Tag Archive | "tax"

NO Tax Cut for Contractors Says Chancellor

If you are a contractor in the UK then you probably want to pay less tax. Unfortunately, it doesn’t look like there will be a tax cut any time soon.

That is according to the chancellor Philip Hammond, who recently banged his fist down on the table and demanded…NO tax cut for contractors!

This news will no doubt come as a shock to the millions of contractors, freelancers, gig workers, and self employed employed people around the country, because if you remember, it was only a few months ago that Mr Hammond said we would do “whatever we have to do” when Brexit takes place in order to stay competitive.

Many experts thought he meant a tax drop would be on the cards, in a bid to attract highly skilled contractors to relocate on a permanent basis to the UK, but it appears this is not what he meant.

Instead, there will be no tax cuts and no attempts to get one over on our European neighbours. It actually seems that everybody is getting on really well right now, as the Brexit negotiation take place and the European leaders try to work this whole thing out.

So everybody is friends at the moment and it’s all smiles…but how long will that last? Not long in my opinion, and if our soon to be ex European partners try to pull a fast one in the negotiation room, then it wouldn’t surprise me if Philip Hammond starts to talk about tax cuts once again.

Is it really fair that the chancellor is using UK contractors as pawns though? A few months ago he got everyone’s hopes up with all this talk about less tax, and then, without a moments hesitation he changes his mind and acts like nothing ever happened.

Meanwhile, the millions of hard working self employed people are let down once again. Is it any wonder that the Conservatives lost votes at the recent General Election? I don’t think so.

It had a lot to do with the senseless tax grab the chancellor tried to get away with if you ask me, and that is why many people stayed away or voted elsewhere at the election.

Well, if people were not impressed with the tax grab, something tells me those people (and even more) are not going to be impressed about the chancellor promising a tax cut and then backtracking only a few months later.

A tax cut might have been a bit of pie in the sky anyway, with one political correspondent saying that due to the Conservatives losing seats in Parliament then getting a bill passed for less tax would probably be a struggle.

Wouldn’t it be great that instead of politicians, we had contractors and business owners in Parliament making the decisions? I’m sure the tax rate would quickly go down, and millions of self employed would enjoy filling out their tax return every year.

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Public Sector Contractors Walk Out – “had enough” They Say

As you might be aware, changes are about to happen in the public sector with thousands of contractors facing disruption to their tax situation.

It is the IR35 tax change that has got everybody up in arms, and the reason is because many contractors who work in the public sector will end up paying more tax, something which many of them don’t want to do, obviously.

This has lead thousands of contractors to simply down tools and walk out. “I’ve just had enough,” said one contractor who wanted to remain nameless. No doubt they are leaving the public sector and going to offer their services elsewhere in a bid to avoid IR35.

What were the government expecting though, did they really think people would take it? Reports suggest they came up with the idea of changing the IR35 system in a bid to make £440 million a year from 20,000 hard working contractors in the public sector.

What they didn’t expect was that many of these contractors are going to walk out and never go back. Looks like it’s back to the drawing board for the people at government HQ.

One of the biggest areas of the public sector that hires contractors is IT with an estimated 18,000 on the books of Central government.

However, many reports are saying that IT contractors are the most affected by IR35, and they are not impressed at all. One example is a recent defence related IT project that is no doubt crucial for the nation…but 87 of the contractors working on that project have already left, with many more expected to follow.

It’s also come to my attention that another project involving public sector contractors, this time consisting of security consultants…well, almost half of the people in that team have already moved on to the private sector.

Let’s be honest here for a moment. Is it really a surprise this is happening? Of course it isn’t, mainly because people don’t like to lose money. Simple really isn’t it, but for some reason the organisers behind the IR35 change just couldn’t see this. Or maybe they did and just don’t care? Who knows exactly what is going on here.

What I do know is that at the end of March thousands more contractors officially come to the end of their public sector contracts, and guess what…many are not going to be renewing.

Instead, they will go boldly into the private sector, where they are not going to be subjected to this IR35 madness.

The only way they will go back is if the government decides to not go forward with the IR35 tax change, but I don’t think that is going to happen.

In the meantime thousands more public sector contractors are going to be walking out and going elsewhere.

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Is the government forcing contractors into umbrella companies?

After the recent revelations that a lot of Government contractors were avoiding tax by paying themselves through a personal service company, the Treasury has announced that all contractors earning more than £220 a day will have to pay the correct tax if they have been in a department for longer than 6 months. This decision is likely to affect virtually all the IT contractors who work in a government department.

When Danny Alexander, the chief secretary to the Treasury, started looking into the issue of contractors he found that 2,400 individuals were paid off payroll. Of those 85% got paid via a recruitment agency, 5% were self-employed and the remaining 10% worked through a limited company. Around 1,680 of the contractors earned more than £400 a day.

The new get tough approach is designed to ensure that anyone working in the public sector will be on the payroll unless exceptional temporary circumstances prevail. Contractors earning at least £220 pay day will need to assure the department they work for that they are meeting their tax and NI obligations.

It looks as if the government is now trying to encourage contractors to use an Umbrella Company. It was recently shown that the Treasury collects an average £10,000 more per year from an umbrella company contractor than it does from one working through a limited company. With an estimated 200,000 umbrella company contractors currently operating in the UK, that gives the Treasury £2 billion.

The freelance community is now hoping that the government doesn’t try to push them into umbrella companies as well. The UK has 1.6 million freelancers; just think of the extra revenue if it did!

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Do contractors turn to their iPad for tax advice?

Small business owners and self-employed individuals are increasingly turning to apps when they want accountancy and tax advice.

Newby Castleman, an independent firm based in Leicester, has seen its app shoot to the top of the global iPad finance category download list, even though it was only launched three weeks ago.

Marketing manager Raquel Lesta said the company was delighted that the app ranked ahead of names like CNN Money and said that not only does it highlight a growing trend for financial advice on the go, but also that the app is perfect for these changing times.

The app is available on both Android and iPhone and includes tax tables and tax calculators as well as advice on tax savings and business news.

A number of leading software companies have recently jumped on the free bookkeeping app bandwagon. Although these apps are not accredited by HMRC, they do meet its specifications.

These free mobile phone apps are designed for companies trading below the VAT threshold. They record income and expenditure and provide a running P&L balance. Construction industry subcontractors will find a facility to record CIS deductions and the self-employed can get an estimate of their tax liability to date based on income and expenditure.

The apps also provide links to HMRC advice and guidance and users can export their data to pass on to their accountant. Four out of the five apps currently listed on HMRC’s website are standalone apps; i.e. they don’t link with other software. However, as more companies enter the mobile finance app market, that situation is bound to change soon.

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Do umbrella company contractors know the changes to Child Tax Credits?

Contractors with young families may be aware that HMRC has overhauled the tax credit scheme.

Before the start of the new tax year, people could claim Child Tax Credit providing their income did not exceed £41,300. However, as from the 6th of April this year, the upper earnings limit is based on individual circumstances.

If your annual income exceeds about £26,000 and you only have one child, you are unlikely to qualify for Child Tax Credit. The same is true if you have two kids and an income in excess of about £32,200.

Claimants can also only get their payments back-dated for one month instead of the previous three.

HMRC has warned that claims for tax credit need to be renewed no later than the 31st of July, or payments will cease. In 2011, one in five claimants missed the deadline.

The Revenue is asking claimants to make doubly sure they provide accurate information and warns it may contact claimants’ employers to verify information if it harbours any doubts. As well as changing the income limits for Child Tax Credit, the Revenue has also increased the working hours rules for couples who have at least one child and want to claim Working Tax Credit.

Steve Lamey, the director of benefits and credits at HMRC, said people should act as soon as their renewal pack arrives. The sooner they return it to the Revenue, the sooner they will receive the correct amount of money.

A new scheme called Universal Credit is set to be introduced next year and the government intends to switch all tax credit claimants to the system by 2017.

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Umbrella company contractors need not fear new GAAR

Some umbrella company contractors have been getting anxious in case HMRC uses the newly proposed GAAR to hound them.

It was recently revealed that the Chancellor might include a general anti-avoidance rule in the next budget. Contractors have expressed concerns that this could be added to IR35 as a way of policing their employment status. However, a number of experts believe these fears to be unfounded.

CIOT director John Whiting said he did not think contractors needed to be concerned about that a GAAR will have an affect on their employment status unless they have set up an artificial structure.

He went on to say that the March budget is likely to include a GAAR but it is unlikely that this would target contractors working through a company or that it would be used to police employment status.

Paul Mason from Abbey Tax, the IR35 compliance company, said the majority of freelancers and PAYE umbrella contractors working through limited companies would not be affected by a GAAR, unless they work through an offshore-trust arrangement.

The general anti-avoidance was proposed after Graham Aaronson QC conducted an extensive study. The aim of the rule is to deter contrived schemes that use an artificial structure. John Whiting believes that contractors working through a company are highly unlikely to be affected by it. Policing of employment status is already covered by numerous rules including IR35 and MSC, he added.

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Should all umbrella companies now use faster payments?

Umbrella company contractors might like top know that the UK’s telephone and internet banking systems have been upgraded to allow same day payments.

As from the first of January, all electronic payments made in the UK and the Eurozone have to reach the recipient’s bank account within one business day. However, according to the Payments Council, the majority of UK payments will reach the recipient’s account within two hours.

For years, it has taken three working days for a payment to clear so this marks a major and no doubt welcome step forward.

The Payment Service Regulations are responsible for the change, which it is thought will create an extra 15 million transactions every month. Contractors will be able to settle their tax payments to HMRC quickly, pay their credit card bills and make one-off payments to businesses and friends.

Standing orders also fall under the new regulations and banks will take the funds from their customers’ accounts on the same day the payment becomes due, instead of several days earlier.

However, the new rules only cover accounts classified as a payment account. Whilst a credit card account fits the definition, an ISA does not. The timescale for making payments from such accounts will still depend on the terms and conditions of the individual account.

The Payments Council stressed that cheques are also not covered by the new regulations as they only govern electronic payments.

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IR35 case delivers first ever split verdict

Umbrella company contractors will no doubt be interested to learn that an unprecedented verdict was recently passed down in an IR35 case.

The tax tribunal case in Bristol has become the first “split case” in the history of IR35. John Spencer, a UNIX expert, was deemed to be outside the scope of IR35 for the first few years of a contract, but then he became a disguised employee even though he trading under a limited company and was still contracting to the same company.

Paul Mason from Abbey Tax said he had never heard of a similar case before. A contractor’s status is either inside or outside IR35, not both.

However, he went on to say that the judge did make a valid point to Mr Spencer when he said that he was doing specific work and projects at first, but then his role became no different to that of a permanent member of staff.

This case clearly highlights the importance of considering IR35 for each individual contract, including the time it comes up for renewal or extension.

In the case of Mr Spencer, it is hard to define exactly when his status changed but the judge ruled that there were indications of a change in relationship around the end of 2003. The judgement therefore stated that Mr Spencer was not classed as an employee, and therefore not covered by IR35, for the three years leading up to the end of 2003.

From Mr Spencer’s perspective, this ruling was a partial victory because it has reduced substantially the £140,000 sum that HMRC had demanded from him.

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Have any umbrella company contractors hidden money in Switzerland?

Contractors with HSBC bank accounts in Switzerland could be receiving a letter from the taxman in the near future.

HMRC is targeting 6,000 HSBC customers in this latest bid to stamp out tax evasion. The letters will make reference to specific account names and numbers are recipients will be expected to reply quickly confirming that they have completed full tax returns or are willing to make a full disclosure.

If the Revenue does not receive a response, it will use the full range of statutory powers available to it, which may include criminal prosecution. Contractors found to be withholding tax information could be faced with penalties of up to 200% of their outstanding liability.

Taxpayers who have been salting their money away in a bid to avoid tax will need to think quickly but carefully about the best route to disclosure. The new Swiss Agreement is one possible option, as is the Liechtenstein Disclosure Facility, although the latter does require the taxpayer to hold a certain amount of assets in the principality.

HMRC is increasing its investigations into UK taxpayers and introducing more stringent penalties for evaders. All taxpayers should make sure they complete their tax returns accurately and submit them in a timely manner in order to avoid penalties and possible investigation.

The Revenue now has access to a lot more external information than it had in the past and this enables it to cross check to taxpayers’ records. However, there are still instances when HMRC gets it wrong and if contractors receive penalties they think are unjust, they should refer the matter to an accountant as soon as possible.

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Treasury admits income tax and NI cannot merge completely

Some limited company contractors have been hoping that the government’s proposal to align income tax and National Insurance would be the final nail in the coffin for IR35.

The Office of Tax Simplification recommended that the government examine the idea, but the Treasury has now announced that the two systems will not merge completely as National Insurance needs to retain its own identity.

Treasury officials said that instead of replacing two systems with one, the coalition will examine whether the systems can work more closely together. National Insurance has to remain distinguishable from income tax because of its contributory nature, and any reforms must keep that identity in place.

Before any integration plans are put into place, the Treasury needs to confirm that the advantages exceed the upheaval that will be caused by altering the current systems. If after examining the evidence, the government believes it is worth pursuing the proposal, there will be further extensive consultations after the Budget next year.

However, the Treasury does admit that running NICs and tax as separate entities provides employers to make tax driven decisions that otherwise do not make commercial sense.

The latest Treasury paper does not mention IR35 explicitly, but does say the NI system needs to be reformed to fit the labour market changes that have taken place in the last 60 years. The UK is still operating from a model that was implemented in the 1940s when only one member of a household worked, the majority of workers had only one job and hardly anybody worked overseas.

We now have a situation where some people have several part-time jobs, more people are self-employed and going abroad to work is not unusual.

The government’s vision is for an efficient, fair and simple system that everyone can understand. The evidence so far points to aligning the treatment of earnings more closely rather than fully merging income tax and NI.

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What should the Chancellor say in his Autumn Statement?

What measures would umbrella company contractors like to see laid out in the Chancellor’s Autumn Statement?

The business community has compiled its “wishlist” ahead of George Osborne’s speech on November 29th. Not surprisingly, credit easing features on this list, along with less bureaucracy, super-fast broadband and tax changes for R&D.

The Chancellor’s Autumn Statement outlines measures designed to stimulate our fragile economy and will come at the same time as the Office of Budget Responsibility releases its new economic forecasts.

Small businesses in particular will be hoping to see a bold, affordable and readily available initiative to enable them to access much needed credit. As the FSB points out, the smallest businesses get the worst deal when it comes to lending; they pay the highest rate of interest and are most at risk of refusal.

John Walker, the chairman of the FSB, explained that micro-businesses must be able to benefit from credit easing. However, because the high street banks already dominate the SME market, many firms are put off applying for finance simply because they expect to be refused.

The EEF agrees that measures must be taken to help companies obtain credit.  It points out that in order for the economy to grow, firms must be able to access the finance and skills necessary to help individual businesses expand.

The Forum of Private Business would like to see the Chancellor reduce the burden of employment law. The Forum claims its legal helpline has been bogged down with calls since new employment regulations came into force at the beginning of October.

A lot of businesses believe the best thing the Chancellor could do is reward companies that create job opportunities with a lower rate of tax. Entrepreneurs are the lifeblood of the UK economy, said Andy Raynor of RSM Tenon, and yet they are paying the highest level of taxes in 30 years.

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2,000 people complain about threatening letters from HMRC

Since 2009, HMRC has sent out approximately 17 million letters to taxpayers, including umbrella company contractors. Now it has emerged that around 2,000 people have complained about the threatening tone of HMRC’s debt recovery letters.

A Treasury Select Committee has been looking into the effectiveness of the Revenue and it has stated that the tone of HMRC’s tax debt recovery letters was not suitable for some taxpayers. In some instances, letters were sent to people who didn’t even owe any tax.

The TSC said the letters suggested immediate settlement was required and although they referred to potential consequences if settlement was not made, they did not state what these would be. The Select Committee went on to say that such language is only appropriate if there is proof of repeated and deliberate non-payment. It is entirely inappropriate in cases where there is a dispute over the amount owed, where the taxpayer concerned is vulnerable, or where there is a possibility that no tax is owed.

According to the government, HMRC adopted a new approach to the collection of overdue taxes in 2009/10 and these letters were introduced as part of that new system. It claims to have modelled the approach on best practice used in the private sector as well as from the fields of psychology and behavioural economics and is designed to explain matters in simple, straightforward English.

This new system cleared up all but 15% of the debts outstanding in 2009/10, but the government did admit that some threatening letters should not have been sent out. HMRC has now offered an assurance that threatening letters will be more accurately targeted in future.

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HMRC levies unfair penalties on taxpayers

Umbrella company contractors have the peace of mind of knowing that their income tax is deducted at source. But contractors in the UK who file their own tax returns should be aware that HMRC continues to delay sending out penalty notices despite losing recent tribunal cases.

In the cases concerning Hok Limited and HMD Response International vs HMRC, the judge criticised the Revenue’s practice of issuing the penalty notices. It had applied penalties to 2009/2010 year end tax returns, bit the actual penalty notices were issued several months after the deadline and therefore the fines continued accruing.

At the time, Geraint Jones QC said, there was no logical reason why there should be a four-month delay in the issuance of penalty notices. A taxpayer who did not realise that he had erred would be faced with a minimum fine of £500.

However, it transpires that HMRC has not updated its systems and the penalty notices continue to be sent out late.

1.5 million people were hit by late filing penalties after this years January 31st deadline. McGrigors law firm obtained this data following a freedom of information request and responded to it by saying the Revenue’s automatic penalty regime has increased the number of late filing fines by 8%.

HMRC now hands out penalties to people even if they don’t owe any tax and this new regime has seen the amount of late filing penalties increase by 56% over the last five years. A spokesperson from McGrigors said HMRC was churning out fines and many people were being charged unfairly.

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Umbrella contractors will not get tax cuts for Christmas

The Chancellor of the Exchequer, George Osborne, said recently that the government will be unable to cut taxes this parliament due to the global economic crisis.

Anyone hoping for “tax cuts for Christmas” will be disappointed while the mega-rich could be concerned that the Chancellor might implement the “mansion tax” that the Lib Dems have suggested levying on multi-million pound properties.

Osborne explained that he is a true blue and he believes that lower taxes lead to an enterprising economy. However, it’s deceitful to fund lower taxes through increased borrowing and the UK public would quickly see that such a plan is not sensible. He also confirmed that the 50p tax rate will be with us at least until next year.

The Chancellor recently announced that council tax rates are to be frozen next year but the British Retail Consortium thinks he should also freeze business rates.

The director-general of the BRC, Stephen Robertson, explained that a freeze on council tax will ease the pressure on consumers but businesses desperately need support as well. As things stand at present, businesses could be facing a 5% rise in business rates next year and this could be highly destructive.

Research by UHY has discovered that the UK’s corporation tax burden is the second lowest of the G8 countries. Only Russia charges its businesses a lower rate of corporation tax.

The UHY study found that the UK had the 12th highest burden of business taxes out of 21 countries for companies with pre-tax profits of $100 million. The UK dropped to 16th out of 21 for businesses with $100,000 profits.

Roy Maugham, a UHY tax partner, said the results demonstrate the myth surrounding high corporate taxation in the UK. Although some UK businesses have relocated overseas, the business environment at home is considerably more welcoming than in the majority of the other major economies.

He also expressed surprise that Japan and the US impose higher taxes on many businesses than Germany and France; countries that have traditionally been thought of as high tax economies.

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IR35 enquiries don’t seem to be bringing in the cash

Umbrella company contractors may be interested to learn that HMRC only yielded slightly over £200,000 last year from their enquiries into the IR35 status of self-employed workers.

Between April 6th 2010 and April 5th 2011, the Revenue recouped £219,180 and in the previous year the take was even lower at £155,502. Only 25 cases were opened during the two year period, the same amount as in 2008-09. The number of new enquiries does seem to be dropping off dramatically when you consider that 104 enquiries were opened in 2007-08.

A spokesman for the Revenue explained that IR35 was a major deterrent and it would be wrong to judge its success simply by the amount of money it yields.

However, George Bull, the head of tax at Baker Tilly, said that HMRC’s pursuit is not paying dividends and it should leave IR35 alone and concentrate on more pressing areas of tax evasion.

John Brazier, the MD of the PCG, said that the latest yield figures confirm what his organisation has always said. IR35 brings in minimal tax and it is a completely unnecessary piece of legislation that causes stress to the 1.4 million genuine freelancers in the UK.

The Treasury is keen to stamp out all forms of tax evasion and avoidance and recently introduced new legislation to close down a scheme that involves manufactured overseas dividends. The scheme enabled companies to offset income tax even if there had been none paid.

David Gauke, the exchequer secretary to the Treasury, said everybody must pay the correct tax at the correct time and the government is determined to make sure they do.

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Is HMRC about to improve its service to contractors?

Umbrella company contractors and small business owners could be relieved to learn that HMRC intends to improve the level of service it supplies to taxpayers.

The groundbreaking joint venture that was announced last week stated that the Revenue intends to work in conjunction with the accountancy profession to develop performance standards. Advisors will sit down with the Revenue’s service delivery teams and analyse their processes for dealing with automated PAYE coding notices, handling mail and practical issues that relate to deceased estates. At the same time, officers from HMRC will spend time in volunteer firms.

Mike Clasper, the chairman of HMRC, along with senior Revenue officials, met representatives of the AAT, ACCA, ATT, CIoT, ICAEW and ICAS to discuss the new initiative. The meeting was also attended by the Low Incomes Tax Reform Group, TaxHelp for Older People and TaxHelp.

Data shows that HMRC has improved its standards when it comes to handling post, but the Revenue accepts that this is not consistently reflected in agents and taxpayers experience.

Clasper explained that the Department must get a better understanding of the way customers interact with HMRC and find out about their experiences when it comes to resolving tax issues. The Revenue will be able to learn much from agent colleagues and this will help it to improve services for everybody.

He also said he was delighted that the charity and voluntary sectors had offered to work with the Revenue as they are seriously impacted when things go wrong.

The initiative will commence on the third of October and reviewed at the end of November.

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