- EMPLOYMENT STATUS 02nd July 2018
Pimlico Plumbers status decision
The Supreme Court has upheld earlier decisions confirming an individual’s claim that he was a “worker” and not self-employed. What are the tax and NI consequences of this ruling?
Employment status. The long-running battle between Gary Smith (GS) and a well known plumbing firm (Pimlico Plumbers Ltd and another v Smith 2018) about his employment status finally came to an end on 13 June 2018 when the Supreme Court ruled that he was a “worker” and not self-employed, as Pimlico claimed.
Worker or employee. The worker status is a little short of being an employee, but conveys many employment rights such as the minimum wage, holiday and sick pay. The worker status has been around for quite a while, but has come to the fore recently because of the growing concern over workers in the so-called “gig economy”, such as Uber drivers.
Tax and NI. The difference between a worker and an employee is significant for PAYE tax and Class 1 NI purposes. The legislation specifically refers to income of “employees” and “employed earners” and not “workers”. This means that as the law stands HMRC can’t go after businesses which use the services of individuals under worker contracts.
Worker status? Like employee status, a worker is an individual who personally carries out work, i.e. not via a company or other intermediary. The same status tests of control, i.e. the right to send a substitute worker, and the obligation of the employer to provide work and the individual to do it, apply. If the last condition isn’t met, but the others are, the individual probably won’t be an employee, but is likely to be a worker.
- The big IR35 consultation 15th June 2018
HMRC has published its keenly awaited consultation on the future of IR35. Radical changes are ahead for some freelancers and those who hire them. How could you be affected?
Consultation. On 18 May 2018 HMRC published its long-awaited consultation on the future of IR35. This makes clear that the public sector rules which were introduced in April 2017 will be extended to the private sector, but probably with a few minor changes.
Public bodies. The April 2017 changes shifted responsibility to public bodies for deciding if freelance contractors they use are caught by IR35 , rather than it being a question for those doing the work. Faced with fines for getting it wrong, many public bodies have either assumed IR35 applies or changed their working practices by not hiring freelancers.
Fine tuning. Naturally, HMRC is very happy with the 2017 changes and wants to see them rolled out to the private sector. However, there are shortcomings in the public sector model which even HMRC recognises. Therefore, much of the consultation is devoted to asking for suggestions on how it can be improved before being rolled out.
No change. Importantly, the consultation says that the rules for determining if IR35applies won’t be changed. This will still depend on whether the person doing the work would be self-employed if they worked for the client directly, i.e. not through their company or partnership.
When and how? Our guess is that the changes resulting from the consultation won’t take effect until April 2020. But if you want to have your say on how they take shape, you have until 18 August 2018 to submit your comments.
- MTD development on a go-slow 16th May 2018
HMRC’s CEO has announced that the MTD process for individuals is slowing down to free up resources for work on Brexit. How might this affect you?
No change, almost. According to HMRC’s CEO, the go-slow “means halting progress on simple assessment and real time tax code changes” . He added that this doesn’t mean no changes at all. Anything that frees resources for other work, namely Brexit, will go ahead, but no details of what this might involve were given.
New. Simple assessments were supposed to play a big part in Making Tax Digital (MTD), and HMRC’s initial claim was that it would be a “New way of collecting tax that will make life easier for millions of customers” within self-assessment. However, so far HMRC has only used them sparingly and so you’re unlikely to notice any change because of the go-slow. In practice, this probably means that if you’re currently within self-assessment you’ll remain in it for a while longer.
What about businesses? MTD for VAT is still on course for April 2019. And while HMRC admits that the introduction of a single online account for businesses will be delayed, there’s no suggestion that the April 2020 date for MTD for business will be put back… watch this space!
- New scale charges for VAT on fuel 14th May 2018
New rates. HMRC has released details of the flat rate charges (also known as the scale charges) for car fuel. If you’re VAT registered you can use the scale charges to work out the VAT payable where your business pays for fuel for private journeys, e.g. for your employees. You should use the new rates from the start of the first VAT return period that begins on or after 1 May 2018.
- Business records checks to go 05th December 2015
HMRC has decided to scrap its controversial business records checks. What implications might this have for your business?
Just checking! In 2011 HMRC started its business records checks (BRCs) claiming it wanted to help businesses identify shortcomings in their bookkeeping. It suggested that this was the root cause of many incorrect tax returns and so wanted to help businesses get it right.
Suspended. BRCs came under fire from the accountancy and taxation professions because it was seen as a backdoor way for HMRC to start investigations. To make matters worse, it soon became clear that its officers were inadequately trained to carry out the checks. Because of these problems BRCs were put on hold while HMRC refocused. They were subsequently restarted later in 2012.
Scrapped. On 20 October 2015 HMRC announced that it was scrapping BRCs, although checks that were already scheduled will go ahead. The reason given for the cancellation of the scheme is that it wasn’t cost effective and didn’t identify as many problems as expected.
What now? HMRC says that it will continue to strive to ensure businesses improve their record keeping where needed, although it doesn’t state how it will do this.
- Celebrity Tax Avoidance 02nd June 2015 Yet another TV celebrity is being criticised for using a tax-saving scheme. What’s involved, is it legitimate and might it be something worth considering?
BBC tax dodger. In March 2015 the press revealed that BBC presenter Jeremy Vine was using a tax-avoidance arrangement. As is often the case the reports were wide of the mark and, frankly, almost certainly inaccurate in their accusations.
What’s the plan? We can’t be sure what Mr Vine or his advisors had in mind, but what’s got the press hot under the collar is that his wife and daughter own shares in his company Jelly Vine Productions. What the reports we saw fail to mention is that several years back the Law Lords confirmed that share ownership by a spouse as a means of saving income tax was legitimate. Plus, as far as the daughter’s shares are concerned it’s unlikely these involve income tax avoidance but rather shrewd and entirely legitimate financial planning.
Spouse’s shares. Income received by Jelly Vine from Mr Vine’s activities could be diverted to his wife by paying her dividends on her shares in the company. If she pays tax at a lower rate than Mr Vine, income tax would be saved.
Daughter’s shares. Firstly, we can explain why we don’t think income tax avoidance is involved in the arrangement. Where a parent gives or buys shares in their company for their child who’s aged 18 or under, any income generated by those shares, i.e. dividends, will be taxed on the parent as if it were theirs. This is a well known anti-avoidance rule that Mr Vine’s advisors would be very familiar with.
Tax planning. The tax advantage Mr Vine’s advisors might have had in mind was to create a ready source of tax-efficient income when his daughter reaches 18.Shares in the presenter’s company are owned by his wife and daughter. This is entirely legitimate and is a safe way to shift income to a spouse and child, but only after the offspring reaches 18.
- Mortgages – proving your income 02nd June 2015
Proof of income. Anyone who has a mortgage will know that lenders require proof of income before they approve a loan. If you can’t quickly put your hands on the required documents it can lead to delays.
Documents. Directors and employees must usually provide a P60 for the last tax year, but if all or part of your income is from self-employment you’ll need a statement from your accountant. If you don’t have one or don’t want to incur the expense of them writing to the lender, you can instead provide details of income plus an HMRC statement known as an SA302 . This can take weeks to obtain.
Tip. In January 2015 HMRC created a new service for those who file their tax returns online. You can log in and print your own HMRC statement of income. It’s not an SA302 , but the Council of Mortgage Lenders recommends its members accept it in place of one.If you need to prove your income for the purposes of a mortgage, and all or part of it comes from self-employment, you can now print an HMRC statement using its online service. This will be accepted by most lenders instead of HMRC’s SA302, which can take weeks to obtain.
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- EMPLOYMENT STATUS Pimlico Plumbers status decision The Supreme Court has upheld earlier decisions confirming an individual’s claim that he was a “worker” and ... read more
- The big IR35 consultation HMRC has published its keenly awaited consultation on the future of IR35. Radical changes are ahead for some freelancers and ... read more