This month…

The Off-Payroll new legislation goes marching on…

There continues to be plenty of speculation about whether there will be an 11th hour reprieve from this ridiculous tax.

We have a new Government, now a new Chancellor but it must be extreme wishful thinking that there will be a change in thinking at the Treasury, which continues to be the driving force behind this. Bless them!!

Last week in Parliament, the Right Honourable Jesse Norman MP, Financial Secretary to the Treasury, in response to an MP’s question regarding concern over blanket determinations being made by end client companies answered “we’re not aware of blanket determinations being made although it must be said that many firms are acknowledging disguised employees and bringing contractors in-house”.

Incredible that in his exalted position, no one has made him aware of the hundreds of end client companies who have told contractors, without any discussion, that they will not work with them in their limited companies after April.

These are blanket bans NOT as he says. It’s not contractors that are disguised employees, but his words that are disguised excuses for the abuse of the law for the benefit of the Treasury.

But as angry as we may be, we need to be practical. The legislation looks to come in from April.

However, there are end client companies that are doing fair IR35 reviews and often finding that contractors are outside IR35 and that the new rules will not apply.

Companies not doing fair IR35 reviews may find it hard to keep their contractor workforce, who in the immediate future may need to reluctantly accept the inside IR35 status, but no doubt will be keeping an eye on contracts elsewhere, which are listed as outside IR35. The commercial pressures may make them soften their attitudes.

In addition, we may see many contractors appealing the inside IR35 determinations imposed on them without their agreement.

This appeal can be done for a few years after the event. I have found an interesting comment on the HM Revenue & Customs (HMRC) Employment Status Manual guidance (ESM10035) relating to accounting in a company for the IR35 tax, that suggests HMRC recognises and expects that there will be times that IR35 should not have been applied resulting in tax and NI refunds:

If after filing accounts the circumstances change and the engagement should not have been one to which Chapter 10 applied, and tax and NICs are refunded, the necessary corrections to the accounts and tax computations must be made to reflect the new position, as the relief would no longer be due.

My advice at this stage is:

• Do what you can in the remaining few weeks to negotiate with your end client to do a fair IR35 review.
• Use our specialist IR35 guidance at no cost to you to assist you.
• If you are deemed inside IR35, keep your limited company open both for other work that is outside IR35 and for the possibility of appealing and getting refunds of tax and NI in the future.

Victor Korman
Managing Director
Cogent Accountants

HM Revenue & Customs (HMRC) has announced that the changes to the Off-Payroll working rules – known as IR35 – in the private sector will not apply to work undertaken before 6 April 2020.

HMRC had said previously that the new rules, which transfer the responsibility for determining an individual’s tax status from contractors to end clients, would apply to all payments made from 6 April 2020, irrespective of when the work was carried out.

HMRC’s review and this new decision will provide a sense of relief to some contractors, as it means that the rules will not be applied retrospectively to previous work conducted before the 6 April 2020.

Many feared that work or projects that ended before the introduction of IR35 could be included within the Off-Payroll rules if the payments related to the work were made after 6 April, but this will no longer be the case.

It is now clear that any new projects or work that starts or continues beyond the 6 April 2020 in the private sector must abide by the IR35 rules where a person is deemed to be bound by them and so contractors should seek professional advice to ensure payments, tax and NICs are calculated correctly under the rules for work before and after April this year.

Given the complexity of the arrangements and this late change, it is critical that end clients and contractors are ready for the new rules as soon as possible.

For advice on the IR35 rules, please contact Victor – victor@cogentaccountants.co.uk

Any outstanding 2018/19 Tax Liabilities must be paid before the end of February 2020 to avoid late payments penalties being issued.

Taxpayers potentially face two separate penalties, one for the late filling of their tax return and another for late payment of taxes owed in the coming weeks.

For late payments, taxpayers have until the end of February to send any outstanding tax owed to HM Revenue & Customs (HMRC) or they will be asked to pay penalties as follows.

HMRC will also charge interest at 3.25% on any tax owing and on the penalties and charges incurred as a result of the late payment of tax owed.

Some taxpayers may be able to make a ‘time to pay agreement’ with HMRC, which could mean that a penalty is suspended. However, the taxpayer will become liable to the penalty if the agreement is broken.

Those concerned about the late filling of a tax return following the final deadline at the end of January may already have been issued with an automatic £100 fine, but if they continue to not submit a return when required to do so they will be penalised as followed.

* Subject to multi-penalty rule paragraph 17(3) of Sch FA 2009

Where a person is late with both the return and tax is still owing, they will be liable for penalties and charges on both.

If you are concerned about meeting or having missed either deadline and fear being fined, please contact our Tax team – tax@cogentaccountants.co.uk  – to see how we can help.

The Lords Select Committee has launched an investigation into the extension of IR35 rules to the private sector and is looking for evidence of it’s impact from contractors.

As part of their role to scrutinise the Finance Bill 2019/20, the Lords Finance Bill Sub-Committee will focus specifically on IR35 reform, which are due to come into force on 6 April 2020.

Lord Forsyth of Drumlean, Chair of the Finance Bill Sub-Committee, said the Committee is “interested in how this change will work in practice, and how it relates to wider changes in working arrangements.”

The investigation will remain open until 25 February, before the Lords’ IR35 inquiry takes into consideration the opinions of contractors and businesses affected by the reform.

“To inform or work we want to hear from as broad a range of people and organisations as possible. If you have a view on Off-Payroll working rules, please let us know what you think,” added Lord Forsyth.

The Government is also due to conclude it’s own IR35 review this month and has already made some recommendations, but the Lords said they intend to focus on a number of key areas for those affected by the change of rules.

In particular, the Committee will examine public sector IR35 reform, which was introduced in 2017. The Lords hopes to receive feedback on:

• What has been the experience of the new rules in the public sector?
• What lessons have been learned from this experience, and how have they affected the Finance Bill proposals?

The Lords will also put the following forward for discussion:

• Has the impact of the extension of the rules to the private sector been adequately assessed?
• Is the exclusion of small organisations sufficiently robust?
• What effect will these new measures have on a chain of contractors and sub-contractors?
• What should HM Revenue & Customs (HMRC) do to help businesses understand the new administrative rules?

The Lords also intend to uncover whether the changes to the Government’s Check Employment Status for Tax (CEST) tool have been sufficient to allow businesses to correctly identify those affected by IR35.

For more information and to contribute to the ongoing IR35 inquiry, please visit the Parliament website here.

From 6 April 2020, the UK Capital Gains Tax (CGT) rules on reporting the sale of a residential property change significantly.

From 6 April 2020, CGT is payable within 30 days of the completion of a residential property sale and a new form of tax return will need to be submitted by that date. Late submission will incur late filing penalties.

A provisional calculation of any chargeable gain will need to be prepared and the tax paid within that 30-day window. The gain will also need to be reported as normal on the annual self-assessment tax return and the tax paid offset against the actual year end liability.

This will affect taxpayers selling ‘buy to let’ investment properties and holiday lets. It will also affect homeowners selling their principal private residence if at any time during their period of ownership they have let their home or used it for business purposes. It may even affect people who have had a lodger.

Sale of UK Property – individuals who are not UK tax resident

If you are living outside the UK, you are still liable to pay UK Capital Gains Tax on profits made from the sale of UK land and buildings and you are required to file a tax return within 30 days of completion even if there is no tax due.

This rule does not just apply to the sale of residential property but to any type of land or buildings, again penalties will be charged for late returns and late tax payments.

Filing these returns will be the responsibility of the person selling the property, it will not be dealt with by the estate agent nor will it be dealt with by the solicitor dealing with the conveyancing. 

Clients considering UK property sales would be well advised to speak to the accountants who deal with their self-assessment tax returns in advance of the actual transaction.

Could this be one of the greatest cases of mistaken identity in 2020 so far? Ben Lilly of West Yorkshire believes so.

The 40-year-old father was recently driving down the A646 near Hebden Bridge when he spotted what he thought to be a dead or dying leopard in the road.

As the area was not known for it’s indigenous big cat population, he turned around in the road and came back to find that what he feared was terrible, was instead…

A spotty onesie.

Taking to a local Facebook group, he initially said: “Careful! Dead leopard in the road on way to Halifax! Oh no, it’s some tart’s coat from last night, can’t believe I turned back for this!”

However, speaking with the local press afterwards he explained how his initial fear lead to greater embarrassment. He said: “I saw something in the distance as I was coming around the bend and slowed down, giving it a wide berth in case it was an injured animal.

“As I passed it, I looked out the passenger’s window and saw the markings on it. It had the tail bit on it too, so it looked really real while I was driving.

“I thought ‘wow’. You hear of these sightings of big cats and around the Halifax area, there have been reports before.

“I spun round where I could, turned around and drove back along. I looked again – it looked real. I then parked behind it and looked from within the car.

“I got out cautiously, because I didn’t want something taking my face off, but as soon as I looked at it from the other angle I started laughing.

“I crept up with my phone out and as the angle changed, I felt like I was on candid camera. I was chuckling to myself. I started laughing then to save my own embarrassment. I pulled up to a onesie.”

Ben said that after revealing his own mistake he was contacted by others who had thought the same thing, but had carried on driving.

You can see this fearsome discovery, by clicking here.

e are fast approaching the deadline for filing your Self-Assessment Tax Return which is Friday 31st January 2020. If you would like Cogent to prepare your Tax Return, please complete and return the Self-Assessment Tax Return Questionnaire for the tax year 2018/19.

As we are close to the deadline, 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.

The standard charge including VAT for a basic tax return is £240 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 have not done so previously due to the changes to dividend tax from April 2018 on any dividends over £2,000. If they would like Cogent to prepare their tax return, please send them a copy of the questionnaire for them to complete.

This month…

In our last newsletter, I dared to dream that with an election coming and the political landscape so volatile there may have been a rethink by a responsible Government on the sense of the new IR35 legislation.

But that’s the nature of dreams… when you wake up reality sets in, as all the main political parties promised an IR35 review in their election promises, and so too did the Conservatives, although they were the last to do so in the last days before the election. On 7th January, they delivered on their promise and announced a review.

However, with seasoned political craft, the review is not on the workings of the legislation but on how to implement the legislation. This is comparable to promising to take your partner ‘out’ for their birthday and then announcing when you’ve stepped out of the front door of your house that you’ve been ‘out’ and now you can go back inside the house. Clever but not sincere.

So, we now must accept the strong likelihood that the new IR35 legislation will come into law on 6th April 2020. But all is not lost. We have seen many end clients consider the commercial risks of losing an essential contractor workforce more relevant to them than the tax risks of their new IR35 responsibilities.

It is important to communicate with your end clients and agencies to create a positive atmosphere of you being in business on your own as a freelance contractor and being far removed from the deemed employee that IR35 threatens.

You control how you do your work, you may well have the right to use a substitute (even though that right is practically very unlikely to be used), you have no continued rights for future work, you carry the risk of error, and generally have no employment benefits. Those factors should be stressed to your end clients.

January and February are the critical months when most end clients will make their decisions on IR35 status so do your best to communicate with your colleagues and end clients.

Should you be deemed to be inside IR35 and taxed as deemed employee, as we note in another article later in this newswire, consider the benefits of continuing to work through your limited company, leaving open getting other outside IR35 contracts and also the possibility of the reversal of the taxes on the inside IR35 contract and a future refund.

We have been working with many of our clients through this new IR35 process and are here for all our clients to help in any way we can. Please keep in touch with us on what is happening with your position and we will give you our guidance.

Victor Korman
Managing Director
Cogent Accountants

The Government has confirmed that despite it’s plans to review the Off-Payroll tax rules, also known as IR35, it will not postpone the April 2020 implementation of the legislation in the private sector.

The introduction of IR35 to the sector is thought to be one of the most significant changes to the way that contractors and consultants are paid and taxed.

The rule change means that engagers (those who use the services of consultants and contractors), rather than workers, will be responsible for determining whether an engagement falls within the IR35 rules.

f an engagement is found to fall within the rules, the engager will be responsible for applying the correct tax and National Insurance contributions (NICs).

The change only affects all medium and large businesses, but it will be they and not the contractor held liable if HM Revenue & Customs (HMRC) determines a contractor’s IR35 status has been incorrectly assessed, which could result in significant costs.

It is understood that this latest review into this controversial change won’t significantly affect the proposed legislation, which is why the Government intends to roll it out still in April.

A Treasury spokesperson said: “The review will determine if any further steps can be taken to ensure a smooth and successful implementation of the reforms, which are due to come into force in April 2020.”

The review will also assess whether greater support can be offered to ensure that the self-employed outside of the scope of the rules aren’t affected, particularly as many have found themselves under blanket IR35 determinations under the current rules in the public sector.

Financial Secretary to the Treasury Jesse Norman stated: “We recognise that concerns have been raised about the forthcoming reforms to the Off-Payroll working rules. The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible.”

It is important the businesses affected by the rules change seek advice to ensure they are compliant with the new requirements. To find out how we can help with IR35 and determining which workers are affected, please contact Victor – victor@cogentaccountants.co.uk

While the threat of being placed inside IR35 could increase upon the arrival of IR35 reform on 6th April, that’s not to say you will definitely be caught by the legislation. Plenty of companies will assess your contract fairly and allow for outside IR35 engagements.

However, if your contract is shifted inside IR35 by your client, nothing is stopping you from continuing to operate through your Personal Service Company.

Contractors taking on contracts inside IR35 are well within their rights to increase their fees to take into account the significant cost of working inside IR35. That might be hard to negotiate but it’s worth a try especially if your skills are crucial to the end client.

If deemed to be inside IR35, you will have a number of choices. Should you find another contract that will sit outside IR35? Or should you take the financial hit and then either take a staff position if offered, work agency PAYE or work through an umbrella company? But as mentioned, even if you are deemed inside IR35, you can continue to work through your limited company.

The new Off-Payroll (IR35) legislation has not been well accepted by many respected industry commentators including, for example, the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales, who believe that the legislation is not well constructed and needs changing, and lobbying will continue with the Government. In addition, end clients with the threat of losing a valuable skilled contractor workforce may change their IR35 assessments. These factors may result in some u-turns and taxes could be refunded.

When taking into account that thousands of outside IR35 opportunities will continue to exist after the introduction of reform, and the possibility that initial taxes deducted might be refunded, stopping working through your limited company altogether could be viewed as a rash move.

If you’d prefer to carry on working with the same client, operating through an umbrella company is certainly an option and, given that it means IR35 isn’t taken into account – because you are perceived to be an employee of the umbrella company – it is something to consider. Please contact us for further advice about moving to an umbrella company.

It is, however, also worth bearing in mind that if you work through an umbrella company, they will need to reduce the rate paid to you by the cost to them of employers NI and the apprenticeship levy which is about 14 per cent. You will also be subject to PAYE taxes which will be deducted by the umbrella company before paying you.

In conclusion, it boils down to your personal situation as to whether it makes financial sense to carry on working through your Personal Service Company on an inside IR35 contract. And while you might find it tricky to successfully raise your rate for inside IR35 contracts, it is our view that many private sector firms will, going forward, offer a great many outside IR35 opportunities. We believe that in many cases, you can still operate with greater tax efficiency and enjoy the benefits of working through your limited company.

It is important to remember we are here to help and advise you so please contact us and include us in your decision-making process – victor@cogentaccountants.co.uk