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The latest update from HMRC is that the public beta version of the is the Employment Status Service Tool will be launched tomorrow.
As we outlined in our last newsletter, the concept is that by answering a number of questions around the relationship between the contractor and their Public Sector client, the tool will provide an assessment of whether IR35 rules should apply. HMRC has reiterated that it intends to abide by the outcome.
We have had the opportunity to review the private beta version of the software and, whilst no single answer will lead to a determination, the simplest way to achieve an outcome that the contractor is outside IR35 revolves around substitution.
As it stands, if there is a ‘Contractual Obligation For a Substitute’, the obligation is demonstrable and the contractor is liable for the payment to the substitute, the Employment Status Service tool will show that the contractor is outside the scope of IR35.
For those contractors looking to continue an engagement with a Public Sector client, our two key recommendations are to ensure that a new, appropriately worded contract is in place to come into effect from April and to make arrangements to support your ability to provide a substitute.
In our view, an addendum to your current contract is not sufficient and those engaged via an intermediary need to be in active dialogue with them on this.
Transport For London were at the vanguard of the Public Sector in banning their contractors from using a Personal Service Company from April and giving them an ultimatum to either be paid under PAYE, work through an umbrella arrangement or leave.
Friday 17th February was the deadline for a decision and the rumour is that the groundswell to leave has been so overwhelming that the wholesale ban on Personal Service Companies is now under review.
There is no doubt that the new rules put an extra burden on the engager. However, Public Sector bodies are slowly awakening to the impact on their services should the latest surveys indicating that around 80% of contractors would move to the private sector rather than accept the PAYE deductions be accurate.
As a result, engagers are putting proper procedures in place to enable the contractor provide a substitute and, thereby, remain outside IR35.
To validate this, the contractor can aid their cause by making mutual arrangements with another contractor with similar skills and experience to provide substitution services. In this context, a substitute is not expected to be ‘on the bench’ waiting to be introduced.
For those working in an area that requires security clearance, it will be the responsibility of your Personal Service Company to ensure that the substitute has the appropriate level of security clearance.
At CooperFaure, we are working with a portfolio of contractor clients working in the Public Sector. If you would like any further information or to discuss your concerns, please contact us at tax@cooperfaure.co.uk.
HMRC has finally published an update on their proposal for contractors working in the Public Sector including those working for HMRC itself. However, like the recent Making Tax Digital proposal, the key part is missing.
The kernel of the change that comes into effect from April is that the responsibility for deciding whether off-payroll working rules (aka IR35) should be applied to a contractor shifts to public sector authority that engages the contractor.
As well as national and local government departments, executive agencies and authorities, the public sector covers educational establishments and others such as the BBC, Channel 4, TFL and the Bank of England.
Where the rules are deemed to apply, the fee-payer will calculate Income Tax and National Insurance contributions and deduct them from the contractor’s fee for service.
An important point is that this reform applies to payments made on or after 6th April 2017 rather than work done after that date.
Given that most contractors invoice on a monthly basis, payment terms are generally thirty days and that there is often slippage, the reality is that the new rules in many cases will be applicable to the invoice raised for services provided in February.
The latest announcement states “Public authorities, agencies and third parties supplying contractors should consider existing contracts and prepare for the change.”
However, whilst confirming the name of the new digital service that will provide the HMRC view of the employment status of a worker will be the Employment Status Service tool, this is only “is expected to be made available by the end of February 2017.”
The idea for this service is that by answering a number of questions around the relationship between the contractor and the public sector client, the tool will provide an assessment of whether off-payroll working rules should apply. HMRC has previously committed to abide by the outcome.
On the basis that this software was originally scheduled to be in place before the end of January, we can only presume that developing this product to give a definitive view is proving challenging!
However, the fact is that both the public authorities and contractors are in limbo at a time where this new legislation will apply to work being done now.
The contractor in particular has every reason to be nervous. If the Employment Status Service tool indicates that off-payroll working rules now, logic dictates that HMRC could argue that this should have been the case since the inception of the contract.
We are already hearing that public sector bodies are opting not to engage contractors working through their own Personal Service Company.
One solution is for a team of contractors to band together and form a consultancy for the provision of their services.
A common misconception is that the remuneration from the sum of the whole would be less that from the individual components. As the VAT Flat Rate Scheme benefit is also being withdrawn from labour-only businesses from April, this will certainly not be the case.
Another is that if, say, four contractors form a consultancy the revenue would be pooled and divided equally so each would be entitled to a 25% distribution irrespective of their contribution to the pool. Having a 25% shareholding does not equate to 25% distribution rights.
So long as the company is incorporated with the necessary clauses in the Articles of Association and supported by a shareholder agreement to cover future events, each individual will be protected.
For this, the company formation is far beyond an off-the-shelf online solution. At CooperFaure, we specialize in creating company structures to ensure that the interests of each of the participants are protected.
If you would like any further information or to discuss the options, please contact us at tax@cooperfaure.co.uk.
On Tuesday 14th February, we will be hosting a Free Webinar on ‘The Property Investor and Tax’ between 7:30pm and 9pm. Highly recommended for those who have or are looking to build a buy-to-let property portfolio. As well as expert advice and a free copy of the presentation, you can ask that nagging question in our Q&A session.
As ever, places are limited so please click here to register.
HMRC have today published their response to the six Making Tax Digital consultations that ran over the summer and have confirmed that the digital tax revolution is set to start in April 2018 but who it will apply to remains unanswered.
Against the backdrop of a damning House of Commons Treasury Committee report published earlier in the month, we had hoped that the implementation date would be deferred by at least a year.
The Treasury Committee issued a forty-eight page report that amounted to a forensic critique of the HMRC proposals for Making Tax Digital.
On the Parliament website committee Chairman, the Right Honourable Andrew Tyrie MP, observed “Carefully introduced, the digitisation of tax records and reporting can be an opportunity greatly to improve the administration of the tax system for the long term. Without sufficient care, Making Tax Digital could be a disaster.”
The committee highlighted significant shortcomings with the current proposals which broadly fall into two categories – burden and engagement. In doing so, the committee echoed many of the points CooperFaure raised in our responses to the HMRC consultation.
Firstly, the report warns that the costs and administrative burdens for very small businesses have been grossly underestimated with the resulting risk that many may go out of business or move into the hidden economy.
Secondly, the report cautioned against both the speed which Making Tax Digital is being implemented and the lack of adequate engagement and consultation with the business community.
The committee recommended five changes to the approach:
Whilst HMRC have made some concessions, the most significant being that businesses will be able to continue to use spreadsheets to record receipts and expenditure and then link them to software to automatically generate and send their updates to HMRC, the start date of April 2018 remains unchanged.
However, two key questions in the consultation were:
As the HMRC report states, the overwhelming view of the respondents is that the £10,000 threshold is too low and that there should be a deferral given to the smallest unincorporated businesses.
However, Government response to these questions was “Given the range of views expressed on this matter, the government will take more time to consider these issues, alongside the fiscal impacts. Final decisions will be made before legislation is laid later this year.”
Having been long promised clarity on Making Tax Digital by the end of January, we are still no nearer knowing who will have to comply with quarterly reporting from April 2018. Given that the implementation date is a mere fifteen months away, this is a disappointing and frustrating outcome.
We will be reviewing the six response documents in full and publishing a detailed newsletter over the weekend.
However, if you have any questions or concerns, please email us at tax@cooperfaure.co.uk. .
We are delighted to announce that Emma Kiviniemi Andersson has accepted the role of our Sales and Marketing Manager.
The year promises to be a time of change in the tax regime both in terms of taxation itself and Making Tax Digital. An important part of Emma’s role will be to enhance our newsletters to a regular weekly publication and to build our webinar and events programme to keep our clients informed and much more.
Alex Nikiforou joined the team a couple of months ago to replace Emma as one of our Accounts Administrators and Emma has been training and will continue to mentor him to ensure that there is no disruption to our service quality.
Both Martina Kovacova and Lindsay Kantorowicz have taken on additional responsibilities in the new structure and are actively recruiting another qualified accountant to add to our team.
The HMRC has published their draft legislation for the proposed introduction of a new VAT Flat Rate of 16.5% for ‘Limited Costs’ businesses to tackle what they perceive as abusive use of the scheme.
The target of the legislation are labour-intensive businesses with little expenditure on goods such as contractors, consultants and accountancy firms. However, this may prove the catalyst for a digital transformation to make the capture of VAT data straightforward.
The VAT Flat Rate Scheme was introduced in 2002 to simplify VAT and reduce the administrative burden on small businesses. Instead of paying across the VAT on sales and recovering the VAT on purchases, the business can apply a percentage to their gross revenue based on their trade sector.
Take an IT contractor with a net turnover of £100,000. Currently, the VAT Flat Rate is 14.5% which is applied to the gross sales. As a result, £20,000 of VAT would be charged to the clients but only £17,400 (14.5% of £120,000) paid to the HMRC. The remaining £2,600 is kept by the company in lieu of the VAT on purchases.
From 1st April 2017, if the IT contractor falls under the new VAT Flat Rate of 16.5%, £20,000 of VAT would still be charged to the clients but now £19,800 (16.5% of £120,000) is paid to the HMRC leaving £200 in lieu of the VAT on purchases.
A Limited Costs business is defined as a company whose VAT inclusive expenditure on goods is either:
In this context, goods must be used exclusively for the purpose of the business but will exclude the following items:
The description of capital expenditure goes beyond the normal accounting convention to include any goods which are bought to be used in the business over a period of time irrespective of the costs.
These exclusions are designed to prevent a company from buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.
In the context of VAT, goods are tangible objects where the legal title transfers to the purchaser on acquisition. On this basis, expenditure on services are totally excluded.
Both businesses currently operating under the VAT Flat Rate Scheme and new businesses joining will be required to test whether they must use the new rate and the test must be repeated for each accounting period. The first-year discount of 1% will apply to new businesses registering under the 16.5% rate.
HMRC promise to introduce an online tool to assist in determining the correct rate. However, the past performance of similar online calculators leaves a doubt to the accuracy and consistency.
Although there is an eight-week consultation period, this seems more of a technical consultation on the implementation rather than an opportunity to modify the legislation.
CooperFaure will be making representations to HMRC to remove the exclusions on goods and to include expenditure on services incurred purely for business purposes. We are also seeking clarity on the treatment for VAT periods that straddle April 2017.
However, we are sceptical of there being any substantive amendments.
The consideration for labour-intensive businesses is whether the simplified administrative benefit of continuing to use the Flat Rate Scheme is greater than the financial loss.
The HMRC impact assessment indicates that they expect around 4,000 businesses to switch to standard VAT accounting. The compliance cost of switching to HMRC is estimated at £180 per business.
Our view is that HMRC have severely under-estimated the number of switchers. Take our IT contractor example who spends a very modest average of £420 per month on allowable business items that include VAT. That equates to an annual VAT recoverable of £840 compared to the £200 that the new flat rate is offering.
The key is making the process of recording and claiming this VAT as simple as possible. As a result, in the first quarter of 2017, CooperFaure will be evaluating digital platforms to make the capturing of this data as simple as a click of a button.
We will also be providing comparative analysis to our clients affected by this change to enable them to make an informed decision.
If you are uncertain of whether you will be impacted or would like advice on the best course of action, please contact us at tax@cooperfaure.co.uk to schedule an initial call to discuss this further.
This autumn, adventurer and film-maker Reza Pakravan and journalist Pip Stewart, embarked on an epic journey along the 4,000 km Transamazonian highway to document both the glory and the destruction of one of the planet’s last great untouched areas, the mighty Amazon rain forest.
Travelling the road by bicycle and the river by boat, their journey took the from the Atlantic to the Pacific crossing Brazil and Peru through some of the most remote and hostile places on earth.
The expedition was chronicled by a film crew to produce a documentary of their experience living with Amazonian tribes whose way of life is under severe threat. The majesty of the ecosystem and the humility of tribes juxtaposed with the relentless demands of the 21st century.
Laced with beauty and danger, the filming is complete and film is safely in London. A distribution deal is in place and Fox International has acquired the rights for Spanish-speaking territories with negotiations ongoing with BBC Worldwide and Sony Entertainment.
The production company, Transamazonica Limited, is now seeking investment funding for the Post Production to convert the film into a four-part series and theatrical film cut of what could literally be a last testament.
Underpinned by the Seed Enterprise Investment Scheme, which offers an immediate 50% tax relief, and based on the success his previous Kapp to Cape series, Reza Pakravan is able to guarantee an overall 10% return on your three-year investment. This is currently double the return of any Three Year Fixed Rate Bond on the High Street.
There are some non-financial returns too. Depending on the investment level, an investor will be given an Executive Producer or Associate Producer credit in the series. In addition, all investors will be invited to a special cinema screening followed by a private drinks reception where you will have the chance to chat to Reza and Pip about their adventures.
For further information, please contact us at tax@cooperfaure.co.uk in the first instance. However, you can unlock an exclusive Transamazonica trailer here.
The Seed Enterprise Investment Scheme (SEIS) was introduced in April 2012 as an offshoot of Enterprise Investment Scheme (EIS) specifically targeted at boosting early stage investment in start-up companies.
To this end, SEIS offers the investor some especially generous tax reliefs:
There are some key points to bear in mind on the SEIS scheme:
In deciding whether to invest, it is important to ascertain whether the company has applied for and received ‘Advanced Assurance’ from HMRC. This is a certificate issued by HMRC confirming that the company qualifies for the SEIS scheme.
The investor is able to claim the Income Tax relief once either the business has been trading for four months or has spent 70% of the investment they received.
At that point, the company submits Form SEIS1 to the Small Companies Enterprise Centre (SCEC) for review. Assuming all the requirements are met, the SCEC will issue a Form SEIS3 to the company to distribute to the individual investors for inclusion in their tax return.
The SEIS relief can be claimed up to five years after the 31st January in the year that investment was made. Indeed, it can also be carried back into the previous tax year.
Lastly, as with all tax reliefs, the availability and benefit depends on your circumstances. For instance, if you are not paying Income Tax, the SEIS relief is of no value.
As a result, we recommend seeking independent tax advice before proceeding with any investment.
At CooperFaure, we work with a portfolio of companies and investors operating under the SEIS and EIS schemes. If you would like an initial call to discuss your circumstances, please email us at tax@cooperfaure.co.uk to arrange a time. It is absolutely free and there is no obligation.
Please click here for the downloadable version of this guide.
We have received the HMRC definition of a ‘Limited Costs’ business for whom the new VAT Flat Rate of 16.5% will apply. This is outlined as a company whose VAT inclusive expenditure on goods is either:
In this context, goods must be used exclusively for the purpose of the business but will exclude the following items:
These exclusions are designed to prevent a company from buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%. In addition, we can infer that expenditure on services are also excluded.
The government plan to publish draft secondary legislation on 5th December 2016 and businesses will then have an eight-week window to comment.
Our detailed review of the Autumn Statement will be published tomorrow. In the meantime, if you would like to discuss how the Autumn Statement will affect you, please email us at tax@cooperfaure.co.uk.
There is still time to register here for our Impact of the Autumn Statement webinar running on Monday 28th November at 1pm.
The new Chancellor of the Exchequer, Philip Hammond, has delivered his first Autumn Statement today.
In a significant change to small businesses, from April 2017, a new VAT Flat Rate of 16.5% will be introduced for businesses with limited costs, such as labour-only businesses. As the Flat Rate applied to the gross invoice amount, this equates to 19.8% of the net leaving just 0.2% for the business.
A provision is already in place to treat any invoice raised between today and 1st April 2017 for a service to be performed on or after 1st April 2017 as taking place on 1st April 2017. In other words, there is no opportunity to invoice in advance to keep the benefit of the current rate.
Other highlights were:
Our detailed review of the Autumn Statement will be published tomorrow. In the meantime, if you would like to discuss how the Autumn Statement will affect you, please email us at tax@cooperfaure.co.uk.
There is still time to register here for our Impact of the Autumn Statement webinar running on Monday 28th November at 1pm.
Back in January, in our two-part newsletter series on the impact of tax changes announced in the Summer Budget and the last Autumn Statement on the on the Buy-To-Let property sector, we indicated that this may not be the end of the changes.
We stated at the time that the then Chancellor, George Osborne, was looking at enabling the Bank of England to be able to impose curbs on the levels that lenders can offer loans to prospective private landlords.
As is being heavily reported in the press today, the Treasury has announced that they will empower the Prudential Regulation Authority, the lending arm of the Bank of England, to impose new minimum affordability thresholds and stress tests on Buy-To-Let mortgages from 1st January 2017.
A government spokesman stated “The Bank of England’s Financial Policy Committee (FPC) will be granted new powers by the government to help it protect the financial system from future risks in the buy-to-let mortgage market.”
Does this signal the end of the road for the individual investor? Will there be any good news in the Autumn Statement next week?
We will be publishing a detailed newsletter covering this on Sunday 26th November and running a new webinar on Wednesday 30th November for which we are offering exclusive advance registration here.
In almost every tax year, a positive tax reform is introduced that just does not seem to get traction.
In 2015-16, this was the Marriage Allowance about which we have written extensively. This year, it looks to be the Trivial Benefit in Kind exemption.
As the festive season approaches, it is timely to examine this in detail. To qualify as a Trivial Benefit, there are four conditions;
For a ‘Close Company’, the annual amount is capped at £300.00 for the Directors and their families. A Close Company is defined as being privately owned and controlled by five or fewer individual participators. As a result, this covers most small companies and many family businesses.
If the benefit qualifies, it will not be deemed taxable income so no Income Tax nor National Insurance would be due.
There are two important considerations:
As a result, the Trivial Benefit in Kind exemption may be far from trivial, especially for lower paid staff.
The sort of expenses that would be considered a Trivial Benefit include:
There are a couple of points to be aware of:
If you have any questions or would like any further information on the Trivial Benefit in Kind exemption, please email us at tax@cooperfaure.co.uk.
In the main, social functions and parties provided by an employer for their staff are a taxable benefit on which Income Tax and National Insurance would be due.
However, under certain circumstances, the Annual Parties and Functions exemption would apply.
To qualify, the event or events must:
If your business operates from more than one location, an annual event open to all of your staff based at each location would qualify as exempt. Similarly, separate parties for different departments would qualify as exempt so long as each employee can attend one of them.
You could have a summer barbeque and a Christmas party that would both qualify so long as the combined cost of the events is no more than £150.00 per head.
However, it is key to remember that this is an exemption not an allowance. If the cost of a particular event exceeds £150.00 per head, the whole amount is taxable not just the amount over £150.00 per head.
If you are going to be arranging a staff Christmas party, bear in mind that all the associated expenses must be taken into account in calculating the cost. For instance, this could comprise the venue hire, theming, catering, entertainment, overnight accommodation or taxis home. In addition, the VAT must be included.
On the other hand, the £150.00 per head rule covers everyone that attends the party not just the employees of the company which is an important consideration in budgeting the event.
If you have any questions or would like any further information on the Annual Parties and Functions exemption, please email us at tax@cooperfaure.co.uk.
When an employer provides and pays for a taxi to take an employee home, this is a taxable benefit unless it subject to the Late-Night Taxi exemption.
To qualify for the Late-Night Taxi exemption the following stipulations must be met:
The key word in the stipulations is ‘irregular’ which means not following a regular or established pattern.
An employee who works later than usual and until at least 9pm every Friday or on the last Friday of each month, therefore, is not working later than usual irregularly. Neither is an employee that works later than usual and until 9pm on one variable day each week.
However, should a particular project or assignment necessitate an employee to work later than usual every day beyond 9pm for three weeks, this would qualify as irregular.
If you have any questions or would like any further information on the Late-Night Taxi exemption, please email us at tax@cooperfaure.co.uk.
Today is the last day of the HMRC consultations into Making Tax Digital. The deadline for submissions is 11:45pm tonight.
As the proposal stands every self-employed individual, partner and/or landlord with a combined income of over £10,000 will be required to file quarterly returns from April 2018.
This requirement will extend to Limited Companies from April 2020.
Self-employed businesses and landlords will need the tools to enable them to file digitally in a prescribed manner. Unlike with the current Self-Assessment Tax Return or RTI-compliant payroll, HMRC will not be providing free software for Making Tax Digital.
Instead, they are looking to the software providers to make available free software for the smallest of businesses as part of a basket products catering for the wider market. It seems, at best, the free software will only deliver the specific HMRC requirements, so some other form of bookkeeping software will be necessary to run in tandem.
The reality is that asking a business to report at least four times a year rather than once and being required to do so on a proprietary software can only add to the administrative burden and cost. Indeed, for more complex businesses, there will also be an ‘End of Year’ filing to review the four quarterly returns and make any necessary accounting adjustments or claim any reliefs and allowances not able to be included in the quarterly returns.
This has been recognised in the consultation which asks the questions “What level of financial support might it be reasonable for the government to provide towards investing in new IT, software or training?”, “What costs might you expect your business to incur in moving to the new regime?” and “Do you expect that your business will incur additional on-going costs as a result of these changes?”.
We urge every stakeholder to make their voice heard and take part in the HMRC consultation here. These questions fall under the ‘A: Bringing business tax into the digital age’. Our full response to the consultation can be read here.
At CooperFaure, we are have already implemented accountancy solutions to enable our clients to thrive in the digital age. We will also be participating in alpha testing with software providers and private beta testing with HMRC, that will enable us to keep you fully informed on every step of the journey.
We anticipate that the 2016 Autumn Statement on Wednesday 23rd November will reference Making Tax Digital with draft legislation expected in December. At CooperFaure we will be providing a live Twitter Feed on @cooperfaure together with digest and detailed newsletters on the day.
For the first time, on Thursday 24th November, we will be hosting a Free Webinar between 1pm and 2pm looking at the impact on business, the contractor and the property investor and answering your questions.
As well as expert advice and a free copy of the presentation, you can ask that nagging question in our Q&A session.
As ever, places are limited so to register and avoid missing out, please click on the button.
In the meantime, if you like any further information, please let email us at tax@cooperfaure.co.uk.