Exactly two years since the first lockdown was announced, the eyes of the public were firmly fixed on the Chancellor, Rishi Sunak, as he rose to the despatch box in the House of Commons to deliver his Spring Statement.

Yet again, Mr Sunak found himself addressing MPs against a background of crisis, with the residual impact of COVID, the invasion of Ukraine and the cost-of-living crisis all affecting the economy in different ways.

The cost-of-living crisis will have been weighing especially heavily on the Chancellor’s mind. Just hours earlier, the Office for National Statistics (ONS) had confirmed that inflation had hit a 30-year high of 6.2 per cent. Meanwhile, petrol and diesel were averaging 166p and 178p a litre respectively, and anxiety is rising about the £693 increase to the energy price cap coming into effect on 1 April.

Compounding matters, a 1.25 percentage point increase in National Insurance Contributions (NICs) for employees and employers is set to take effect on 6 April.

Employers will also need to contend with substantial rises in the rates of the National Minimum Wage (NMW) and National Living Wage (NLW) from 1 April.

Individuals and businesses alike were hoping the Chancellor would announce further measures to address the cost-of-living crisis.

However, this was a Spring Statement. While they can morph into mini-Budgets, they typically contain little by way of concrete tax and spending measures.

Instead, the main purpose of a Spring Statement is to set out the latest economic forecasts prepared by the Office of Budget Responsibility (OBR), often followed by the launch of various consultations on the Government’s longer-term plans.

Mr Sunak and his allies had spent the days and weeks ahead of the Statement letting it be known that he wanted largely to stick to his existing plans and resist calls to make major changes.

Delivering the Mais Lecture at Bayes Business School last month, Mr Sunak said:

“And the impact of these trends on people is being exacerbated by high inflation. This is primarily a global problem, driven by higher energy and goods prices.

“The government is dealing with high inflation by helping people with those extra costs, and through the monetary policy framework.

“But over the longer-term, the most important thing we can do is rejuvenate our productivity.”

The suggestion was that Government assistance with the cost-of-living crisis should be limited and that dramatic interventions would not be on the cards.

But the scale of the crisis meant political pressure on the Chancellor from diverse quarters to take immediate action was increasing by the day.

In the event, the Chancellor bowed to pressure and pulled several rabbits from his hat with a focus on supporting workers.

Weighing in at a whopping 289g, Chahi Ariel’s mammoth fruit has been declared the world’s largest strawberry by the Guinness World Records.

Chahi’s strawberry was lovingly grown on his farm in central Israel last year and carefully kept frozen so that judges could assess it’s claim to the title.

Picked on his family farm near Netanya in February 2021, the massive fruit dwarves other varieties and has left visitors amazed.

Chahi said: “We waited for a year for the results. We kept it in the freezer for a year. It’s no longer as pretty as it was.”

The strawberry variety used is local to the farm and called Ilan. They are known for growing large but don’t often get this big.

In fact, Chahi said the record setting fruit had actually shrunk to about half the size it was a year ago due to being frozen.

The previous record-holder was grown in Fukuoka, Japan in 2015 and reached an incredible weight of 250g.

After learning that he had taken the record, Chahi said he jumped up and down, laughing and singing. He added: “We are very happy to be in the Guinness World Records.”

Contractors working in the oil and gas industry are celebrating the news that the Government is approving the creation of six additional oil and gas fields in the North Sea.

It has been reported that the Chancellor Rishi Sunak has pressed Business Secretary Kwasi Kwarteng to fast-track the licences for their construction, over fears of energy security and the economic impact of reliance on foreign fields.

While Boris Johnson and his Government have been criticised for the move because of the UK’s pledge to be a net-zero carbon emitter by 2050, the move has been widely welcomed by the industry.

Although the nation has plans to move to greener forms of energy in future, it is understood that the Treasury is concerned about the economic impact of making the switch to renewables.

Under the plans, the Oil and Gas Authority will be giving the green light to open new wells in six new areas, beginning in the Rosebank field, to the west of Shetland, and at Jackdaw, Marigold, Brodick, Catcher and Tolmount East in the North Sea.

It is thought that these new drilling sites could yield 62 million tonnes of oil-equivalent fuel, which could power the whole of the UK for up to six months.

The move is likely to create new jobs and contracts within the sector at a time of some uncertainty and so it has been welcomed by the British oil and gas industry.

The National Audit Office (NAO) has recently published a new report which investigates the impact of IR35 on the public sector, in particular Government departments and agencies – and the findings are damming.

In fact, careful examination of the report summarises that IR35 was a rushed initiative that was based on inaccurate and inflated HMRC estimates on the loss of taxable income via contractor and business engagements.

What’s more, it failed to appreciate the cost and administration burdens of the new legislation and was backed by an ineffective compliance tool, CEST.

This probably isn’t surprising to those who have been affected by IR35 but most worryingly the NAO study suggests that HMRC’s tax calculations are incorrect, and it is sometimes collecting more than is due.

Up until now, it has been revealed that seven public sector bodies have failed to comply with IR35, landing them with penalties and a tax bill of £263million in total.

This only gives a small glimpse at the problems created by IR35 and doesn’t take into consideration it’s impact on the private sector.

Clearly, if Government agencies are struggling to get it right, how can businesses be expected to follow the rules.

In fact, the problem may be worse than many realise, as the NAO report shows that out of 59 investigation cases, HMRC did not pursue and closed 24 because they were at “low risk of non-compliance”.

The reasons for this decision are unknown but would clearly be helpful to the private sector, which is still getting to grips with this legislation.

Perhaps because of this latest report, it is now being recommended that HMRC publishes what it thinks is good implementation practice for IR35 to help it’s public sector colleagues.

Looking further into the report, it appears that HMRC is also out of touch with the realities of IR35.

As an example, at one point, it is revealed that HMRC estimates that the time spent by most organisations to complete the IR35 process includes:

• 30 minutes – 1 hour to run CEST
• 30 minutes to deal with the “undetermined” results

So, at most, HMRC believes that organisations will only require an hour and a half to complete the process without the apparent need for an advisor or potential conflict that may arise from effectively changing someone’s employment and potential income.

Unsurprisingly, several experts have pointed out the incredible lack of understanding of the commercial realities of contracting.

In comparison, HMRC has said that should a matter require investigation, it estimates that this will take on average two years for it to investigate and come to a decision on the matter.

The NAO’s report was focused on the public sector, but HMRC admits that it expects the private sector to face the same challenges and mistakes that have plagued public bodies.

As we look ahead, here are five things to help you grow your business this year:

Diversify

Those that succeeded most in the last year were contractors who were able to move out of their comfort zone or defined area to use their skills in other sectors.

Try not to be a ‘one-trick pony’. This will limit your opportunities to win new work, especially if your main sector has been hit hard by recent events.

Spend time refining and defining your skillset to see if there are areas of overlap or a specialism that can set you apart or help you tap into a new audience of engagers.

Check your IR35 status

As you move from one contract to another, make sure you establish your IR35 status straight away on each new job.

Ideally, this should be done before rate negotiation begins with an engager or their agent. If you know your status, you can use that as a bargaining position to increase your fees.

However, don’t be afraid to challenge the determination given by a potential engager. Not every business has got the process right and there are some out there still using blanket determinations.

Confirm financial health 

There has been a growing number of insolvencies across the UK and there are many businesses out there, both large and small, that may be teetering on a knife-edge.

Take the time to check the financial health of potential engagers by conducting credit checks and reviewing their Companies House information.

You don’t want to start a new contract only to learn that the business doesn’t have the funds to pay you correctly on time or worse, collapses without ever paying you further down the line.

Be flexible

Different contracts throughout the year may return different IR35 status determinations, which is why it is worth maintaining your personal service company (PSC) to take advantage of work outside the rules.

Keeping your limited company open gives you options to respond to market changes.

Keep an eye on tax 

You want to keep what you earn, we all do, which is why it is worth regularly reviewing your tax affairs and planning to make sure you are taking full advantage of your reliefs and allowances.

With a freeze on many personal tax allowances until 2026 and a rise in National Insurance and dividends tax in April, it is a good time to seek tax advice.

If you would like support or guidance on any of these tips, please contact your Account Manager.

The High Income Child Benefit charge applies to a taxpayer who has income over £50,000 in a tax year where either they or their partner, if they have one, are in receipt of Child Benefit for the year.

We set out below the main points of the charge and illustrate some of the practical issues.

Does this affect my family?

The High Income Child Benefit charge is payable by a taxpayer who has ‘adjusted net income’ (explained later) in excess of £50,000 where either they or their partner, if they have one, are in receipt of Child Benefit.

Where there is a partner and both partners have adjusted net income in excess of £50,000 the charge only applies to the partner with the higher income.

Practical issues

Some couples with fluctuating income levels may find that they are caught by the charge or perhaps that the partner who usually has the highest income does not actually end up paying the charge.

For couples who do not share their financial details, there is a problem as it is difficult to accurately complete their tax return (or know if they need to contact HMRC to request one) if their own income is over £50,000 and Child Benefit is being claimed. Only the highest earning partner is liable so this will need to be determined.

Changes in circumstances

As the charge is by reference to weeks, the charge will only apply to those weeks of the tax year for which the partnership exists.

If a couple breaks up, the partner with the highest income will only be liable for the period from 6 April to the week in which the breakup occurs.

Conversely, if a couple comes together and Child Benefit is already being paid, the partner with the highest income will only be liable for the charge for those weeks from the date the couple start living together until the end of the tax year.

So, what is the adjusted net income of £50,000 made up of?

It can be seen that the rules revolve around ‘adjusted net income’, which is broadly:

• income (total income subject to income tax less specified deductions e.g., trading losses and payments made gross to pension schemes)
• reduced by grossed up Gift Aid donations to charity and pension contributions which have received tax relief at source.

In some cases, it may be that an individual may want to donate more to charity or make additional pension contributions: for example, to reduce or avoid the charge.

Inequity applies as household income is not taken into account. Therefore, equalising income for those who have the flexibility to do so such as in family partnerships or family owner managed businesses is important.

Who is a partner for the purpose of the charge?

A person is a partner of another person at any time if any of the following conditions are met at that time. The persons are either:

• a man and a woman who are married to each other and not separated; or
• a man and a woman who are not married to each other but are living together as husband and wife.

Similar rules apply to same-sex couples.

The charge

An income tax charge will apply at a rate of 1 per cent of the full Child Benefit award for each £100 of income between £50,000 and £60,000.

The charge on taxpayers with income above £60,000 will be equal to the amount of Child Benefit paid.

How does the administration operate?

In the self-assessment system, individuals are required to notify HMRC if they have a liability to income tax, capital gains tax (CGT) and the High Income Child Benefit Charge by 6 October following the tax year.

This requirement is amended to include situations where the person is liable for the Child Benefit charge. In addition, the charge is included in Pay as You Earn (PAYE) regulations so that it can be collected through PAYE, using a reduced tax code.

It is also included in the definition of tax liability so that it could potentially affect payments on account and balancing payments.

So, should you continue to claim Child Benefit?

It is important to appreciate that Child Benefit itself is not liable to tax and the amount that can be claimed is therefore unaffected by the charge.

It can, therefore, continue to be paid in full to the claimant even if they or their partner have a liability to the charge.

On the other hand, Child Benefit claimants are able to elect not to receive the Child Benefit to which they are entitled if they or their partner do not wish to pay the charge.

However, this will not affect the credit available (for state pension purposes) to certain people who stay at home to look after children (provided that an initial claim for child benefit was made when the child was born). An election can be revoked if a person’s circumstances change.

But I don’t receive a tax return? 

It may well be that you and/or your partner have not received a tax return before, but this may need to change. You need to tell HMRC by 6 October following the end of the tax year if you think a charge may be due.

Guidance

HMRC has issued some guidance on the charge and the options available which can be found at www.gov.uk/child-benefit-tax-charge.

Luck can be fickle, but for 85-year-old Janus Wagonback, it is certainly on his side. The Nottinghamshire grandfather recently won £2,700.

This is not a ground-breaking amount, but what is incredible is that his original stake was just 3p. Janus made the bet on a 10-match accumulator at a bookmaker in Sutton-in-Ashfield, Nottinghamshire.

This included all his matches ending in a draw, encompassing Millwall’s home tie with Preston North End, the Dundee derby and a World Cup qualifier between Lebanon and Iraq.

Unsurprisingly the odds of this happening were high – nearly 90,000-1. So, it was a surprise to Janus, known locally as George, to win such a significant bet.

He said the small amount was “basically loose change that I had in my pocket. I’ve had some significant wins on the football over the years, much bigger than this one.

“I didn’t know I’d won until I checked the paper the next day. I did feel good but can’t jump around much these days – only little jumps.”

The 3p bet was smaller than the minimum stake of 5p usually allowed by Betfred, but it was happy to make an exception as George is a regular at the bookmakers.

Company boss Fred Done said: “I’ve been in this business for over 50 years and cannot remember anyone winning so much from just three pence,” he said.

We are fast approaching the deadline for filing your Self-Assessment tax return which is Monday 31st January 2022.

If you would like Cogent to prepare your tax return, please complete and return the Self-Assessment Tax Return Questionnaire for the tax year 2020/21 which was previously sent to you by email.

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 download a second copy of the questionnaire for them to complete.

Please also be aware that if we have already prepared your tax return, this will not be filed until our fee has been paid and the tax return approved.

Outstanding Balancing Payments for 2020/21 and the First Payment on Account for 2021/22 are also due and payable by 31st January 2022 and interest will be charged on late payment.

STOP PRESS…
HMRC has announced that Self-Assessment taxpayers who miss the 31st January 2022 tax return deadline will not receive late filing penalties if their return is filed online by 28th February 2022. The 31st January 2022 payment deadline however remains. Taxpayers who do not pay any outstanding balance on their 2020/21 tax bill by 31st January 2022 will be charged interest from 1st February 2022.

Contractors have faced a tough couple of years dealing with rising costs, the COVID-19 pandemic, Brexit and, of course, the challenges of IR35.

These issues have constrained the contracting community, forcing some freelancers to completely alter the way in which they work.

So, what does the future hold? Our team has looked at some of the key developments on the horizon.

IR35 is not going away

Although many contractors have had to get used to the issues created by IR35, the reality is that it is still the biggest and most persistent difficulty that most contractors face.

The reforms have caused major disruption during a really tough time. Many contractors working via a PSC have had to alter their working arrangements to adapt.

However, things may be looking up. Although the Government hasn’t altered the IR35 rules, there is unmistakable evidence that larger businesses required to abide by these new rules have stopped using blanket bans in the main and have got to grips with making proper status assessments.

In fact, thousands of firms are still collaborating with contractors, engaging them outside IR35 and many more now better understand their requirements under the off-payroll legislation.

IR35 to be scrutinised

The well-publicised cases of incorrect status determinations and the various legal decisions against employers and HMRC over IR35 status has drawn the attention of Parliament.

There are several groups and committees requesting evidence and further scrutiny of the rules is expected.

This year we should see the follow-up Lords review into IR35 reform and a further National Audit Office investigation, which should reveal the true impact of the reforms.

It is hoped that the Government will make positive changes to the rules based on the recommendations that are delivered but much will depend on whether they listen.

Alongside this HMRC continues to update and overhaul its fundamentally flawed IR35 tool, CEST.

Tax avoidance is public enemy number one

Given the significant spending during the pandemic, HMRC is keen to stamp out tax avoidance, especially among smaller businesses and taxpayers.

During 2022, the Government has promised to tackle tax avoidance schemes and is implementing new powers under the latest Finance Bill to do so.

When it comes to contractors, there are growing calls for some umbrella companies to be investigated and new rules to be enforced preventing these businesses operation as unscrupulous tax avoidance schemes. We operate a fully compliant umbrella company under our Cogent brand should you be required to work through one: https://cogentaccountants.co.uk/cogent-umbrella

Many contractors may have already been stung by the Loan Charge legislation and should avoid repeating this situation again by using the wrong umbrella company, despite the assurances given by promoters of some schemes.

False self-employment

It is thought that the Government wants to take a wide look at the self-employed workforce beyond the IR35 reforms, which predominantly affected contractors working via PSCs.

It is understood that it may be looking into whether sole traders are genuinely self-employed or if the businesses engaging them are facilitating ‘false self-employment’.

Here to help

Whatever challenges may come your way in the year ahead, our team at Cogent are here to offer a helping hand, so please get in touch.