In January, the Government confirmed their review of the IR35 off-payroll tax reform.

Rather than changing the underlying legislation, during the review, they will focus on how the reforms can be implemented smoothly. This makes clear that the Government has every intention of pushing the changes through from 6th April 2020.

What’s changing?

The fundamental shift is that, in the majority of cases, end-clients will be responsible for determining the IR35 status of contracts undertaken by Personal Service Companies they engage, rather than the directors of the Personal Service Company (“PSC”).

If this assessment concludes that a contract is deemed to be inside IR35, it will be the responsibility of the fee payer (the party paying the PSC), to deduct the appropriate PAYE tax and NIC, as if they were an employee, prior to paying the PSC.

These reforms, which broadly mirror those which were introduced in the public sector in April 2017, are set to be extended to the private sector as planned. This gives a very tight timeline to those who do not already have their preparations well underway:

  • 7th January 2020 - review into off-payroll reforms announced
  • mid-February 2020 - review to conclude
  • 11th March 2020 - Budget 2020
  • 6th April 2020 - changes to come into force

Some major private sector organisations, including financial heavyweights Barclays and HSBC, have already said that they will not be engaging off-payroll contractors going forward, and will instead bring them onto PAYE, with other big corporations likely to follow suit. They haven’t said whether they will be increasing hourly rates so that the contractors are not worse off - presumably this will be subject to individual negotiation.

PAYE options may mean being employed directly on the client’s payroll or being engaged PAYE via a recruitment agency or umbrella company.

Know where you stand with IR35

Check your status and engage with your clients

If you are a worker supplying your services through a limited company, you will have already assessed the IR35 status of your contract in order to decide how to take your pay, but have you documented the assessment and does it need to be updated?

Do you know your clients’ stance on IR35? You should already be comfortable with the existing determination of your IR35 status, but are you comfortable with how your end client will view the working relationship?

You need to be well-informed about your own contract and working practices, in case you need to contest an IR35 decision you don’t agree with.

Is your client classed as a small company? If so, the changes do not apply.

HMRC tool

CEST stands for Check Employment Status for Tax and is HMRC’s tool to assist workers, clients and other stakeholders assess the IR35 status of a contract.

It uses a series of questions and at the end gives a determination of whether IR35 applies or not. CEST has been widely criticised for not covering all areas to allow an accurate determination of employment status as it does not include any questions around Mutuality of Obligation.

Somewhat confusingly, HMRC have said that use of CEST is not compulsory but it is also the only IR35 decision-making tool they will stand by, but only if they agree that it was completed correctly.

Independent testing tool - IR35 Shield

To provide further assistance, Boox have partnered with IR35 Shield to provide an online, independent testing tool to check your IR35 status, using more detailed questions about your contract and working practices. It will produce a determination and risk level based on your responses and IR35 case law.

We would recommend that you complete this test, both to have documentation of your current IR35 treatment, and in case you don’t agree with any status determination.

To use this FREE tool, just contact your Boox team and we will provide you with login instructions.

Get in touch

Yesterday, Chancellor Philip Hammond delivered his Budget to the House of Commons, promising an end to austerity and “an economy working not for the few, not even for the many, an economy working for everyone”. As expected there was an announcement on an extension of the IR35 rules to the private sector. We are aware that many of our clients may be impacted by this reform in April 2020, so having 18 months to get ready for it is good news. We will be issuing resources and guidance that may assist contractors, agencies and end clients prepare for the reform in due course - but in the meantime don’t panic and carry on!

Budget Key Points

Here are the key points of the Budget which may affect you and your business: Personal Allowance - The government’s manifesto pledge to raise the Personal Allowance to £12,500 and higher rate threshold to £50,000 will take effect a year earlier than promised, in April 2019/20 Private sector IR35 - Reforms to IR35 rules for off-payroll working will be extended to the private sector from April 2020, and there will be further consultation on the detail Digital tech tax - A new Digital Technology Tax will be levied on tech giants like Google, Apple and Facebook and will extend to all profitable companies with global sales of more than £500m Business rates - The Chancellor committed to reducing business rates by a third over two years for companies with a rateable value of £51,000 or less Stamp duty and housing - First time buyers’ relief from Stamp Duty Land Tax will be extended to shared ownership schemes. The government have also pledged £500m for the Housing Infrastructure Fund, to build 650,000 new homes. Entrepreneur’s Relief - After speculation that it would be abolished, Entrepreneur’s Relief will be retained. However, there will be measures to prevent the “misuse” of the relief, including extending the minimum qualifying period to two years and changing the definition of a “personal company”. Universal Credit - work allowances for Universal Credit will be increased by £1.7bn, which is predicted to benefit 2.4 m working families with children by £630 a year. Naturally, the plans outlined by Mr Hammond could be derailed by Brexit and he indicated that in the event of a “no deal” Brexit, he would upgrade the Spring Statement to a full fiscal event - another Budget with a different plan.

Budget 2018 report

You can download our free Budget 2018 Report by clicking the link below.  
It’s not just something cows do! MOO is the acronym for Mutuality of Obligation, which exists in employment law when an engager is obliged to offer work to an individual under the terms of a contract, and they are obliged to take it. It is a key test used in employment tribunals and tax cases to determine someone’s employment status.

Recent test case using MOO

A recent employment case (Hafal Ltd. v Miss Lane-Angell [2018]) used the mutuality of obligation test. The case concerned a mental health care worker who was claiming unfair dismissal. She was removed from her rota and offered no further work following a “three strikes and you’re out” policy. An Employment Tribunal initially allowed her appeal but it was overturned by an Employment Appeal Tribunal (EAT) who found clear evidence that she was not an employee because no mutuality of obligation existed. The worker’s contract clearly showed there was no minimum hours required and she only needed to provide services if she was available. Read more about this case

Mutuality of Obligation and IR35

Mutuality of Obligation is also one of the tests used in IR35 cases to determine employment status for tax, along with Personal Service and Control, although HMRC argue that it is always present in contracts. These tests are complex and have evolved over decades of case law. The short video below breaks them down:

HMRC’s CEST tool and MOO

That’s a lot of acronyms in one sentence! CEST is HM Revenue & Customs “Check Employment Status for Tax” service - an online tool to determine the IR35 status of a contract. It was launched by HMRC in April 2017 to coincide with changes to how IR35 is applied in the public sector. These reforms made it the responsibility of the public sector body to determine whether a contract was caught by IR35. CEST was developed to help with the decision, although its use is not compulsory. Since then, there has been a huge backlash from contractor groups that CEST is not fit for purpose because it doesn’t take mutuality of obligation into account. HMRC’s explanation is that it assumes mutuality of obligation is present in all public sector contracts, and if there is no MOO, the chances are the contract will be outside of IR35. Unsurprisingly therefore, they have left it out of CEST. Concerns and confusion around this have been intensified by the government’s plans to extend the public sector rules to the private sector (currently under consultation). The ICAEW have written to the Financial Secretary to the Treasury, warning: “The check employment status tool (CEST) is designed for public sector contracts with the result that is not suitable for use in the private sector. Even though HMRC has undertaken to be bound by CEST decisions, we are concerned that as currently designed it does not command public confidence and needs further work.”

Understanding IR35

IR35 is a complex area but it’s also a really important one if you contract through a limited company, or engage workers who do. For clear, jargon-free information, check out our IR35 help and advice Explore our contractor and freelancer accounting packages which are suitable for contracts both inside and outside of IR35.
At this time of the year we are used to seeing the Chancellor holding aloft the red box ahead of the annual Budget, but this year it was very much as case of “as you were”, with the main event of the fiscal calendar having been moved to the Autumn. Instead Philip Hammond delivered his first Spring Statement; a summary update on the overall health of the economy. (more…)
A dispute has erupted between the BBC and 170 of its presenters over their tax arrangements and their use of Personal Service Companies (PSCs). It follows an IR35 tribunal decision last month which saw one presenter, Crista Ackroyd (formerly of regional broadcast Look North), hit with tax demand of over £400,000 following HMRC’s challenge to her employment status. The tribunal found that the contract between Miss Ackroyd and the BBC was one of employment, despite supplying her services through a PSC, partly on the grounds that the BBC exercised significant control over when and how she worked. Find out how IR35 status is determined

Were presenters coerced by the BBC to use PSCs?

Despite ruling against her, HMRC said that she should not be criticised as she had been encouraged by the BBC to claim her salary through a personal service company. In subsequent press releases, the BBC refuted this, saying that it had not forced presenters to use PSCs and pointed out that prior to April 2017 and the introduction of new rules around off payroll working in the public sector, the Corporation was not required to assess the tax status of its staff. More than 100 presenters are being investigated by HMRC over their use of PSCs, including household names such as Nick Knowles. But a group of 170 presenters have written to the Daily Telegraph, claiming that the organisation has been misleading the public on this issue. They emphatically state that: “The BBC did in effect force many presenters, both staff and freelance, into setting up PSCs. Presenters were told that if they did not form a PSC, the BBC would no longer give them any work. Many of them did not want to set up a PSC but felt they had no choice.” The group, who have withheld their names for fear of reprisal, also revealed that the BBC has added a “draconian” indemnity clause into its contracts, stating: “Should HMRC or other relevant body or authority make any claim against the BBC in respect of your tax or national insurance liabilities, you shall fully indemnify and hold harmless the BBC from such claims to the fullest possible extent”. For their part, the BBC rejected that its original stance was incorrect, and said that it was, and still is, industry practice to engage freelancers working for multiple organisations via a PSC.

Keep your eyes open to IR35

With some BBC presenters potentially facing 6-figure tax bills, this case goes to show that no-one is immune to the long arm of HMRC in relation to IR35 and employment status for tax. If you are a contractor or freelancer operating through a PSC, our straight-talking video guides cut to the chase, helping you understand IR35 and what it means for you. Go to videos
We have put together the main points to come out of this week's Autumn Statement. Click here to download our full synopsis. (more…)