Budget, DMS Posts, Tax

Summary of Budget 2020: Key points at-a-glance

Here is a summary of the main points.

Coronavirus and public services

  • £5bn emergency response fund to support the NHS and other public services in England
  • All those advised to self-isolate will be entitled to statutory sick pay, even if they have not presented with symptoms
  • Self-employed workers who are not eligible will be able to claim contributory Employment Support Allowance
  • The ESA benefit will be available from day one, not after a week as now
  • £500m hardship fund for councils in England to help the most vulnerable in their areas
  • Firms with fewer than 250 staff will be refunded for sick pay payments for two weeks
  • Small firms will be able to access “business interruption” loans of up to £1.2m
  • Business rates in England will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000
  • £6bn in extra NHS funding over five years to pay for staff recruitment and start of hospital upgrades

Personal taxation, wages and pensions

Pay slip
  • The tax threshold for National Insurance Contributions will rise from £8,632 to £9,500
  • The move, first announced in November, will take 500,000 employees out of the tax altogether
  • Those earning more than £9,500 will be, on average, £85 a year better off
  • 5% VAT on women’s sanitary products, known as the tampon tax, to be scrapped
  • No other new announcements on income tax, national insurance or VAT
  • Tax paid on the pensions of high earners, including NHS consultants, to be recalculated to address staffing issues

Alcohol, tobacco and fuel

Man paying for a pin of beer
  • Fuel duty to be frozen for the 10th consecutive year
  • Duties on spirits, beer, cider and wine to be frozen
  • Tobacco taxes will continue to rise by 2% above the rate of retail price inflation
  • This will add 27 pence to a pack of 20 cigarettes and 14 pence to a packet of cigars
  • Business rate discounts for pubs to rise from £1,000 to £5,000 this year
Men and a woman with laptops
  • System of High Street business rates to be reviewed later this year
  • Firms eligible for small business rates relief will get £3,000 cash grant
  • Entrepreneurs’ Relief will be retained, but lifetime allowance will be reduced from £10m to £1m
  • £5bn to be spent on getting gigabit-capable broadband into the hardest-to-reach places
  • Science Institute in Weybridge, Surrey to get a £1.4bn funding boost
  • An extra £900m for research into nuclear fusion, space and electric vehicles
  • VAT on digital publications, including newspapers, e-books and academic journals to be scrapped from December

Environment and energy

Plastic bottles
  • Plastic packaging tax to come into force from April 2022
  • Manufacturers and importers whose products have less than 30% recyclable material will be charged £200 per tonne
  • Subsidies for fuel used in off-road vehicles – known as red diesel – will be scrapped “for most sectors” in two years’ time
  • Red diesel subsidies will remain for farmers and rail operators
  • £120m in emergency relief for English communities affected by this winter’s flooding and £200m for flood resilience
  • Total investment in flood defences in England to be doubled to £5.2bn over next five years
  • £640m “nature for climate fund” to protect natural habitats in England, including 30,000 hectares of new trees

Transport, infrastructure and housing

Traffic on the A303 near Stonehenge
  • More than £600bn is set to be spent on roads, rail, broadband and housing by the middle of 2025
  • There will be £27bn for motorways and other arterial roads, including new tunnel for the A303 near Stonehenge
  • £2.5bn will be available to fix potholes and resurface roads in England over five years
  • Further education colleges will get £1.5bn to upgrade their buildings
  • £650m package to tackle homelessness, providing an extra 6,000 places for rough sleepers
  • Stamp duty surcharge for foreign buyers of properties in England and Northern Ireland to be levied at 2% from April 2021
  • New £1bn fund to remove all unsafe combustible cladding from all public and private housing higher than 18 metres

DMS Posts, Tax

An essential IR35 briefing for contractors

IR35 legislation allows HMRC to collect additional payment from contractors in certain circumstances. The way in which IR35 operates in the private sector is set to change and this could have a significant impact on many contractors across the UK. This guide provides an overview of IR35 legislation and what it means for all contractors, along with an explanation of the anticipated changes in the private sector.

What is IR35?

IR35 is a piece of legislation designed to seek additional payment from contractors who HMRC believes are working in “disguised employment”. This is when a contractor’s working arrangements and contract are similar to those of an employee but, unlike an employee, the contractor enjoys the tax benefits of working through an intermediary, such as a company or partnership. When a contractor meets the criteria of disguised employment, they are deemed to be “inside IR35” and are required to make additional payments to HMRC.

When is a contractor deemed to be “inside IR35”?

The question of whether a contractor is deemed to be inside IR35 depends on a variety of factors relating to both the contract itself and the contractor’s working practices. There are three employment tests designed to help contractors and engaging organisations make this assessment, along with a number of additional factors that HMRC takes into consideration.

The employment tests

The “direction, supervision and control” test

This test focuses on the level of autonomy given to the worker. HMRC considers contractors to have more autonomy when it comes to choosing what work they do, while employees are more likely to be assigned tasks by their employer. This does depend on the individual’s skill and expertise, however, as a highly skilled employee is likely to enjoy a greater degree of autonomy than a less experienced contractor. The “direction, supervision and control” test asks the following questions of a contractor’s working practices and the wording of the contract itself:

Direction: is the worker told how to do the job at hand?

Supervision: is the worker supervised while they carry out their work?

Control: does the engaging organisation have control over aspects of the worker’s working practices, such as their work schedule?

If the answer to any of these questions is “yes”, then there’s a chance that the contractor might be inside IR35.

The “substitution” test

The test of substitution considers whether the engaging organisation would be prepared to accept someone else to do the contractor’s work in the event of them being unavailable. If the engaging organisation would not be prepared to do this and would only accept the personal service of that particular contractor, it would suggest that a traditional employment relationship exists and that the contract could therefore be inside IR35.

The “mutuality of obligation” test

Mutuality of obligation (MOO) means that one party – the employer – is obliged to provide work and the other party – the employee – is obliged to accept it. Unlike employees, contractors have no obligation to accept work and unlike employers, the companies that contract them have no obligation to provide it. As MOO is a feature of an employment relationship, if it is present in a contract it suggests that the contract might be inside IR35. When assessing a contractor’s working practices and contract, there are certain factors that would indicate that MOO isn’t present and that an employment relationship, therefore, doesn’t exist. These include:

• the use of specific projects with set end dates

• the ability for either party to stop the work with very little notice

The ‘CEST’ checking tool

HMRC developed the Check Employment Status for Tax (CEST) tool to help contractors and the companies who engage them to check whether a contract and the contractor’s working practices fall inside or outside IR35. However, some questions were raised relating to the initial version of this tool and its exclusion of the mutuality of obligation test. An updated version of the CEST tool was released in November 2019.

Additional factors that might affect a contractor’s IR35 status

HMRC doesn’t just consider the outcome of the three employment tests when assessing a contractor’s IR35 status. It looks at a wide range of factors that might indicate that the contractor is “part and parcel of the organisation” and that a traditional employment relationship might, therefore, be in place. These factors include:

• the contractor having an email address at the engaging organisation

• the contractor having permission to use company equipment

• the contractor receiving the same company ‘perks’ as their employed colleagues

• the contractor being line managed in the same way as their employed colleagues

What are the consequences of being inside IR35?

Contractors who are inside IR35 and work through an intermediary in the private sector are currently required to declare this to HMRC. If the intermediary is a limited company, the company would add a deemed payment in the contractor’s salary and deduct tax and National Insurance accordingly. If the intermediary is a partnership, the partnership would work out the deemed payment and deduct tax and National Insurance in the same way. The partner would then report this amount on their individual Self Assessment tax return as if it were income from employment.

If a contractor fails to declare their IR35 status and HMRC challenges this in an investigation, the contractor may face a penalty. Penalties are levied as a percentage of the additional tax that the contractor is liable to pay and are determined by HMRC’s perception of the contractor’s intent and the degree to which they “failed to take reasonable care” to declare their IR35 status. If a contractor knows that they are inside IR35 but chooses not to take action, they are likely to be fined more than if they had simply made a mistake in failing to declare their IR35 status. In the public sector, the onus is on the engaging organisation to assess the IR35 status of its contractors. Anyone who the engaging organisation deems to be inside IR35 is usually brought on to the organisation’s payroll as an employee and is then taxed accordingly.

Whose responsibility is it to determine if a contractor is inside IR35?

IR35 was first introduced to all contractors in 2000. At first, it was the contractor’s responsibility to determine whether they were inside IR35 but in 2017, the government rolled out changes to IR35 rules in the public sector which put the onus on public authorities to decide whether their contractors are inside or outside IR35. In the private sector, it’s currently the contractor’s responsibility to determine if they are inside IR35. However, anticipated reforms to IR35 in the private sector mean that for large or medium-sized companies, the onus will soon be on the engaging organisation to make this assessment. It’s expected that the new rules – currently sitting in draft form in the Finance Bill 2019/2020 – will be introduced in April 2020.

Who will the new rules affect?

The new IR35 rules affect contractors who provide services to large or medium-sized companies in the private sector (defined in the draft legislation as having a turnover of more than £10.2 million and more than 50 staff) and who operate through an intermediary, such as a company or partnership.

What impact will the new rules have?

Once the new rules are introduced, if a large or medium-sized private sector company deems a contractor who is working through an intermediary to be inside IR35, the company will have a decision to make. It could either change the contractor’s working arrangements in such a way that the contractor is no longer inside IR35 or it could terminate the contract. If the company wants to continue engaging the services of the contractor, it could pay them through its payroll instead. In this scenario, the contractor would become an employee of the engaging company and would have to make the same tax and National Insurance contributions as other employees. When similar reforms were introduced to the public sector in 2017 The Register reported a “mass exodus” of IT contractors from the public sector, while other news sites claimed that IR35 had made it extremely hard for the public sector to hire for contract roles. However, a report commissioned by HMRC contradicts the news reports, claiming that the change was not substantial and that IR35 had not affected the public sector’s ability to fill contract vacancies.

DMS Posts

Late filing statistics from Companies House.

With latest figures published by Companies House showing an increase of 2% in accounts being filed late for 2018 (as compared with 2017), we thought it was worth reminding you of the fines that companies could face:

Accounts delivered late Penalty: Private company/LLP Penalty: PLC
< 1 month £150 £750
> 1 – 3 months £375 £1,500
> 3 – 6 months £750 £3,000
> 6 months £1500 £7,500

According to Companies House, 223,640 companies (4,202,044 total on register) were late to file their accounts, with the worst areas being London, Birmingham and Manchester.

DMS Posts

Government confirms implementation of pensions dashboards

The government has confirmed that the initiative to introduce a pensions dashboard will go ahead.

Pensions dashboards will allow those saving for retirement to view information from multiple pensions in one place stating that the dashboard will ‘open up pensions to millions’, and ‘provide an easy-to-access online view of a saver’s pensions’.

The Department for Work and Pensions (DWP) will bring forward legislation that will require pension scheme providers to make consumers’ data available to them through their chosen dashboard. The plan is to include State pension information as well.

Mike Cherry, National Chairman of the Federation of Small Businesses (FSB), said:

‘The government’s commitment to compel pension schemes to share data with platforms through primary legislation is particularly welcome. Some urgency is now required, and we question the three to four-year timeframe for schemes to prepare data for dashboards.’

Internet links: GOV.UK Pensions dashboard fsb press release

DMS Posts, PAYE, Tax

Latest guidance for employers

HMRC has issued the latest version of the Employer Bulletin. This April edition has articles on a number of issues including:

  • Cash Allowances, Flexible Benefits Packages and Salary Sacrifice
  • Unpaid work trials and the National Minimum Wage
  • Diesel Supplement Company Car Tax Changes to meet Euro standard 6d
  • Student Loans
  • Construction Industry Scheme – helpful reminders for contractors and subcontractors
  • Welsh rate of income tax and Scottish Income Tax.

If you have any queries on payroll matters please contact us.

Internet link: Employer Bulletin April 2019