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IR35 / OFF-PAYROLL WORKING – WHAT IS IT AND DOES IT APPLY TO ME?

Although IR35 is the hot topic – IR35 itself is not new – it has been around since 2000.  It is a piece of legislation that allows HMRC to collect additional payment from a contractor, where in reality the contractor is effectively an employee of their client – but is just choosing to operate through a limited company.

So why is everyone talking about it now?

New rules are coming in from April 2020, which are shifting the emphasis of deciding whether your working relationship is caught by IR35, from the worker to the end user in some circumstances.  If that end user determines that you are caught by the rules, they either need to take you onto the payroll or deduct PAYE and NI from your invoice.

This blog aims to demystify the new rules so you can determine if it will affect you.

Off-Payroll Working – What is it?

Off-payroll working is a term used by HMRC to describe the situation where:

A worker/freelancer provides a service (eg themselves) to an end client, and invoices that client via their own limited company and CRUCIALLY – if that worker was providing that service directly to the end client (eg NOT via ABC Limited) then that worker would meet the employment test status (see below) to make them an actual employee of the client.

If off-payroll working applies:

  • The end client is required to deduct PAYE and NI from your invoice, BUT
  • You do not acquire any employment rights under the rules – so you have no right to SSP, SMP, holiday pay,pension etc

so not a great position to be in!

The Changes from April 2020

From April 2020 if your end user is a large or medium sized company, then it becomes their responsibility to assess whether you have the employment status of a “worker”.  If they determine that you do, then the off-payroll working rules kick in.

Prior to April 2020 it was your responsibility to determine your status, and to deal with the IR35 legislation yourself.

(A medium company is one that meets 2 out of 3 of these criteria:

  • turnover over £10.2m,
  • over 50 employees
  • balance sheet total of over £5.1m)

It is important to note that if your end user is a small company, the changes do not apply to them at all.

If it is a medium/large company then the following will happen:

  • The end client must tell you that they are a large or medium size company
  • The end client must assess your employment status and tell you what they have decided
  • The end client will then deduct PAYE and NI from your invoice if they have concluded the off-payroll working rules apply

How will they assess my employment status?

The end client should start by using HMRC’s Check Employment Status Tool “CEST” which will give an assessment at the end of the questions.

It asks a number of questions about your working arrangements, such as “could you send a substitute to perform the task” and “does the end client have the right to determine your working hours”

If the questions are answered accurately and honestly, HMRC will accept the results of this test.

Once they have determined your status, they need to inform you of their decision by providing you with a Status Determination Statement.  If you disagree, you can challenge the result, and they will need to come back to you within 45 days.

What is likely to happen?

These rules came into force for the public sector last year, and the outcome was for many organisations, they just decided to take everyone onto the payroll and to no longer engage freelancers, as the risk of getting it wrong was just too high.  We are seeing the same already from some of the banks in advance of these changes.

Obviously, having PAYE and NI deducted from your invoice is going to affect your take-home pay, and if you are affected then there should be some negotiation about your future invoices!

It is important to note that the changes do not affect everyone, but there is, as is to be expected, currently widespread panic in the freelance world!

If your end client is a small company, there is no change.

However you are still responsible for determining your employment status, and I would highly recommend running through the CEST questionnaire to see how HMRC would assess your status, and if you should be applying the IR35 rules yourself.

If you have any questions, then as usual – get in touch!

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Last Minute Tax Return Help?

If you have yet to file your personal tax return, you probably have a rising sense of panic as you now have less than 3 weeks to get it in!

There is an automatic £100 fine for your return being late, whether you owe any tax or not, and although you can appeal with the fine with an excuse, you are very unlikely to get it overturned!

I have put together a summary of blogs I have done over the last year to hopefully help you with the most frequently asked questions for a sole trader trying to prepare their accounts and tax return.  I hope you may find them useful.

  1. Who needs to file a tax return?
  2. How you work out the amount you can claim for working from home
  3. What you can claim for using your personal mobile phone for work
  4. The rules around working in coffee shops!
  5. Payments on account – this was written in the Summer for the July payment on account, but the explanation of payments on account applies to January as well!

I’ll leave my blog about being organised and getting it done early in the year for another time!!

Good luck, and if you decide its all too much and this is the year you are going to do it differently and be organised – you know where I am (next year!)

 

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Are you missing out on tax-free childcare?

Recent statistics show that the take-up of the new scheme has been low, not helped by widely-reported technical issues soon after the scheme was launched.

So what does the scheme offer – and can you take advantage of it?

Under the Tax-Free Childcare scheme, for every 80p you put into your online account, the government will add 20p.

In total you can use the scheme to help pay for up to £10,000 of childcare per child each year – giving you an extra £2,000 per child (up to £4,000 if your child has disabilities).

Tax-Free Childcare is open to all qualifying parents, unlike the old Childcare Vouchers scheme offered by some companies.  It is open to all working parents, including those who are self-employed, with children up to the age of 11 (or 17 if your children have disabilities)

You can get Tax-Free Childcare at the same time as 30 hours free childcare if you are eligible for both.  However, you won’t be able to get the tax-free childcare if you already get Universal Credits.

To qualify, you and your partner, need to be working and earning a minimum of £131 a week, and a maximum of £100,000 a year.  If one of you does not work, then you are not able to claim.

Tax-Free Childcare can be used to pay for activities by any regulated childcare provider who has registered with the Scheme, and this may include holiday and after-school clubs as well as the more obvious nurseries etc, so it is worth checking who is covered in your local area.

If you are eligible for the scheme, then you need to create an online childcare account via the Government Tax-Free Childcare site. You then pay the money into this account, and transfer funds from there to pay your childcare provider.

So even if you do not regularly use childcare, it is worth checking if any provider that you do use is signed up to the scheme, and if you could be saving money by setting up an account.

For more information, please contact Rosie Forsyth at Wilkins & Co.

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It’s time to party (tax-efficiently of course!!)

As we approach the Christmas period, the question is always – what can we claim for a staff Christmas party?

Christmas Party

If you have a limited company, you can claim your festive or annual party as a deductible expense, subject to the limits below. As long as all of your employees are invited to attend, the whole event will not be taxable, even if you are the sole director/staff member. You cannot claim annual event expenses if you also entertain clients and associates.

You have £150 (including VAT) to spend per head, and you can also spend this on your “plus ones”. The £150 is an all-inclusive figure, so you need to add up the total costs of the evening (incl transport, accommodation, drinks) and divide it by the number of attendees. The total cost has to be under £150, – if it comes out to be £151 per head, the whole lot is taxable, so be careful!

An exemption, not an allowance

The £150 spend is an exemption, not an allowance. You will have to actually spend the money in order to claim the deduction.
If it is not used, the exemption will be lost.

Gifting employees/directors

Small gifts given to employees (and directors) can be exempt from tax as trivial benefits providing the following conditions are met:

  • The cost of providing the benefit does not exceed £50 (including VAT).
  • The benefit is not cash or a voucher that can be exchanged for cash
  • The employee is not entitled to the benefit as part of any contractual obligation.
  • The benefit is not provided in recognition of a particular service.

However, if the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50.

Gifts to Clients?

Your gifts will only get tax relief, and you can only reclaim the VAT if they are:

  • NOT food, drink, tobacco or a voucher AND
  • Carry a conspicuous advert for your business AND
  • The cost of that gift, and any other to that person in the year is under £50

So no excuses not to have that Christmas party!

Please note that these rules are for limited companies – unfortunately sole traders do not benefit from the same exemptions!

For more information please contact Rosie Forsyth at Wilkins & Co.

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Property Landlord? – Big Changes ahead to Capital Gains Tax

There are 2 big changes coming in from April 2020 that will affect anyone selling a property that is now rented out but that has once been your main home.

Rental properties that have never been the landlord’s main home do not get these reliefs anyway, and are therefore not affected.

  1. REDUCTION IN THE FINAL PERIOD EXEMPTION

When you sell a property, you pay capital gains tax (CGT) on the profit you make.  CGT is paid at the rate of 18% or 28% on residential property transactions depending on your tax bracket.

At the moment you don’t have to pay any CGT for the years you lived in the property, plus an additional exemption for the final 18 months that you owned it, even if you weren’t living there at the time.

For example, if you have owned the property for 10 years, lived in it for 6 years and then rented it out for the last 4 years, you would not pay CGT on 7.5 years of ownership – or 75% of the gain.

But from April 2020 this final period exemption will be cut to 9 months.  This means in the above example, after April you will not pay CGT on 6.75 years or 67.5% of the gain.

(There will be no change to the 36 months available to disabled people or those in, or moving into, a care home.)

  1. ABOLITION OF LETTINGS RELIEF FOR MOST LANDLORDS

The other change is arguably a bigger deal and involves lettings relief, which currently provides up to £40,000 of relief (£80,000 for a couple) to people who let out a property that is, or has been in the past, their main home.

From April 2020, lettings relief will only apply where the owner actually SHARES OCCUPANCY of the home with a tenant – effectively spelling the end of this tax relief for most people!

The relief will not be available at all for properties sold after 6 April 2020 – there are no transitional rules allowing you to claim it for the years up to April 2020 – it is simply going!

If you are therefore currently selling or thinking of selling a rental property, that has previously been your main home, then this needs to be sold before 5 April 2020 if you want to keep your lettings relief, and the current 18 month final period exemption.

For more information, please contact Rosie Forsyth of Wilkins & Co.

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Going self-employed? 5 things you need to do

Setting up a new business can be daunting and the To Do list endless.  Here are 5 things that you need to do to get the financial side of your business up and running:

  1. Register with HMRC

    You need to tell HMRC that you have become self employed.  You can do this online here.  You will receive your Unique Taxpayer Reference (UTR) in the post within about 2 weeks from HMRC.  This is a 10 digit number which you need to keep safe, as you need this to be able to file your tax return.

    You should register with HMRC as soon as possible after you start trading, and by 5 October following the end of the tax year in which you started self-employment at the latest.

  2. Set up a Separate Bank account

    It is always a good idea to have a separate bank account that you just use for your business.  Not only does it make preparing your year end accounts easier, it makes sure that you account for all your business expenses, gives you a clearer idea of how your business is doing, and if HMRC were ever to enquire into your affairs, gives them less scope to start asking other questions!

    As a sole trader, you don’t need to set up a “business” bank account.  You just need to have an account in your name that you use solely for business purposes.  If you have any business related DD’s (mobile phone/subscriptions) move them over to this account.

  3. Set your prices

    Presumably you want to make money out of your business, so you do need to think about what you are going to charge people for your services.  I’m not going to cover various pricing strategies here, but it is important to have think about all the different types of costs that are going to be involved with running your business, and to make sure that your prices will generate enough income to cover them.

    You also need to consider the amount of “admin” time that is involved in running a business.  Running that “hour workshop” won’t just take an hour of your time, you need to plan it, advertise it, deal with the finances of it, follow up etc so you need to build all this time into your pricing strategy.

  4. Keep your records

    You need to get this organised from the start.  Unless you are going to be raising only a handful of invoices and have very few expenses, I would definitely consider using a cloud based accounting package.  These are subscription based, so you need to take this cost into account, but packages start at under £10 a month, so are well worth the cost. At Wilkins & Co, we use Xero with our clients, but there are many others to take a look at as well.

    Make sure you are aware of the types of expenses that you can claim against your business and keep records of all these, as you will need them to prepare your accounts for HMRC, or to pass to your accountant.

  5. Put Money Aside for Tax

    Being self employed as opposed to employed, no-one pays your tax for you!

    It is your responsibility to pay HMRC your tax and NIC.  You will do this by preparing a set of accounts for your business and sending HMRC a tax return. Your accounts will generally be prepared to the end of the tax year (5 April), and then you have until the following 31 January to submit your tax return and pay your tax and NI.

    It is therefore a good idea to put money aside as you go along to pay your tax bill.  It is very easy to see money in your business bank account, and take it out and spend it – and then realise you have a tax bill to pay at 31 January that you have not budgeted for. How much you should put aside does depend on your personal situation, and what other income you may have in a tax year, but 20-30% of your profits put aside should cover your tax bill for the year.  Do check with an accountant though for personal advice on this.

  6. Did I say 5 things – oh well!

    No 6 could be the most important – talk to an accountant!!!  You can contact me at rosie@wilkinsco.co.uk.

 

 

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Maternity Pay – what can you claim if you are self-employed?

If you are employee and you go on maternity leave – you will generally be paid SMP by your employer (subject to meeting the qualifying conditions)

But what if you are self employed? 

Maternity Allowance (MA) is a benefit for women who are working but do not qualify for SMP.

It is payable at one of 2 rates:

  1. £148.68 per week or
  2. £27 a week

and is payable for 39 weeks.

Which Rate will I get?

The amount you get, depends on whether you have paid class 2 NIC or not.  If you have, then you will get the full rate of £148.68 per week.  If you haven’t then you will only get the lower rate.  This is one reason why it is really important to register with HMRC as being self-employed and to voluntarily pay your class 2 NIC (even if your self-employed earnings are low and mean you could qualify for an exemption from paying it.)

As class 2 NIC is now not paid until the end of the tax year, when you submit your claim for MA, you will be told if you need to pay your class 2 NIC early to get you the maximum MA rate, and how you can do this.

Eligibility?

To be eligible for MA, you need to have worked for at least 26 weeks in the 66 weeks (that’s 15 months) before your baby is due.  The work does not have to have been continuous.  You must also have earned more than £30 a week in 13 of those weeks.

How do I claim?

To claim, you need to complete and submit form MA1. https://www.gov.uk/government/publications/maternity-allowance-claim-form

You can claim MA once you have been pregnant for 26 weeks and payments can start 11 weeks before your baby is due. You chose when your payments start, so you could start them just before your baby is due or up to 11 weeks before your due date.   Don’t delay in claiming as you can only backdate a claim in certain circumstances.  MA is payable either every 2 or every 4 weeks in arrears.

If you are actually an employee, but do not meet the qualifying conditions to be able to claim SMP, either because you have not been at the company long enough, or you do not earn enough, then you may still be able to claim MA as an alternative.

The HRMC website gives you more information about MA and further links to additional information: https://www.gov.uk/maternity-allowance

If you require any further information, please contact Rosie Forsyth at Wilkins & Co.

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Payments on account of personal tax are due this month- what are they?

You did your tax return in January – so why have you suddenly got a tax bill in the middle of July?

Payments on account are a pain in the backside for many self employed businesses, especially when you may not have been expecting to make a payment part way through the year.  Originally devised to help spread the cost of your tax bill over the year,  payments on account are just what they say they are – a “part payment” of your anticipated tax bill for the current tax year.

How are they calculated?

The payment on account is effectively paying off some of your tax bill in advance, and is calculated according to last year’s tax bill.

How these are calculated is easiest explained with an example.

If you started your business in May 2017, you will have prepared your first set of accounts to 5 April 2018, calculated your tax bill for 17/18, filed your tax return and paid your tax at 31 January 2019. Let’s say your tax bill was £3,000. You will have paid this by 31 January 2019.  But you will also have made a payment on account of your next year’s (18/19) tax bill at the same time – and this was automatically calculated at 50% of the previous year – so £1,500.  So actually at 31 Jan 2019 you paid £4,500.

You will then make your second payment on account for 18/19  by 31 July 2019 and again this is 50% of last year’s bill – so another £,1500.

So by now (31 July 2019) – you have paid £3,000 on account of your 18/19 tax bill – even though you may not have yet prepared your accounts for the year, or filed your tax return.  You may not yet therefore know what your final tax bill for 18/19 is going to be.

If your profits in Year 2  of trading have gone up – and when you do your accounts and file your tax return, your tax bill for 18/19 is worked out to be £5,000, then you have already paid £3,000 of it during the year – so you only owe a further £2,000 at 31 January 2020.  But, the process is repeated – so at 31 January 20 you will owe £2,000 for this year – and your first payment on account of 19/20, calculated as before at 50% of the current year bill (£2,500) – so £4,500 in total.  You then owe at 31 July 2020 your second payment on account of 19/20 – another £2,500.

If you are in the scenario where profits are lower than the year before, then you will have overpaid in the year with your 2 payments on account and you will be due a refund for that year.  In the example above, if your tax bill for 18/19 worked out to be £2,400, then because you have paid £3,000 during the year, then you have overpaid £600.  But, taking into account your first payment on account for 19/20 which will be 50% of £2400 = £1200, you still owe £1200 – £600 = £600 at 31 Jan 2020!

Confused??  Who said tax wasn’t taxing!

For a new business, the payment on account regime can really hit your cashflow, so you need to be prepared for it.  Your first tax payment in the January is really 150% of your tax bill, by the time you have made your payment on account as well.  Another good reason for doing your tax return in plenty of time – so you know what this payment is going to be – and can budget for it accordingly.

If you know your profits are going to be lower in the next year, perhaps because you are doing less hours or lost a key client, then you can apply to reduce the payments on account that are going to make – to avoid overpaying in the first place.  Don’t overestimate the reduction though, as HMRC will charge you interest if you get it wrong and reduce the payments too much.

There are some circumstances in which a payment on account will not be due. If your tax bill for the previous year was less than £1,000 after PAYE or other deductions at source, no payment on account is necessary. Similarly, no payment on account will be due if, in the previous tax year, 80 per cent or more of your tax was deducted at source.

You can check the payments due on your account by logging into your personal tax account.  This will show you the amount due for the year and what you have paid already on account of this tax year.

For further help in understanding your payments on account, please contact Rosie Forsyth at Wilkins & Co.

 

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Smile! 10 reasons to get your tax return done NOW!

Your tax return for 18/19 needs to be filed by 31 January 2020, but can be done NOW.

Here are 10 great reasons to get it out of the way before the heatwave arrives (OK – wishful thinking, but you never know)

  1. Smugness
    It’s done- hooray!!!! Enjoy Christmas and find something else to moan about in January.  Peace of mind is a wonderful thing.
  2. Budgeting
    You will know now what your tax bill is for the year. Filing your return early does not mean that the tax is due any earlier, so the tax for 18/19 is due at 31 January 2020 whenever you file your return.  Knowing what that figure is now gives you plenty of time to make sure the money is put aside.
  3. Get your refund due sooner
    Although the tax payment date does not change from 31 January, if you have actually overpaid tax for 18/19, then as soon as your return is filed and processed, the repayment will be sent out to you. The earlier you file your return, the quicker you get any money back!
  4. Confirming your 31 July 2019 payment
    For some people, payments on account of tax have to be made in the year, at 31 July.  The amount that is due is initially calculated from the year before’s tax liability and is really therefore an estimate.  If your total income is lower in this tax year, you can make a claim to reduce this payment on account at 31 July, to ensure that you don’t over pay tax.  Submitting your tax return before 31 July will ensure the tax man doesn’t take too much of your hard earned cash.
  5. Tax credits
    The renewals forms have to be completed by 31 July, and being able to produce accurate figures will ensure your claim is accurate for the year, and you won’t end up having to repay amounts you were not entitled to.
  6. Tax code adjustments
    If you pay any tax owed by an adjustment to your tax code, so it is taken from your monthly pay, then you want this code to be correct. Having the correct code early in the tax year will avoid large adjustments at the end of the tax year, which could impact significantly on your pay packet.
  7. Access to information
    We all know its going to be easier to find the information you need soon after you receive it, rather than in January, when you realise your filing may not be quite as good as you thought!
  8. Memory issues
    If you are producing accounts for your business, you are much more likely to know the answers to your accountant’s tricky questions now, rather than 6 months down the line! What was £x for again in Nov 2018????
  9. Lower accountant’s fees and no fines
    Many accountants will increase their prices as the filing deadline approaches, as good old supply and demand comes into play.  Working weekends and into the wee small hours all through January is expensive!  Returns not filed by 31 January have an automatic £100 late filing penalty – so don’t run the risk!  HMRC don’t really care about computer problems, lost post, bad weather, Winter colds – if your return is late, expect a fine.
  10. Happier, healthier accountants – see point 9!! January is depressing enough for most people, but when you still have a whole pile of tax returns to chase up and get filed, dry January just ain’t going to happen!!

    So if you are inspired to get your return done early this year and need some help, then please do get in touch.  You can contact us here at rosieforsyth@wilkinsco.co.uk

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Claiming the costs of your mobile phone

We can’t run our businesses without our mobile phones, but are you claiming the right amount from your business?

The rules for claiming the cost of your mobile phone from your business are different depending on whether you are a sole trader or a limited company.

For a sole trader – it’s relatively straight forward.

You can claim a percentage of your phone bill, or new phone, depending on the percentage that you use it for your business.  You don’t need to analyse all your calls, but it is a good idea to keep track of your business usage for 2-3 months, and then apply that percentage to the full year.  HMRC may ask you one day how you came to the percentage that you did, and you may find it hard to justify that you use your phone 90% for business, when you actually only work one day a week -so just be sensible!

For a limited company, as with most things, it’s more complicated.

If your phone contract is in your personal name, and the company pays the bill, or reimburses you for it, you have a benefit-in-kind – and this should be disclosed on a form called a P11D at the end of each tax year.  Both you and the company will have tax to pay on this amount.

The logic behind this, is that with contracts nowadays, we all get so many free minutes and texts etc, that there is actually no additional cost to you for using your phone for business.  You would be paying your phone bill anyway, and so getting the company to pay it, is really the same as paying yourself additional money from the company.  If you can separate additional business calls, eg they are overseas calls, then you can claim these from the business as a legitimate expense.

If you can put your phone contract in the company name, then HMRC will accept that private use of your “company” phone is minor, and the company can pay the whole bill, without any personal tax problems.

The same rules will apply for broadband costs in your home.

So if you have a limited company, you basically have a choice:

  • If your phone contract is in your personal name,  don’t put any of the cost through the business (unless you have costs over and above your standard package cost that you can identify as relating to the business – such as overseas calls.)
  • Put your contract into the limited company name – and then you can claim the full cost of your monthly bill ( but no prizes for guessing that a business contract is usually more expensive than a private one)

It’s a really common mistake to think that the company can just pay your personal mobile phone bill, as you use it for business, but get it wrong and you could land yourself and the company further unexpected tax bills!

For any further information, please contact Rosie Forsyth at Wilkins & Co.

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