests are part of a wider fraud investigation by the tax authority into the 35-year-old man and 36-year-old woman, who were also arrested in relation to a suspected “multi-million pound” tax scam.

As a result of the arrest, more than £6 million held in bank accounts controlled by the duo has been frozen by HMRC.

As it is HMRC’s approach to process tax reliefs and claims for funding first and then check eligibility later and recover funds afterwards, this arrest should stand as a warning for others to ensure their furlough claims are accurate.

The internet has shared the woes of a US woman who sold a sofa online for $500, only to learn hours later that it could be worth 40 times as much.

Jules Schreiner recently posted her story on popular social media site, TikTok, in which she described her mistake.

Jules had obtained the sofa for free and advertised the couch for $500 on Facebook Marketplace, without doing any prior research on the furniture.

Within seconds, she had an offer for the full price she had advertised and was delighted with the sale.

However, later she saw the new owner post it on Instagram, where they revealed more about the brand and what it might be worth.

After finally researching her recent sale, Julie learned that the sofa was designed by Vladimir Kagan, an icon of mid-century modern American furniture design.

She then found another sofa for sale worth up to $20,000, which was by the same designer but in a different style.

Jules added: “Thought I had got a great deal on FB market place but you know things are always too good to be true.”

Since releasing the video, it has racked up thousands of views, as people shared her pain of losing out on thousands of dollars.

Please note due to impending holiday commitments, our offices will be closed on Monday 17th and Tuesday 18th May.

We will be open for business as usual on all other dates.

We thank you in advance for your understanding.

What Happened To The Tsunami?

The forecast for 6th April 2021 was a Tsunami of epic proportions. A tidal wave of IR35 legislation sweeping everything away.

I have not become a weather forecaster, just an accountant who has spent a great deal of time over the last few years troubled by the changes that will affect our clients from the new unfair and not well thought out Off-Payroll legislation.

6th April has come and gone and is causing problems for many of our clients. However, the full Tsunami style total destruction has not come about.

Many end clients have chosen, somehow or another, to assess freelance contractors as outside IR35, who are then able to continue to work through their limited companies without any change to their tax position.

A good indicator that this legislation is bad and not well designed is that, in the end, it appears that the crucial status decision determining whether a freelance contractor is working like an employee or like a freelance worker is down to the willingness of the end client to view the contracts and working circumstances in a fair way, but not the legislation itself.

Those end clients who quickly make a decision that a worker is inside IR35 are the ones who are being unfair in using methods, such as the HMRC CEST assessment tool, to arrive at their predicted decision. They want to get rid of the new tax risk so they ‘fix’ the results to achieve their objective.

The good news is that many end clients are finding contractors outside of IR35 and I hope that those rogue end clients making inside IR35 determinations will find it hard to get a skilled workforce to service their projects and in months to come will miraculously reconsider their inside IR35 determinations.

For any contractor finding that they have been assessed as inside IR35, I would recommend looking elsewhere for work that is outside IR35. The work is out there with many end clients providing outside IR35 contracts.

Also, even if you don’t want to give up your current inside IR35 contract, then look for a smaller contract elsewhere that is outside IR35. It is the contract that has been assessed as inside IR35 not your company and you can be engaged in a few contracts at the same time. Network around your particular specialism and you may find good work that you did not think was available.

In summary, I think the Treasury and HMRC, backed by successive governments, have never addressed the freelance tax challenge fairly and have once again built a house on bad foundations. They succeeded quite well in April 2017 with the Public Sector Off-Payroll legislation, but as often is the case with civil servants who had not worked in real small business, they have no concept of the will to generate business and make profit that exists in the Private Sector.

After the acknowledged failure of tax compliance for the last 20 years of IR35, I predict they will find themselves in a position of not being able to cope with the volumes of challenges that will be needed to achieve the tax compliance they are looking for from this new Off-Payroll legislation.

So, I may not be a weather forecaster but I see that the promised tax Tsunami has not arrived. Here’s hoping that my tax predictions hold true.

Best regards,

Victor Korman
Managing Director
Cogent Accountants

A new report has been released by the Loan Charge All-Party Parliamentary Group (APPG) that has revealed “significant” non-compliance in the supply chain and urged the Government to review and revise IR35 reform.

The inquiry into How Contracting Should Work has found that reform of the IR35 rules has “led to the increased proliferation of umbrella companies” that are “all too often exploiting contractors”.

Following months of investigations, the inquiry found that some contractors have been recommended to work through certain umbrella companies, which have led them to use disguised remuneration schemes, often without being made aware of what they are agreeing to.

The reforms have also created a “take it or leave it” situation where contracted workers are being forced to use a specific umbrella company to secure work.

The APPG found that there was a “general lack of transparency” over fees and deductions, with some umbrella companies “unlawfully deducting employer’s taxes from contractors’ pay”, while others had withheld holiday pay from contractors who were unaware they were entitled to this benefit.

The report concluded that the “unregulated umbrella market is out-of-control” and is one of the “key reasons for tax avoidance schemes operating”.

“It is clear the current system of voluntary regulation and accreditation does not stop the facilitation of tax avoidance schemes and does not stop malpractice in the supply chain (by both umbrella companies/payroll intermediaries and also recruitment agencies),” the report stated.

In response to it’s findings, the APPG is now calling on the Government to take steps to address these issues as part of its promised review into supporting self-employment and contracting.

It says that legislation should be introduced that prevents umbrella companies:

• Receiving financial incentives
• Withholding holiday pay
• Forcing or coercing contractors to opt out of the Conduct of Employment Regulations.

The APPG has also suggested making it mandatory for agencies to disclose all fees and costs and explain deductions in documents and on payslips.

Ruth Cadbury, Labour MP and Co-Chair of the Loan Charge APPG said: “It is clear from our inquiry that there is significant non-compliance in the worryingly opaque supply chain, which has been dubbed ‘the wild west’ as a result and the lack of regulation enables exploitative practices, as well as enabling promoters of tax avoidance schemes to operate.

“If it is serious about clamping down on tax avoidance schemes, the Government must legislate to clean up the supply chain and proactively stop schemes as they start, rather than merely trying to take retrospective action after the event. We also call on the Government to commence the review they promised to look at all these issues and how best to recognise and structure contracting and freelancing.”

Matt Collingwood, Managing Director of IT recruitment firm VIQU, has said that the reopening of many sectors following the pandemic could offset the impact of IR35.

We are now several weeks into the new IR35 rules regime, and while many contractors have experienced a change to their working arrangements, the number of contracts coming to market remains high, particularly in technical sectors like IT and engineering.

VIQU has said that in the first three months of 2021 until 14th April the number of contract requirements it received increased by 18 per cent.

This ties in with recent employment job posting figures that show that in the first week of April the number of open positions increased by 181,000 new postings. The leisure, tourism and financial industries seem to be leading the current permanent position hiring activity.

There seems to be growing excitement about the gradual reopening of the economy, with many businesses looking to hire and recruit to meet new demand for their goods and services.

Although there are obvious negatives associated with the new IR35 legislation, many in the recruitment sector, like VIQU, are seeing positive developments taking place that suggest a large volume of work is becoming available to many contractors.

As well as new positions, VIQU has seen it’s contractor extension rates increase by seven per cent during the first quarter of 2021, which it puts down to certain skill sets being in demand and businesses realising the value of these sought-after contractors and are retaining them.

Many recruiters are confident that the strong demand for contractors will, ultimately, counterbalance the ill-effects of Private Sector IR35 reform.

A team of workmen removing a wooden pole to lay cabling have discovered a mystery tunnel in Tintern, Monmouthshire, which may date back to the 12th century.

The secret tunnel was uncovered in the historic village while technicians were moving overhead power lines to a different part of a customer’s property.

During this process, they had to dig a footpath along a fast-flowing stream, when they suddenly found a four-foot-high passageway underground.

The secret tunnel is thought to date as far back as the 12th century, but has not been marked on any maps since at least the 1700s.

Western Power Technician Allyn Gore said: “Before work began, we’d done all the usual checks and nothing had shown up on any of our drawings or records to indicate there was anything unusual about the site.”

However, once excavation began the team quickly made the discovery, which they initially thought may be a cave.

“Work stopped immediately and we were called in to decide what course of action we should take next” said Allyn in an interview with the Metro.

“I have previously been involved in other excavations where we’ve discovered old wells and cellars not shown on any plans, but nothing as exciting and impressive as this.”

The Welsh Government’s historic and cultural heritage service, Cadw, has since sent out a team to check out the unique discovery to assess it’s historic importance.

The tunnel has now been resealed to prevent the risk of damaging it before any in-depth archaeological examination can take place.

Situated in the heart of the Wye Valley Area of Outstanding Natural Beauty, Tintern is home to the remains of an abbey dating back to the early 12th century.

There are also a number of ruins from old furnaces, iron works and forges nearby, which could be connected to the tunnel.

IR35 and Umbrellas – THE TRUTH

What do IR35 and Umbrellas have to do with each other?  As I explain below, not as much as the industry would have you believe.

The dictionary defines an umbrella as ‘A device consisting of a circular canopy of cloth on a folding metal frame supported by a central rod, used as protection against rain’.

An umbrella company, which is a PAYE payment vehicle, is a method that many are recommending strongly to contractors who are being deemed Inside IR35.

The metaphor of an umbrella that is used to brand these PAYE payment companies is I think a good one. An umbrella should be used when it’s raining heavily and you will get very wet if you go outside. But otherwise, why have the uncomfortable weight of an umbrella to carry all day.

If you as a contractor have, unfortunately, been given an Inside IR35 determination by your end client and must now accept for the time being on this particular contract that Tax and NI will be deducted from your income as if you were an employee, it is quite likely that you be directed towards using an umbrella company.

However, the better choice for reasons explained below and in our guidance document is to continue to use your own limited company. Please click here to see our Deemed Limited Inside IR35 Guide.

Continuing to use your own limited company is a little confusing at first glance, as you will not use it as you did previously when you were in full control of how you were paid. Your company will send an invoice as normal but the end client or agency paying will have labelled you as a ‘deemed employee’ and tax your income as an employee paying over to your company the net after the tax deductions.

But having an accountant in your corner, namely Cogent, means you don’t have to worry about how the mechanics will work. We will do everything for you.

The advantages of using your own company are explained in the guidance note, but here are the key points at a glance:

• Going the Deemed Limited route provides continuity with the use of your existing limited company and no setup whatsoever.
• You continue to have some control over your business life and can look for other work, as there are end clients who are giving out contracts outside of IR35 or IR35 neutral, paying gross invoices without tax deductions as a deemed employee. If you cannot get a full-time contract, you may still get some small contract work which will build up your income streams and may grow into a larger contract or other referrals. Your company can have Inside and Outside IR35 contracts running at the same time.
• Some end clients are viewing status determinations more favourably and some within the new Off-Payroll legislation are exempt, such as small companies (roughly less than £10m turnover and other tests) or wholly overseas clients (no UK office/branch base at all). So, you can actively look for work with small or overseas based companies. At the moment with Covid and travel issues, many such contracts are home based without the need for travel away from home.
• There are untrue statements being made in the industry that using your limited company will incur double taxation. Clearly NOT true. HMRC are clear that there is no company tax on the income already taxed as an employee.

I would suggest that when you are given a status determination of ‘Inside IR35’, you should show your own determination to work as you want. You have no control on the taxes being deducted with an ‘Inside IR35’ contract, but you have control to continue to use your own company and you should ask for that.

We are here to explain and provide guidance on all aspects of Off-Payroll / IR35 and continuing to use your company for invoicing.

Best regards,

Victor Korman
Managing Director
Cogent Accountants

Ongoing warnings to engagers about the of banning limited company contractors, or blanketing them ‘Inside IR35’, seems to be taking affect.

Reports are coming in of major employers amending and making Outside IR35 determinations, ahead of the implementation of the Off-Payroll rules in the private sector next month.

Contractor UK has revealed that at least 11 end clients have been identified in the last few days as offering either a ‘fair’ determination process or one geared towards ‘Outside’ outcomes.

It has also been revealed that many end users are even asking for existing CEST determinations to be reviewed, resulting in the overturning of pre-existing blanket determinations or contractor bans.

The reports come amid a fresh warning from law firms that end users may not even have the legal grounds to force contractors onto PAYE.

Legal firm Chartergates recently revealed in a briefing to end users that “blanket [decisions]…will not constitute a valid Status Determination Statement (SDS) for IR35 purposes, as they are non-specific, not provided directly to the worker, and will probably lack reasons and due care in approach.

“This in turn means that they do not provide the engager of a PSC with a statutory right to deduct PAYE taxes from the PSC.”

A growing number of recruitment agencies also seem to be on board with changes to Status Determination Statements, with Contractor UK reporting that at least one recruiter thought that the industry had turned a corner.

Speaking in the publication the agent, a specialist in the digital sector, said: “Yesterday was the first time I’ve been able to advertise an ‘Outside IR35’ contract in many, many months. I’ve been inundated with fantastic contractors as a result, most of whom refuse to work Inside IR35.”

This highlights that many recruiters and end users recognise the dangers of losing talented contractors to competitors offering ‘Outside IR35’ contracts.

“Blanket banning PSCs denies you — the end user — essential business talent,” says Freelancer & Contractor Services Association CEO Phil Pluck.

“The IR35 reforms are coming into place on April 6th. [And unfortunately for the unprepared] HMRC cannot make the decision to delay or cancel the reforms.”

If you are still yet to receive an SDS from an agency or end user or you have queries about any SDS given to you already, we are here to help.

We appreciate the stress and strain that IR35 has had on contractors, so we just want you to know you can talk to us.