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Following our newsletter last month on the 2015 Employment Intermediaries legislation and the potential impact on contractors, we have been running a Q & A Forum.
As promised, please find below the most commonly asked questions together with our answers.
Q: What if I work for a client based outside the UK?
A: If your client is based outside the UK, then you will be outside the scope of this legislation.
Q: What if I work for an agency that is not based in the UK?
A: Similarly, if you work for an agency that is not based in the UK, then you will be outside the scope of this legislation.
Q: Is a Personal Service Company the same as a limited liability company?
A: Whilst a Personal Service Company is most commonly a Limited Company, this does not have to be the case. It could be a Partnership or an individual working as a Sole Trader. This ambiguity is the result of there being no specific definition in law on how a Personal Service Company needs to be constituted.
However, in the contracting sector, a Personal Service Company is deemed to be the vehicle through which a contractor provides their professional services to clients, either directly or through an agency.
Typically, this vehicle is a Limited Company where the contractor is the sole Director and the majority shareholder.
Q: Can you expand how these steps are beneficial to a limited company?
Many of you have taken other steps such as:
A: Once a contractor has set up a Limited Company, at the extreme end, they could pay themselves a salary below the Income Tax and National Insurance thresholds, have minimal third-party payments and extract all the Retained Earnings as Dividends. However, this would in all likelihood be red-flagged by HMRC under National Insurance avoidance legislation.
Our advice to our clients is to pay a salary commensurate with the role that, at the very least, is at the National Minimum Wage level and to be seen to run their Limited Company as business.
The steps outlined above each reinforce that the Limited Company is a business. Essentially, the more documents in the business name the better. Be it a Professional Indemnity Insurance certificate, a domain registration, a receipt for office equipment, an invoice for a training course, a workplace pension scheme or a business card.
Q: Would it help to diversify the business revenue streams in order to stay out of IR35?
A: Whilst the Employment Intermediaries legislation does not directly impact IR35, it will provide HMRC with a raft of information on each and every contractor working for a UK-based client through a UK-based agency.
From that perspective, diversifying the revenue stream of the business is one of the measures we would advocate, whether this is by working for multiple clients or using the earnings to fund product development or business investments.
Depending on the contractor’s circumstances, taking regular breaks between contracts helps validate that you are not an employee of any client.
We would also recommend, where possible, to enter an arrangement with a third-party contractor to act as your substitute if and when required.
Q: How will submitting the information work? Some sort of web portal?
A: It is the Employment Intermediary that will be required to submit the information to HMRC.
HMRC has recently published ‘Employment intermediaries: data requirements for software developers’ that details the obligatory items for the submission template for workers placed with clients who are not paid using PAYE.
The link for this is
https://www.gov.uk/government/publications/employment-intermediaries-support-for-software-developers
As one of our clients summarised, “This new legislation doesn’t change the criteria determining whether you fall under IR35. The significance for contractors is that HMRC will have information more readily available, so investigations might be more likely to happen but no more or less likely to succeed.”
Our primary advice is to take some of the steps outlined in the original newsletter and in this Q & A to reduce the risk of your Limited Company being selected for investigation.
If you have concerns over your Personal Service Company, we have a limited number of free Company Healthchecks available which are offered on a first come, first served basis and without obligation on you. Please email us at welcome@cooperfaure.co.uk for more information.
The Marriage Allowance is scheduled to come into effect in the 2015-16 tax year.
In a major change to the personal tax regime, this could enable you to transfer up to £1,060 of your Personal Allowance to your husband, wife or civil partner. This, in turn, could reduce their Income Tax by up to £212 in the year.
You will be able to claim the Marriage Allowance if all four of the following conditions apply:
If this is the case, you can now register online at https://www.tax.service.gov.uk/marriage-allowance/register. HMRC will then contact those who have registered in April and invite them to apply.
The £1,060 limit will increase automatically in line with any increase in the Personal Allowance in future tax years.
If you would like to discuss the Marriage Allowance in particular or your tax affairs in general, please email us at welcome@cooperfaure.co.uk for an initial consultation that is free and without obligation.