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For a growing number of people, working for themselves would be their ideal career path but the paperwork and administration seems daunting.
This guide aims to take you through the process in a straightforward manner.
The first step is often to run your own business as an individual before considering becoming a Limited Company. This is referred to as either being a Sole Trader or Self-Employed, the two terms mean the same.
One misconception is that being a Sole Trader means that you have to work alone. There is nothing to prevent you from taking on staff but, as a Sole Trader, you are responsible for the business.
As soon as is possible after starting your business, you need to register with HMRC to complete a Self-Assessment Tax Return.
If you are a new Sole Trader who has not registered before, you need to complete the form at https://online.hmrc.gov.uk/registration/newbusiness.
In a change for the 2015-16 tax year, the Class 2 National Insurance contributions of £2.80 a week will now be collected as part of the Self-Assessment Tax Return. This is topped up by Class 4 National Insurance that is based on the profits of the business.
For historic reasons, the tax year runs from 6th April to 5th April and the deadline for submitting the Tax Return for that period and paying the tax due is 31st January in the following year.
If the total amount due in the first year is over £1,000.00, the HMRC will require an additional advance payment for the second year of 50% of the total on 31st January and a further 50% on 31st July.
Taking the example of a business that makes a £20,000 profit in the 2015-16 tax year and where the Sole Trader has no other sources of income, the Income Tax and National Insurance payments would be as follows:
| 2015-16 Tax Year | Income Tax | Class 4 National Insurance |
| Business Profit |
£20,000.00 |
£20,000.00 |
| Personal Allowance |
£10,600.00 |
£8,060.00 |
| Taxable Profit |
£9,400.00 |
£11,940.00 |
| Tax / NI Rate |
20% |
9% |
| Tax / NI Due |
£1,880.00 |
£1,074.60 |
| Class 2 National Insurance @ £2.80 per week |
£145.60 |
|
| Total 2015-16 due on 31/01/17 |
£3,100.20 |
|
| 1st Payment for 2016-17 due on 31/01/2017 |
£1,550.10 |
|
| Payment Due on 31/01/2017 |
£4,650.30 |
|
| 2nd Payment for 2016-17 due on 31/07/2017 |
£1,550.10 |
|
The Advance Payments for the 2016-17 tax year would be offset against the actual amount Income Tax and National Insurance due in that year.
Our first Top Tip is to prepare and submit your Tax Return as soon after the 5th April as possible. The Income Tax and National Insurance will still be due on 31st January, so the earlier the Tax Return is submitted, the more time there is to set money aside for the payment.
The Income Tax and Class 4 National Insurance due in the year is calculated on the profit of the business and, for this, it is vital that you keep full details of the income that you make and the expenditure that you incur.
If the thought of keeping track of all your receipts through the year seems daunting, our second Top Tip is to use HMRC flat rates for the business costs of vehicles and working from home. Details are at https://cooperfaure.co.uk/simplified-expenses/
Our third Top Tip is that you set up a new bank account for the monies that you receive and the payments that you make for the business.
The final tax consideration is VAT. Currently, the income threshold over which VAT registration is compulsory is £82,000 in a twelve month period. However, a business can register for VAT on a voluntary basis at any time.
Our fourth Top Tip is that if you are providing business-to-business goods or services where your customers can reclaim the VAT on the invoices you issue, register for VAT from the start and to be able to keep some of the VAT charged.
As a Sole Trader, you can use your own name or trade under a business name. However, you must include your own name together with the business name, if you opt to have one, on any official paperwork such as invoices and letters.
If you want to start slowly before fully committing to working as a Sole Trader, you can be both employed and self-employed at the same time. For instance, you could continue to work for someone else during the day whilst building your own business in the evenings and weekends.
At CooperFaure, we have helped our clients follow their dreams by making this process as painless as possible. If you would like to discuss your circumstances or have any questions, please contact welcome@cooperfaure.co.uk to arrange an initial free consultation.
In order to make the administration easier if you are self-employed, the HMRC are permitting you to use an allowance for the business costs of vehicles and for working from home.
This is an option and, if it is more beneficial to use the actual costs, this is still fine.
For all other business expenses, the actual costs incurred still need to be recorded.
For the business costs of vehicles allowance, record the business miles driven in your vehicle during the tax year. A vehicle can be a can, van or motorcycle. Then at the end of the year apply the applicable rate below:
| Vehicle Type |
Rate pence per business mile |
|
| First 10,000 miles | Over 10,000 miles | |
| Cars | 45p | 25p |
| Goods Vehicles | 45p | 25p |
| Motorbike | 24p | 24p |
For example, you have used your car for 12,500 business miles in the year. You would claim:
| Business Miles | Rate | Total |
| 10,000 | £0.45 | £4,500.00 |
| 2,500 | £0.25 | £625.00 |
| Total | £5,125.00 |
This flat rate allowance is instead of all the actual costs of buying and running your vehicle including insurance, repairs, servicing and fuel.
As a result, you are unable to use the flat rate if you have already claimed capital allowances the vehicle.
If you have more than one vehicle, you can choose whether to use the flat rate allowance on a case-by-case basis. However, once you use the flat rate for a vehicle, you must continue to do so for as long as the vehicle is used in the business.
The actual costs of all other business travel expenses, such as train and air fares, and parking costs should still be claimed.
For the working from home allowance, record the number of hours you work at home each month. If these total 25 hours or more, then at the end of the year apply the applicable rate below:
| Rate per month | |
| 25 to 50 hours | £10.00 |
| 50 to 100 hours | £18.00 |
| 101 or more hours | £26.00 |
For example, you worked from home for over 100 hours in most months but only 60 in two particular months. As a result, you would claim:
| No. of Months | Rate | Total |
| 10 | £26.00 | £260.00 |
| 2 | £18.00 | £36.00 |
| Total | £296.00 |
This flat rate allowance is instead of calculating the proportion of personal and business use of your home and applying this to the actual costs.
However, the allowance does not include telephone or internet expenses that still need to be based on the actual costs incurred.
If you would like any further information, please contact us at welcome@cooperfaure.co.uk.
The law on the provision of Workplace Pensions has been applied in phases since 2012. Eventually, virtually all UK employers will be legally required to automatically enrol most staff into a pension scheme and to make direct contributions.
As per our previous newsletter, all employers with fewer than thirty employees that do not qualify for an exemption will have a legal duty to have an operational Workplace Pension scheme in place. The earliest date for this could be 1st January 2016 and the latest 1st August 2017.
The Workplace Pension scheme applies to all staff who are:
Their entitlement is dependent on their age and salary. For the 2014-15 tax year the details are as follows:
| Monthly gross earnings | Age | |||
| From 16 to 21 | 22 to State Pension | State Pension to 74 | ||
|
£481 and below |
Has a right to join a pension scheme |
|||
|
Over £481 up to £833 |
Has a right to opt in |
|||
|
Over £833 |
Has a right to opt in |
Automatically enrol |
Has a right to opt in |
|
These different rights impact your responsibilities as an employer:
Although staff have the right to opt out of your pension scheme, it is against the law to attempt to influence or coerce their decision.
It is a duty of the employer to pay regular contributions to pension scheme based on the total pay of each member of staff. The minimum amounts are:
| Date | Employer contribution |
Total contribution |
| Before 30/09/17 | 1% | 2% (including 1% staff contribution) |
| 01/10/17 — 30/09/18 | 2% | 5% (including 3% staff contribution) |
| 01/10/18 onwards | 3% | 8% (including 5% staff contribution) |
As well as the contributions, there will be other costs that you will have to bear for:
There will also need to be an investment of time to find the best solution to suit your business.
To ensure that you are compliant, it is critical to ensure your staff records are accurate and up-to-date with their date of birth, pay, National Insurance number and contact details.
In order to administer this process, to manage your ongoing duties and to provide information to the pension provider, it is worth investing in payroll software that is auto-enrolment enabled.
Whatever you decide, remember to ensure that the payroll software or process will work with the pension scheme you choose as there will be a need to transfer data between the two.
If you already have a staff pension scheme, there is no guarantee that this will work for automatic enrolment. If this does not, you will be required to acquire a new scheme that meets the requirements of automatic enrolment.
National Employment Savings Trust (NEST) has been created by the government as an option that all employers can use for automatic enrolment. There are also a wide range of commercial alternatives.
It is important that the scheme you choose is well run, offers good value for both you and your staff and that it will work with the payroll process or software you are using. As a result, plenty of time needs to be given to make sure you make the right choice.
Your staff may well be aware of automatic enrolment. The point where you decide on the pension provider would be a good time to provide them with information.
These tasks need to be completed in advance of your Staging Date.
At this point, you must carry out a formal assessment of your staff to ascertain your duties to each of them. There is a six week limit by which time the pension provider must have all the information needed to make your staff active members of your scheme. For this, you will need to make sure that:
To achieve this, you are required to write to each staff member after your Staging Date to inform them how automatic enrolment applies to them and to explain their rights. In addition, you must notify them that contributions will be deducted from their pay and that they have a right to opt out of your pension scheme if they wish to do so.
On the right of the staff to opt out, there are key points to be aware of:
Once the Workplace Pension has been successfully implemented, you will have ongoing automatic enrolment duties:
Most of these records must be kept for six years except for opt-out notices that need to be kept for four years.
If you fail to complete your ongoing automatic enrolment duties, you could be fined.
Finally, you are required to complete a Declaration of Compliance within five months of your Staging Date. The Pension Regulator indicates that this step should take ‘a day or so’ to complete.
Again, completing your declaration is a legal duty and, if this is not done before the deadline, you could be fined.
We have posted the Pensions Regulator’s guide to the completion of the Declaration of Compliance on our website at the following link:
https://cooperfaure.co.uk/wp-content/uploads/2015/04/Declaration-of-Compliance-Guide.pdf
Although this newsletter is designed to outline the process rather than to provide editorial comment, we must say that Workplace Pension Auto-Enrolment has placed a huge burden on small businesses in terms of time, resources and money.
As a result, we would urge any employer that has the right to an exemption to strongly consider exercising it. If you meet one of the conditions and would like us to obtain an exemption for your company, please complete the form on the link below and email it back to us at admin@cooperfaure.co.uk.
https://cooperfaure.co.uk/wp-content/uploads/2015/03/AE-Exemption-Letter.doc
For those employers who are obliged to operate a pension scheme, we are in discussions with a number of providers with a view to packaging the most cost-effective solution for this.
We hope to have this in place before the summer and we will be contacting our clients on an individual basis.
In the meantime, if you would like any further information or clarification, please email us at welcome@cooperfaure.co.uk.
A raft of tax changes have come into effect today. The main changes that affect individuals and businesses are:
Our detailed 2015-16 UK Tax Rates and Allowances Guide is available here.
If you would like any further information or clarification on these or the other tax changes that come into effect, please email us at welcome@cooperfaure.co.uk.
As the dust settles from the 2014 en primeur campaign in Bordeaux last week, it is time to take stock.
Based on the barrel tastings, the consensus view is that 2014 is shaping up to be an excellent year. Whilst maybe not a blockbuster that compares to 2005, 2009 or 2010, definitely a significant improvement over the last three years.
It is now down to the chateaux to set their prices in the coming few weeks.
There has been a considerable clamour, particularly from the UK wine trade, for meaningful reductions in en primeur prices. It look certain that these calls will be rejected by the chateaux who point to the weakening of the Euro against Sterling and the US Dollar over the last year that has effectively built a discount into the market.
In 2009 and 2010, the combination of exceptional reviews for the quality of the wine and extraordinary demand from new markets sent the en primeur prices spiralling.
The 2011, 2012 and 2013 vintages have all been of a lesser quality but the en primeur prices were not sufficiently rebalanced to reflect this. This, together with an unprecedented level of early sales of the 2009 and 2010 vintages, has caused considerable unease in the market and has left much wine unsold.
Does the step up in the quality in 2014 make Bordeaux en primeur a good investment opportunity?
To make this decision, it is important to understand what you would be buying, when you would receive the wine and the additional costs.
En primeur is buying a wine that is still maturing in barrel. This enables chateaux to generate cashflow by offering some of their production at what is expected to be a lower price than that for the final bottled product.
For some of the small chateaux, this is often the only opportunity to buy their wine directly.
In the world of wine investment, provenance is key. Buying en primeur, either directly from a négociant in Bordeaux or a reputable wine merchant in the UK, means that you are buying a wine from it’s genesis.
As the wine is in barrel, there is also the opportunity to choose the bottle size you desire. Many collectors prefer a magnum over a standard bottle due to the reduced proportion of the wine that is contact with the cork.
The anticipated delivery date for 2014 wine is between autumn 2016 and spring 2017.
It is also important to remember that en primeur purchases will be subject to UK Duty and VAT when these are shipped to you.
The current Duty on a case of six bottles is £12.30 and VAT is 20%. Therefore, a case of six bottles costing £500.00 en primeur would ultimately cost £614.76 on delivery at today’s rates.
Many wine merchants provide the option to store the wine ‘in bond’. By storing wine in a bonded warehouse, you defer the triggering of the UK VAT and Duty. However, there is a cost for this storage.
If the en primeur process sounds daunting, where could there be value in the Bordeaux market?
For many connoisseurs, the 2005 vintage is the best of the millennium to date, outstripping 2009 and 2010. Yet, the price point is relatively appealing.
At the eye-watering end of the market, at one négociant, a case of six bottles of Château Mouton Rothschild 2005 would cost £3,860 compared to £5,460 for 2009 and £5,220 for 2010.
At a more modest level, a case of twelve bottles of Château Lynch-Bages 2005 would cost £1,680 compared to £1,850 for 2009 and £1,820 for 2010.
It is important to bear in mind that these are the prices for the wine to be delivered to your door.
Robert Parker, the pre-eminent wine critic of his generation, is set to present a ten-year retrospective on the 2005 vintage this summer. Given that he has already indicated that he probably initially under-scored the wines, the likely impact will be to see prices rise.
In the United Kingdom, the 2015-16 ISA rates for cash deposits are derisory and, whilst shares may offer a better return, there is no guarantee.
Similarly, there is no guarantee that an investment in 2005 Bordeaux, or any other region or year, will make a financial return. However, you would be buying one of the great vintages that is in the cusp being ready to drink. Ultimately, a great wine should be savoured in the company of good friends.
If you would like advice on any aspect of the world of wine, please email me at jon.cooper@spearheadit.co.uk
If your baby is due or you adopt a child on or after 5th April 2015, you could qualify for Shared Parental Leave and Statutory Shared Parental Pay.
To qualify, you must share responsibility for the child with one of the following:
Shared Parental Leave must be taken between the baby’s birth and first birthday or within one year of an adoption. The system is designed to give parents flexibility in how to share the care of their child in this first year.
Eligible parents have a pot of 52 weeks leave and 39 weeks of pay. It is compulsory for the mother to take the first two weeks of these. After which, parents can share the rest either to be off work at the same time or took take turns to look after the child.
To qualify, the mother or adopter must be entitled to:
You must:
and you partner must at least:
It is important to point out that this is just an option. The mother or adopter can decide to continue with their existing maternity or adoption entitlement. However, if the choice is to use Shared Parental Leave, they can end their current entitlement or give advance notice to curtail it.
An employee is allowed to submit up to three requests to schedule leave which must be in complete weeks. If the request is for one continuous leave period, the employer must grant this. However, if the request is for multiple leave periods, the employer can refuse this but must still allow one continuous leave period.
There is a minimum of eight weeks’ notice required before the start of the first period of Shared Parental Leave.
For instance, the mother opts to take the first 32 weeks of her Maternity Leave and Pay. This would leave 20 weeks of Shared Parental Leave and 7 weeks of Shared Parental Pay available for either parent to take. By the end of the week 24, the mother would need to serve a curtailment notice to her employer discontinuing her Maternity Leave and Pay. At the same time, the other parent could present a notice of to take some or all of the remaining Shared Parental Leave and Pay.
The weekly amount of Statutory Shared Parental Pay has been set at the lower of 90% of your average weekly earnings or £139.58.
These changes certainly give working parents greater care choices in the all-important first year with their child.
However, as with many recent reforms, there is an additional administrative burden on the employer together with the introduction on an element of uncertainty to business. The overall impact will be dependent in large part on how popular the Shared Parental Leave scheme turns out to be.
If you would like any further information or would like advice on any issue relating to employment and pay, please contact us at payroll@cooperfaure.co.uk for an initial consultation.
From 6th April 2015, new rules come into force to give people more freedom over their pension savings.
Once you reach the age of fifty-five, there will now be three primarily options available which can either be used exclusively or in combination:
Whichever route that you choose, the pension commencement lump sum (PCLS) of 25% of the pension pot remains free of tax.
It is worth bearing in mind that a pension scheme does not have to offer all these options and some may choose not to. However, you have the right to transfer your pension savings to a pension provider that offers the option that you want to use.
Whilst this gives much greater freedom, there is a sting in the tail! Payments from an annuity, a drawdown or a UFPLS (after the 25% PCLS) are taxable as income.
If you have a pension fund of £90,000 with no other income and you opt to take your pension savings in one lump sum, you will have a tax bill of £16,400.
Moreover, to protect tax revenues, pension providers are deducting tax on an emergency code basis and leaving the pension recipient to recover any overpayment of tax. As a result, in our £90,000 scenario, the amount of tax deducted is likely to be in the region of £28,800.
Although HMRC has accelerated the process to claim the tax rebate, the onus is still on the individual to recover any overpayment of tax.
By taking the UFPLS in stages, you can dramatically reduce the amount of tax due. On our £90,000 example and based on 2015-16 tax rates, if you withdrew this over three years in equal amounts, the total tax bill would reduce to £7,140. Over four years, this would reduce further to £5,020.
Measures have been put in place to prevent large amounts being taken from a pension pot to fund further pension savings. This is to stop the fashioning an artificial tax saving. If you take an income under these new flexible access arrangements, this will activate a restriction to cap your money purchase annual allowance (MPAA) to £10,000.
If you have any concerns or questions on accessing your pension savings or would like a detailed tax evaluation, please contact us at welcome@cooperfaure.co.uk for an initial consultation that is free and without obligation.
From 6th April 2015, if a business has an employee or subsequently recruits an employee aged under 21, Employer’s Class 1 National Insurance contributions will be zero on their pay up to £815 a week or £3,532 per month. If their pay exceeds this, the additional amount would be subject to Employer’s National Insurance at 13.8%.
For an employee with an annual salary of £15,000, this change will generate a saving to the business of £957.72 in the 2015-16 tax year. If the salary was £25,000, the saving would be £2,337.72.
However, this zero rate does not apply to Class 1A or Class 1B National Insurance due on benefits. Typically, this would be either the provision a company car or of private medical insurance where the Employer’s National Insurance rate remains at 13.8%.
It is important to be mindful that, under employment law, a candidate’s age is a ‘protected characteristic’ that must not influence the recruitment process. If another candidate can demonstrate that they have been unfairly overlooked in favour of a less expensive applicant aged under 21, they could take legal action to claim age discrimination.
The Employment Allowance is not affected. For the 2015-16 tax year, this remains up to the first £2,000 of Employer’s National Insurance contributions for most businesses.
To activate this change, you would need to use one of the new National Insurance category letters on your payroll. Although there are seven new category letters, in the vast majority of cases category M would apply.
Payroll software may not automatically make this amendment, so it is advisable to identify the staff affected and review this before the first payroll of the 2015-16 tax year is run.
The level of Employee’s National Insurance contributions is not impacted. Therefore, if the employee turns 21 during the 2015-16 tax year, their net pay would remain the same but Employer’s National Insurance contributions would commence.
If you would like any further information or would like advice on any issue relating to employment and pay, please contact us at payroll@cooperfaure.co.uk for an initial consultation.
Although most tax changes are applied at the start of the new tax year on 6th April, some changes have come into force on 1st April 2015. The main changes that affect businesses are:
If you would like any further information or clarification on these or the other tax changes that have come into effect, please email us at welcome@cooperfaure.co.uk.
The law on the provision of Workplace Pensions has been implemented in phases since 2012. Eventually, virtually all UK employers will be legally required to automatically enrol most staff into a pension scheme and to make direct contributions.
This programme began in October 2012 for the largest employers. Now, the Staging Dates for small businesses are in the process of being issued by the Pension Regulator:
The Staging Date is the date by which the employer has a legal duty to have an operational Workplace Pension scheme in place.
This presents an onerous additional cost on small businesses. Not only will the employer be required to contribute up to 3% of qualifying earnings into the scheme, but also there will be additional payroll costs and the cost of implementing and running the pension scheme.
However, in the following instances, we can obtain an exemption from the Automatic Enrolment programme:
– there is only one Director and there are no other staff working for the Company;
– the only people working for the Company are Directors and none of them has an employment contract;
– the only people working for the Company are Directors and only one of them has an employment contract;
– the Company has ceased trading.
If you meet one of these conditions and would like us to obtain an exemption for your Company, please could you complete the form on the link below and email it back to us at admin@cooperfaure.co.uk.
https://cooperfaure.co.uk/wp-content/uploads/2015/03/AE-Exemption-Letter.doc
For our clients, as this work is outside the scope of our Letter of Engagement, there will be a fee of £90.00 plus VAT for this service.
Please note that a Company having an existing pension scheme in itself does not make it exempt from the legislation.
In addition, if a Company that currently qualifies for an exemption employs a worker in the future, then the Automatic Enrolment duties would commence. If this is after the Staging Date, there is six week deadline from the date of this employment to set up a Workplace Pension scheme.
For our clients who will not be exempt from the provision of a Workplace Pension or who decide not to apply for the exemption, we are currently evaluating a number of solutions that have been tailored to small businesses.
As a result, we will soon be publishing newsletter on the operation of a Workplace Pension scheme.
In the meantime, if you would like any further information or clarification, please email us at welcome@cooperfaure.co.uk.
The Chancellor of the Exchequer used the final Budget before the General Election in the UK to unveil some significant tax changes. However, most of these are promises for the future:
There are some measures that have come into immediate effect such as the cut in the duty on beer and spirits.
In addition, a number of measures from previous Budgets come into effect from April 2015 the most noteworthy being:
If you would like to discuss how the Budget 2015 or the new measures that come into effect from April 2015 affect you, please email us at welcome@cooperfaure.co.uk for an initial consultation that is free and without obligation.
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.
Under the original HMRC proposal, the deadline for individuals to enter negotiations under the Contractor Loan Settlement Opportunity for the tax years up to and including 2010-11 was 9th January 2015.
HMRC has now extended the closing date to start discussing a settlement to 30th June 2015 which should result in a settlement being agreed by 30th September 2015 at the latest.
In addition, in light of the feedback they have received, HMRC have clarified some points:
Accelerated Payment Notices
There is no undertaking that Accelerated Payment Notices (APNs) will not be issued before 30th June. If you receive an APN you must act within the specified time limit even if you are discussing settlement with HMRC.
If a settlement is reached within the specified time limit and the amount due is paid, the APN will be withdrawn.
If a settlement is reached after the APN has been paid, then this payment will be treated as a payment on account against the final amount due.
Tax Case Decisions and European Union Law
Recently, a number of high-profile cases involving loans from an Employee Benefit Trust (EBT) have been decided in the taxpayer’s favour. HMRC asserts that these cases are not relevant to Contractor Loan scheme users as none involved offshore employers or the Transfer of Assets Abroad rules.
HMRC also contest the view that Transfer of Assets Abroad rules cannot be applied as it would breach the individual’s rights under European law. Their view is that the legislation can apply if the arrangements subject to charge can be shown to be artificial.
As we have stated in the past, this all remains a matter of opinion. At this stage, HMRC has neither won nor lost a ruling against a Contractor Loan scheme.
Time to Pay
In circumstances where an individual agrees a settlement but has insufficient funds to pay the full amount within ninety days, HMRC is offering a simplified Time to Pay procedure for a period of up to two years.
As large a payment as possible will be required within the initial ninety days. The balance will then be payable over the remainder of the period subject to assurances that the proposed instalments can be met and so long as:
HMRC will no longer require a Statement of Assets and Liabilities or Income and Expenditure form for an instalment offer of up to two years to be agreed.
Where more than two years would be needed to pay, HMRC will discuss the circumstances and proposal but are keen to emphasize that wish to work with the individual to reach an agreement.
In deciding whether the Settlement Opportunity is the route that you wish to take, it is important to reiterate that the HMRC view on Contractor Loan schemes remains an opinion that is yet to be successfully tested. In this regard, nothing has changed since our last newsletter in August 2014.
In addition, it is important to remember that the legally binding aspect of the Settlement Opportunity works both ways. If you agree a settlement with HMRC and, subsequently, they fail to win a judgement that your Contractor Loan scheme was not tax-compliant, you have no recourse to recover the tax paid as part of the settlement.
Having said that, the simplification of the Time to Pay procedure is a further incentive from HMRC.
If you would like to request a non-binding tax and interest calculation from HMRC that would include any potential Inheritance Tax arising if a trust structure was used, this can be submitting a DO3 form to HMRC.
We are currently working with a number of clients on this matter and would be pleased to review your circumstances. Please email us at welcome@cooperfaure.co.uk for further details.
The 2013 Autumn Statement introduced legislation that targeted certain Employment Intermediaries that disguised employment as self-employment which was particularly common in the construction industry.
From 6th April 2014, personnel must be treated as an employee for Income Tax and National Insurance purposes if the personnel:
As a contractor working through their own Personal Service Company is deemed not to be controlled in how they do their work, this legislative change has no impact.
However, a consultation finished on 25th November 2014 on a second piece of legislation that comes into effect from 6th April 2015 whereby Employment Intermediaries must report on a quarterly basis the details of personnel they place with clients who are neither direct employees nor being treated as employees. In other words, contractors.
The Employment Intermediary will be required to provide the following information for each contractor:
The deadline for the report covering the 6th April to 5th July 2015 quarter is 4th August 2015.
It is important to stress that this legislation remains targeted at Employment Intermediaries avoiding employment taxes and statutory employment rights.
Furthermore, from the contractor’s perspective, the IR35 legislation remains unchanged with the basket of factors (including substitution, control and mutuality of obligation) used to determine whether or not a de facto employment exists.
Notwithstanding the HMRC’s primary motivation, this new legislation will provide them with a raft of data on each and every contractor.
As we know from our clients, a Personal Service Company can be operated in a myriad of ways. In addition, other taxes such as Corporation Tax come into play.
As a result, the HMRC will be hard pressed to follow a global approach in the future in the same way as there are currently with Contractor Loan Schemes.
However, the warning signs are there. We cannot overstress the importance of taking steps to underline that your Personal Service Company is a business and not merely a shell to avoid tax.
As we have consistently advised our clients, the era of remuneration comprising a minimal salary below the employment tax thresholds and high Dividends should be consigned to the history books. This will be all the more imperative from April.
Our key recommendations are:
In addition, there are other steps that you could take such as:
We anticipate that this newsletter will generate a large number of questions and, as a result, we are offering a free Q & A forum. If you email your question to us at welcome@cooperfaure.co.uk by Wednesday 14th January, we will include it and our response in a Q & A newsletter we will be publishing on Friday 16th January.
If you have deeper concerns over your Personal Service Company, we have a limited number of free Company Health Checks available which are offered on a first come, first served basis and without obligation. Please email us at welcome@cooperfaure.co.uk for more information.