Category: Business Tips

IR35 2020

INSIDE IR35 & IR35 LEGISLATION

What`s employment status and how is it relevant to IR35 tax rules: Everyone working is classified as either employees, workers or self-employed.

To articulate the term employees, we should take a closer look at the concepts, such as;

  • Mutuality,
  • Level of obligation,
  • The personal service company,

Whereas, with self-employed, we`d mean an “employee” who works in business on their own accounts.

Yet both employers and contractors prefer being classified as “contractors” as it gives more benefits, for instance, a strong position in bargaining and really works if you have skills to sell.

How about the other factors that HMRC has been challenging for a long time, such as IR35 and umbrella companies or in other words, in larger establishments?

From 6 April 2017 IR 35 status has been determined by the client in the public sector, not the contractor. In other words, as long as the client decides it applies, tax is deducted at source using RTI (Real Time Information). However; it`s not the case vice-versa, which puts the contractor in a relatively disadvantaged position.

NEW IR35 RULES IN PUBLIC SECTOR

Roll out to the private sector is Apil 2020. New off-payroll working rules will be similar to those already placed in the public sector. As of April 2020, small and medium businesses engaging contractors will become responsible for determining employment status in the same way as public sector establishments. The criteria will be embedded into the existing Companies Acts 2006. HMRC has announced that they will not carry out targeted campaigns into previous years for those who started to pay tax under the new scheme.

WHAT SHOULD SMALL BUSINESSES DO NOW?

The new scheme will include the followings:

  1. For a business-critical contractor, the rate will rise up.
  2. They will engage with contractors as if they`re part of the PAYE scheme, which brings more compliance work for small businesses as it covers social security benefits and some certain employment law and protections, for instance, “holiday payment”.
  3. The first respondent of the contractor will be the umbrella companies, the engagement will have been carried out through them.
  4. Companies will pay only margins to the staffing companies, which makes “margin only” contract sides come in direct engagement.
  5. IR35 in the public sector will apply only in “full-outsourced” services rather than the provision of workers` services, which differs PS IR35 than in the Private Sector version.
  6. IR35 will apply on “project-based” contracts.

The upcoming scheme is to cause a fundamental change in the core relationship between a Public Sector Company and its contractors. As of April 2020, PSC will need to obtain some additional information and naturally take care of more compliance works in its payroll plate. The downside of the scheme, in overall, would be the fact that the fees are to increase, which will cause stiffer negotiations between PSC and contractor, and even renegotiations between the two sides if there`s an existing contractor to reflect the possible fiscal burden.

It is imperative that you should start preparing to manage these upcoming changes. Businesses that use contractors should start to carry out initial assessments, such as having advised over the cost of NIC in the short term.

IR35 CONTRACTORS ARE BECOMING EMPLOYEES?

Classification of a contractor will not be deemed as an employee, the scheme aims to make PSC in a position where they would be reliable for some principals in the relationship between contractors and themselves, such as statutory sick pay, statutory maternity pay, and pension auto-enrollments. In other words, it is a scheme which aims to enhance the contractors` legal position.

NEW IR35 IN SUMMARY:

The government`s the “Good Work Plan” will introduce these changes below;

  • Extension of the right to a payslip
  • New protection for gig economy workers
  • A new right for all contractors to request more stable contracts in general
  • Right to demand more clarification on contract agreements for the contractors.
  • Holiday, maternity payment, sick payment right for zero-hour workers.
  • Protection for agency workers.

After a handful of changes in taxation in 2019, such as MTD for VAT, changes in April 2020 appears to be another dazzling year for small and medium businesses, which use contractors.

Have yourself fully ready before 2020, the sooner you educate yourself, the easier you will have been through the next April. Better safe than sorry, call us now, let`s have a chat about your business` position in IR35 schemes.

Small Business Tips

You’ve begun this journey with lots of hope, a bright optimism and the savings worth of years. After spending long enough time by being told what to do and how to do by others, you finally are your own boss! But where to start to get small business tips?

Yet setting up your own business is not an easy task, given the competition is intense with a number of roughly 170,000 small businesses incorporated between May and July in 2019, markets are full with ambitious entrepreneurs like yourself. Before you fly, you must learn to walk. Regardless if you work from home or about to set up a limited company, follow the small business tips if you are planning to be the boss of your own dreams;

Open a separate business bank account

Business Bank Account | Online Account Filing It is imperative that you open a business account and carry out your business-related transactions through it. In doing so, you’ll have seen consistent with your credit record and been organised with your expenses and incomes. Remember every single transaction will be shown on your prospective trial balance. (Yes that spreadsheet) In other words, do not use your business bank account for your PERSONAL EXPENSES. Buy your round with your personal card, leave the professional expenses to your business account.


Invoices, Expenses and Bills

Invoice Expenses Bill | Online Account Filing

Do you work from home? Why not show your living room as the main location where you carry out your daily operations rather than your bedroom. Do you commute to see your clients? Travel cards are great indicators of your investments on your business. Do you own a personal vehicle? Maintain a proper record of miles travelled to claim mileage expenses. Posting your clients? Keep the receipts! Remember both invoices and purchasing proofs MUST be made out for your name or your business name. Include as many proofs of business-related spending as possible. You’ll thank yourself while filing your tax return.

Register for VAT if you anticipate an annual income over £85,000

Register for VAT | Online Account Filing

Ideally, we recommend you to register for VAT if you are about to hit £75,000. The trick is to adjust your business into the digital vat return scheme called MTD for VATYou should choose your VAT scheme wisely, depending on the nature of business. It is advisable that you should consult with an accountant before setting up a VAT registration.

Ensure bookkeeping in a timely manner

Ensure Bookkeeping | Online Account Filing

Regardless of whether you use a bookkeeping app or not, you can still feed the system with your accountant’s information. Despite the daunting concept of “bookkeeping”, it’s not the most challenging sequence of financial secretarial works. Yet it’s best to cooperate with an accountant when things get complicated. It is critical that you should do your bookkeeping meticulously to avoid any error and/or omission for future references.

Deadlines, deadlines, deadlines

Deadline | Online Account Filing

It may be the most crucial object throughout your journey as a business owner. Accounts filing and the tax return is an uncharted rainforest of deadlines. As comprehensive as it sounds, missing deadlines almost always causes heavy penalties. We strongly recommend you to talk to an accountant about your filing deadlines, if nothing, this is the part that will highly likely hassle you the most.

Get the Low-down on taxes

You are to be liable to pay income tax on all your taxable income. With that in mind, it is important to know that the golden rule to reduce your tax bill is to increase your business expense. Do the simple math, the more you decrease your net income the less tax you’ll pay.

Keep the codes and important numbers

Last but not least, you can anticipate a number of letters both from HMRC and Companies House when you start your own business. Do not destroy them! They’ll send your authentication code, unique tax reference number, VAT Scheme, your filing reminders and so on. You can always order new ones but anticipate at least two weeks for each to arrive at your registered address. We say it’s better safe than being sorry especially when the deadline for your tax return is looming on the horizon.