Loan Charge Update: What you need to know from the draft legislation

Following the publication of Sir Amyas Morse’s independent review conclusion in December 2019 and the Government’s acceptance of all-but-one of the recommendations, the key changes to the Loan Charge legislation have now been drafted into legislation. 

Whilst the changes are overwhelmingly positive for individuals that are now provided full relief from the Loan Charge, the changes prompt additional considerations for individuals with more complex affairs and those that have taken certain actions.

The draft legislation published on 20 January 2020 sets out the key changes, which are;

• Loans made before 9 December 2010

The Loan charge will now only apply to outstanding loans (and similar arrangements) made on, or after, 9 December 2010. Previously, the Loan Charge sought to apply to loans made on or after 6 April 1999.

Despite pre-2010 loans now not being subject to the Loan Charge, this does not preclude HMRC recouping tax on these loans if the year is ‘protected’ by HMRC holding an open enquiry into the relevant year, or if assessments have been issued.

• Loans made between 10 December 2010 and 6 April 2016

The Loan Charge will not apply to loans made years before 6 April 2016 where a reasonable disclosure of the use of a disguised remuneration scheme was made within the relevant tax return, and HMRC did not “take steps” to recover the tax (such as by opening an enquiry).

The definition of ‘reasonable disclosure’ has been provided in the draft legislation as follows;

‘a person’s tax return or accompanying documents must have identified that loan and the person to whom it was made, the arrangements under which the loan was made, and such other information as necessary for it to be apparent that a reasonable case could have been made that the person was chargeable to income tax on the amount of the loan’.

As clarity has now been provided on what constitutes reasonable disclosure, it is important to carefully review the relevant tax returns throughout 2010 to 2016 to consider if reasonable disclosure was made at the appropriate time.

• Flexible repayment options

If a liability under the Loan Charge does arise, it is now possible to make an election to spread payment evenly over three years, being the years ended 5th April 2019, 2020 and 2021. This allows greater flexibility as to when the outstanding loan balance is subject to income tax and for some, this will ensure that exposure to higher rates of tax is minimised.

• Extension of payment deadline

Taxpayers subject to the loan charge have now also been given a generous six-month extension to the payment deadline for their 2018/19 tax liability.

As long as 2018/19’s tax return is filed and the tax paid, or a payment arrangement is agreed with HMRC by 30 September 2020, HMRC will not charge late payment interest for this period.

• Refunds of voluntary payments

The government has confirmed its committed to refunding voluntary payments that were made in order to avoid the application of the Loan Charge. The current draft legislation does not provide further detail on the mechanisms to allow these refunds; however, further draft legislation will be published together with guidance before the 2020 Finance Bill.

 

Other issues

Whilst the changes are overwhelmingly positive, there are a number of knock-on issues that require further clarification from HMRC.

Many individuals have taken positive action in order to avoid the Loan Charge applying to their arrangements. For example, some individuals have repaid or written-off loans that would otherwise have remained outstanding, or have wound up the relevant Trust/s, bringing forward Inheritance Tax charges.

We do not know if the Government will simply disregard subsequent steps that have been taken where an additional tax charge may arise. We would hope that concessions would be made to ensure that no individual suffers a detriment from these changes and expect that these queries will be addressed by HMRC in the publication of future guidance.

 

How can Simmons Gainsford help?

We are able to undertake a review of your specific circumstances and advise on the impact of these new changes. We will also continue to publish further updates once more guidance is available from HMRC.

In the meantime, should you require assistance with reviewing the impact of these changes please do not hesitate to contact Anthony Rose in this regard on Anthony.rose@sgllp.co.uk or telephone 020 7447 9000

Anthony Rose has been involved in negotiating EBT settlement cases with HMRC for 10 years and has worked on a wide variety of complex cases including those where the original employer company is in liquidation.  

On 11 September 2019 the Chancellor, Sajid Javid, commissioned an independent review of the disguised remuneration Loan Charge.

These provisions have been very controversial and have caused a great deal of criticism of the Government, particularly in terms of giving HMRC increased powers to deal with Tax Avoidance as well as the retrospective nature of the legislation.

The review and its conclusions have now been delivered to the Government.  On Friday 20th December 2019 The review recommendations and the government’s response were published on GOV.UK.  Please see link below for further details.

https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review?utm_source=EBUL&utm_medium=Email&utm_campaign=LCR

We are  pleased to announce that the scope of the Loan Charge has now been significantly curtailed. As consequence it will likely now only affect Loan transactions and similar planning that has been undertaken post the introduction of the disguised remuneration legislation (Part 7A ITEPA 2003).

As a consequence the key changes are :

• The Loan charge will apply only to outstanding loans (and similar arrangements) made on, or after, 9 December 2010;
• The Loan charge will not apply to outstanding loans made in any tax years before 6 April 2016 where the avoidance scheme was fully disclosed to HMRC and they did not take any action (further specific guidance is likely here);
• If a liability does arise, it is now possible to spread this evenly over three years being 5^th April 2019, 2020 and 2021;
• HMRC will likely refund voluntary payments that have been made in order to avoid the Loan Charge though these will not be approved until changes to legislation have taken effect next year.

It is therefore important for companies and individuals to now closely review current settlements as well as those that have been entered into since 2016 as action may need to be taken.

Interestingly  for those individuals that have also repaid Loans on the mistaken belief that a tax charge arose, there may now be an opportunity to revisit such transactions. We would hope that HMRC will provide further guidance in this respect in due course.

 

How can Simmons Gainsford help?

In the meantime should you require assistance with reviewing the impact of these changes please do not hesitate to contact Anthony Rose in this regard on Anthony.rose@sgllp.co.uk or telephone 020-7447-9000

Anthony Rose has been involved in settling EBT cases with HMRC for almost 10 years and has worked on a wide variety of complex cases including those where the particular company is in liquidation.   

 

Simmons Gainsford, Uckfield | £900 Raised for Local Charity

On Thursday 28^th November, Simmons Gainsford LLP in Uckfield hosted their annual Charity Pub Quiz at The Highlands Inn in Uckfield, all in aid of Chailey Heritage Foundation.

Local businesses from Uckfield and the surrounding area took part with over 80 people in attendance.

The wannabe quiz champions were from Simmons Gainsford LLP, PayAssist Limited, Fl3xiBooks Limited, Chailey Heritage Foundation, The Marketing Eye, Neva Consultants, Lewis Business Media, C.J. Thorne, SO Legal, Cranwell Wealth Solutions and even the pub hosts, The Highlands Inn took part.

The voice of Uckfield FM, Gary King donned the role as the Quizmaster and his rounds of exhilarating trivia tested everyone’s knowledge.

Roaring to victory were Lewis Business Media who were crowned Quiz Champions!

Over nine-hundred pounds were raised, and proceeds will go towards the continued support of Chailey Heritage Foundation who provide ongoing care for children suffering with physical disabilities and health needs.

Jenna Durdle, Fundraising Manager at Chailey said:

“We were delighted that Chailey Heritage Foundation were once again the chosen charity for the Simmons Gainsford quiz night. We had a great evening and would like to thank everyone who attended, bought raffle tickets and made donations on the evening. Last but not least, we are very grateful to Simmons Gainsford whose continued support means a great deal to us. All the funds raised from the quiz will help us provide education and care for children and young people with complex disabilities”.

Simmons Gainsford’s Partner in Uckfield, James Duggan stated:

“Another fantastic turn out for our annual charity Quiz in aid of Chailey Heritage foundation where we manage to raise in excess of £900 for them. Many thanks once again to Gary King from Uckfield FM for being an excellent quizmaster and also to the Highlands for allowing us to host the event in the restaurant side of their premises and for free”.

The participating businesses were also kind enough to donate prizes for a raffle draw on the night.

Thank you to all who attended and donated.

The Simmons Gainsford Group are pleased to announce that Darren Hersey has been appointed as Senior Partner.

Darren became partner at Simmons Gainsford LLP in 1998, having joined the firm in 1992. He specialises in tax, with considerable experience advising on high value transactions.

Darren heads up Simmons Gainsford’s Private Client Team, which looks after a large number of High Net Worth individuals, Non-Doms and Trusts, and provides advice on all taxes which impact on the affairs of private individuals as well as privately owned businesses.

Speaking after his appointment, Darren said:

“This has been a difficult year for all of us, with the loss of two good friends and valued colleagues, and I am grateful for the support we have received from our staff and clients alike during this period.
As we head towards the New Year, our focus will be more outward looking and I am very much looking forward to working with my colleagues at all levels to provide great service and support to all our clients”

We wish Darren all the best in his new role and helping drive the firm to even more success.

If you have questions please contact Darren Hersey

The Importance of Wills and Lasting Power of Attorney

Many people believe making a will and arranging a Lasting Power of Attorney (LPA) is something that only affects us later in life. That it is a concern for the elderly. The reality is that accidents, critical illnesses and even death can hit at any time. And, if you are not prepared, it can have devastating effects on you and your loved ones.

According to figures from Opinion Research, more than half (60%) of UK adults do not have a will – which accounts for 31 million people. The figures show that those over the age of 55 are most prepared for the future, with 63% having written a will, yet this number significantly drops to 28% for those aged between 35-54 and just 16% of 18-34 year olds.

The same online survey found that participants cited a variety of explanations for not having a will. The most popular excuse was “I plan to make a will when I’m older”, while other reasons included not having valuable enough assets, it simply not occurring to them, and not knowing how to go about it.

The benefits of making a will

Though people often avoid thinking about death – particularly in their youth – what may seem like an inconvenience now could protect your legacy and save significant time and money in the future. There are a number of reasons why making a will should become a priority, regardless of age…

1. To ease the strain on loved ones
Having a will in place can make it easier and less stressful for family and friends during an upsetting time.

2. To maximise your assets
A well-considered will can help reduce the amount of tax due on savings, investments and property.

3. To communicate additional wishes
A will can also include directions such as burial or cremation instructions, and plans for the future of dependent minors.

How to go about it

A will can be as simple or as complex as a client’s needs. Start by identifying the assets you plan to leave and to whom you plan to leave them. Our qualified paralegal at Vintage Wealth Management can talk you through the process and arrange the will best suited to your individual situation.

There are three main types of will. A simple will most often leaves the estate to one person, appointing them as executor, and making a provision for issue should the main beneficiary predecease. For clients who are divorced or have children, or wish to leave parts of the estate to those beyond the immediate family, a complex will is sometimes more appropriate. In addition, a specialist will often involves more intricate assets such as trusts or overseas properties, or tailored tax-planning advice.

A will is particularly important for those with an unconventional family situation or those who are divorced or have dependents. The reality is, if you do not have a will, your assets will be divided in a standard way as defined by the law, which may not be in keeping with your wishes and could potentially leave your loved ones in financial hardship.

Making a will also involves appointing an executor (or more than one) to take charge of organising the estate upon your death. The executor(s) will do their best to carry out the instructions in the will, as long as they are within the law. However, occasionally this will not be possible – for instance with the decease of a beneficiary before probate is completed.

Probate is the process of administering the will and dealing with the assets of the deceased. It can be a complex and lengthy undertaking ­– particularly if there are challenges to the will or disputes from executors, beneficiaries, creditors or HMRC. This is why executors often elect to hire a solicitor to oversee the process.

Lasting Power of Attorney

A will protects your interests after death, but it is important to ensure your wealth and welfare are protected while you are still alive. If you lose capacity to manage your own financial matters or make medical decisions yourself, it is advisable to have a trusted friend or family member to deal with these matters on your behalf. Many people believe the power of attorney is automatically granted to a partner or close family member when they lose capacity, but this is not the case.

The Office of Public Guardian (OPG) launched a campaign this year – Your Voice, Your Decision – to draw attention to the importance of arranging a Lasting Power of Attorney. The OPG’s research sampled 25000 people across England and Wales. It found that 73% of people believe if a couple have a joint bank account and one account holder can’t make decisions for themselves, their partner can legally make decisions on behalf of both of them. In addition, 72% of people believe their next of kin would automatically get final say in treatment decisions if they were unable to make those choices themselves. Neither of these are the case.

Setting up a Lasting Power of Attorney (LPA) involves appointing a representative (or more than one) who can be trusted to make decisions with your best interests in mind should you lose the capacity to do so. Attorneys have the power to act on the donor’s behalf in two separate areas: property and finances, and health and welfare.

An attorney appointed to oversee property and financial affairs has the power to deal with financial matters on the donor’s behalf when the donor loses capacity. Similarly, an attorney for health and welfare deals with medical and welfare issues on the donor’s behalf when the donor loses mental capacity. Restrictions can be applied in both cases, and written guidance can also be provided in advance. The LPA for property and financial affairs can be revoked at any time if the donor feels it is being misused.

To ensure the donor is of sound mind at the time of arranging an LPA, a certificate must be provided in order to confirm that the donor has mental capacity, is able to understand and retain information, and fully understands the nature and effect of the LPA in accordance with the guidelines of the Mental Capacity Act 2005.

 

Act now

It is time to stop putting it off. Creating a will and arranging an LPA are two of the most important ways to help safeguard your future and that of your loved ones. To discuss the options best suited to your situation, contact our qualified paralegal Simmons Gainsford Financial Services on advice@sgllp.co.uk 

On the 5th of July, four members of the Simmons Gainsford team took part in the Longest Day Golf Challenge, in aid of Macmillan Cancer Support.
They played over 72 holes, walked 20 miles and played for a staggering 15 hours.
As a result of their efforts and all of the kind donations we received, Simmons Gainsford raised over £18,000 for Macmillan.

This placed us second out of 3,500 participating teams and were offered the chance to compete in the Longest Day Golf Challenge Finals at the Boavista Golf Resort in Portugal on the weekend of the 26^th/27^th October.

We only went and won the whole tournament!
Thank you to everyone who helped make this possible for this fantastic cause which provides so much support to those in need.

Robo-advice versus the Traditional Model

More and more, robo-advisers are positioning themselves as viable alternatives to real-life, face-to-face traditional financial advice. How do the two compare and what does the future look like for the advice market?

What is robo-advice?

Robo advisers are software platforms that provide investment advice and/or management online with moderate to minimal human intervention. This type of digital financial advice model is based on mathematical rules or algorithms where platforms ask a series of questions to glean information about the client’s desired investment goals, level of risk and results. Robo advisers then use the information provided to design a portfolio.
This is a very different type of financial advice from the traditional model. We personally believe that the human element cannot easily be replaced, and the vast majority of consumers agree. Research by Openwork shows that three-quarters (73%) of people have said they prefer face-to-face advice, despite increases in robo-solutions and the number of advisers innovating within the artificial intelligence sphere. In addition, 71% of respondents also had concerns that robo-advice may not be entirely appropriate for their financial needs.
Finding the Limit
Why is this the case? First of all, there is too much margin for error and a real risk that key gaps in advice are left unfilled when relying on a digital model. Financial advice is so extremely specific to the individual/s involved that it cannot realistically be replicated using machinery unless the individual needs are very straightforward because there are always limitations when using automated options.

Robo advisers use a range of tools to obtain client information including generalised questionnaires but they still miss the dialogue, engagement and thought process necessary for clients to gain the most value from their financial advice. Real-life advisers can make informed investment recommendations, advise clients on risk and provide full transparency on all decisions made, while taking that extra step to fully understand the client or design a tailored strategy. They also offer a supportive service for any questions or concerns raised at any stage of the process. Robo-advice cannot take that extra step; you cannot build a relationship with an algorithm.

Gaining Access to Funds

The key distinction between robo and traditional advice is the difference between generic and holistic advice, but there are also more specific differences.

With face to face options, you retain full control and, broadly speaking, take money out as and when you need. This will depend on the savings and investments methods chosen, but your adviser will have taken time to ensure you understand every element of your portfolio so there should be no nasty surprises when it comes to accessing your funds.

In contrast, those using robo platforms often experience delays when it comes to releasing funds which can be irritating at best and disastrous at worst if, for example, you have an urgent financial commitment. As robo platforms typically have lower entry-level investment starting points and lower-cost investment products, you are also likely to have less choice over how you wish to save and spend your money when taking this route.
Advantages of Robo Advice
Back to Openwork research and we can see that the under-25s are more open to robo-solutions; almost half of those surveyed said that they had no concerns over whether robo-advice would be appropriate for their financial needs. This type of advice will inevitably appeal more to those with simpler financial requirements and a larger appetite for risk for whom retirement is a long way off.

Robo-advice is also usually the cheaper option in comparison to face to face methods, which makes it more likely to appeal to younger people. With low-interest rates making the cost of advice more of a concern when compared to potential returns, we can understand why those with smaller amounts to invest may choose the robo-advice route.

Those advisers that are open to such developments can then tap into this millennial market. By staying with them through their financial lifecycle as they mature and build assets, these clients can become a significant growth opportunity for their chosen wealth and asset management firms.

Disadvantages of Robo advice

Despite the advantages of robo advice, the reality remains that the human aspect cannot be fully replicated by artificial intelligence. There are also ongoing concerns about the fundamentals of the robo market.

It is extremely challenging to fully regulate as the decision-making process behind these platforms is so ambiguous. The industry itself is also unstable with many businesses closing as fast as they opened. These include Investec – who cited lack of take-up as the reason for closing their “Click & Invest” service after just two years – and Tiller, who closed their digital wealth management business and started to return money to investors after an “extensive business review” identified higher growth prospects in other areas of the company.

Elsewhere, an Australian digital advice firm has voluntarily shut down two robo-advice tools after the corporate regulators raised concerns about the quality of advice being generated by the online tools and their ability to effectively monitor the advice.

Many robo-advisers fall short of being fully transparent about their offering and the risks involved. This lack of clarity may leave portfolios subject to conditions with which clients may not feel comfortable. It could typically mean the algorithm rebalances client accounts without regard to market conditions or on a more frequent basis than the client might expect.

While robo-advice platforms are widely believed to continuously monitor client portfolios and identify opportunities, some rely on algorithms that may not effectively address prolonged changes in market conditions. When seeking to gain the optimal experience using robo solutions, we would advise choosing your platform very carefully, taking the time to understand both its limitations and the exact nature of customer protection that it offers.

The Advice Revolution

On the one hand, digital tools may be more convenient and a tempting low-cost alternative to traditional advice, especially for those with limited options. We expect to see positive progress in the fast-moving robo-advice arena thanks to technological advancements which are set to disrupt the industry as we know it. As cognitive computing and “smart machines” develop increased capabilities, including complex reasoning that can enhance human performance, traditional advisers need to stay informed on the latest developments and ahead of the curve.

There is also an identifiable need to make the provision of advice and guidance to the mass market more cost-effective and improve consumer confidence when making financial decisions. Robo-advice could work to plug this gap and disrupt the advice market by providing affordable alternatives and access to investment management advice.

While there is still plenty of progress to be made, certain elements of automated advice inevitably make the overall process more efficient and cost-effective. The good news is that the financial planning industry is also evolving and innovating in a traditional sense to provide investors with more affordable access to advisory services.

At Vintage Wealth Management, we blend our traditional values with a modern outlook, which has allowed us to recognise and take advantage of the best features of robo advice to enhance our client experience. We have invested heavily in technology and advanced software and automated a number of our back-end processes to enhance our traditional advice model.

This offers our clients peace of mind that we operate a consistent workflow where all activity is recorded. It also shows that we are committed to using the best tools available to keep operating costs to a minimum. But until robo-advice meets the quality standards that are required and expected of human advisers, it doesn’t represent a fully viable alternative.

As the industry continues to innovate, it takes time to identify and fully implement the necessary safeguards for optimum investor protection. For now, consumers should focus on face-to-face financial advisers that offer true value for money, peace of mind and all essential safeguards within a company that is open to using automated processes where possible to enhance human performance and minimise the cost to the client. Our team tick all of these boxes and more.

 

If you would like some REAL advice then contacts us on advice@sgfinancialservices.co.uk or call 02074479000

HMRC’s U-turn on Insolvency Powers

 The Enterprise Act was introduced in 2002 to abolish Crown Preference, this being HMRC’s preferential status as a creditor upon liquidation. At this time, the government regarded these changes as more equitable, bringing HMRC’s powers in line with other jurisdictions such as Germany and Australia.

Roll forward sixteen years and Budget 2018 announced that the Government has taken a U-turn and HMRC will now regaining its protected creditor status.

Currently, if a company enters administration or liquidation without the ability to service the entirety of its debt, HMRC has no preference over other creditors and therefore is usually the one to lose out. For example;

• Employees receive credit for PAYE deducted from their wages, even if these amounts are not ultimately paid over to HMRC.
• Customers who pay over output VAT are still entitled to reclaim the whole amount as input VAT even where the company does not subsequently pay this amount to HMRC.

Despite the loss of Crown Preference, HMRC has worked to build up additional powers over the past few years where it is deemed that fraud is involved;

In 2003, HMRC introduced legislation as part of the Income Tax (Pay As You Earn) Regulations giving the department the power to shift PAYE debt to the employee by issuing a Regulation 81 determination. There however are conditions that need to be met and broadly the regulations only apply in situations where an employee received remuneration knowing that his employer has wilfully and deliberately failed to deduct the PAYE.

HMRC received further powers as a result of Finance Act 2008, which allows HMRC to effectively pierce the “corporate veil” and transfer unpaid penalties (but not the tax) to former Director’s. This can be done for VAT, Corporation tax and CIS by issuing ‘Personal Liability Notices’.

Under these powers, a notice may be issued where it is determined that tax inaccuracies have arisen from the director’s deliberate actions and the company is either in liquidation, or at risk of being placed into liquidation.

There has also been a move by HMRC to start enforcement proceedings for collection of tax at a much earlier stage and we are seeing that this is often when the actual debt is still relatively current. This is usually backed up with the threat of issuing a winding up petition.

Once the petition is issued there is generally a 7-day period before it is advertised in the London Gazette. The advertising causes a significant commercial issue as its likely at this stage that the Company will have its bank accounts frozen and so will no longer be able to trade.

So, what’s new now? Well after seventeen years of incurring increased losses from the lower recovery of taxes in insolvency, HMRC is now set to once again to have preferential creditor status in certain circumstances following an announcement at the Budget 2018.

HMRC’s preference and powers to protect certain tax debts upon liquidation will now apply with effect from 6 April 2020.

The changes will protect those taxes paid by companies and customers that are commonly collected and held “on behalf of” HMRC, and so will include;

• VAT
• PAYE (including student loan repayments)
• Employee NICs
• Construction Industry Scheme Deductions

Where one creditor is benefited in a liquidation, another must suffer a detriment. Here, the additional benefit conferred upon HMRC will likely be at the expense of floating charge holders and unsecured creditors potentially suffering reduced recoverability.

The question is raised as to whether the true impact on private creditors (and knock on effect on businesses) was fully considered before these measures were set to be introduced. By reducing the recoverability of floating charge holders in liquidation, there is a possibility that this form of lending and availability of other forms of corporate finance will become more expensive due to the perceived additional risk.

Another risk to consider is whether lenders will seek to carry out additional due diligence to protect themselves against exposure to companies that may become insolvent.

This measure is understandable in that the taxes concerned are viewed by HMRC as being held on behalf of the department, and as such should not be distributed to private creditors.

Along with these new measures, further provisions have been announced which will give HMRC further powers.  On 11 April 2018 the government published a discussion document entitled “Tax Abuse and Insolvency”. Following a consultation period, it has subsequently announced intended new measures on 11 July 2019.

The stated aim set out in the guidance is as follows:

“This measure tackles the small minority of taxpayers who artificially and unfairly seek to reduce their tax bill through the misuse of insolvency of companies. This will be achieved by making directors and other persons connected to those companies jointly and severally liable for the avoidance, evasion or ‘phoenixism’ debts of the corporate entity.”

It is intended that these new measures which will be subject to a full review and appeals process, will take effect from Royal Assent of Finance Act 2019-20. As drafted though the legislation could well penalise those individuals connected with companies that have previously used liquidation procedures for entirely legitimate planning purposes. This would include where the company was solvent such as instigating a members voluntary arrangement.

 

How can Simmons Gainsford LLP help?

Our wide range of services and experience can assist with those companies that are facing financial problems. These include:

– handling complex HMRC enquiries across all UK taxes

– negotiating with HMRC Debt management and agreeing time to pay arrangements

– in conjunction with our close partnerships with several specialist insolvency solicitors we can co-ordinate advise for the Directors on their duties and responsibilities and assist with strategy generally

– make appropriate introductions to Insolvency practitioners as well as

– provision of banking advisory and

– credit management services

Through our key contacts we are also able to co-ordinate corporate finance and turnaround advice.

 

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For further information, please contact Anthony Rose on anthony.rose@sgllp.co.uk in the first instance.

Alternatively, call us on 020 7447 9000

 

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IR35 in the Private Sector

When the IR35 rules were first introduced in 2000, the Government took the decision that they would target the intermediary company rather than the entity paying for the services.

Recognising a lack of success in applying these rules, the Government changed tact in 2017 and decided that where services were being provided to the public sector, the burden of applying the rules would shift to the “employer”.

From 6 April 2020, these “off-payroll working” rules will be extended to the private sector, including charities, where certain conditions are met.

The Changes

 The new rules will apply to companies which are not “small”, as defined by the Companies Act 2006.

To be a small company and therefore exempt from the rules, the payer company must meet two of the following conditions:

• An Annual turnover not more than £10.2m;
• A balance sheet showing gross assets of not more than £5.1m;
• No more than 50 employees.

If these conditions are not met in two consecutive years, the company will cease to be small.

Under the new rules, private sector businesses the payer (or ‘end user’) must decide the employment status for tax purposes of workers they engage via an intermediary, that is, a personal service company, managed service company, partnership or similar entity.

Prior to this, it was the intermediary’s responsibility to decide their status for private sector engagements.

The end user will need to provide the employment status determination, together with the reasons for it to the worker.

The worker will then be able to dispute the determination if they disagree with it.

If the tests indicate a relationship akin to employment, the end user will need to deduct income tax and National Insurance contributions via payroll from fees for services paid to the Intermediary.

These changes are likely to have a dramatic impact for both end users and intermediaries, as the end users find themselves becoming liable for employer’s National Insurance and the intermediaries finding income being taxed under PAYE with little scope for claiming tax relief on expenses.

What can you do?

With around six months to implementation, it is important to act now to ensure that you are fully prepared for the new rules.

If you are an end user then it is important that you establish the profile of your use of intermediaries, and potentially any self-employed individuals you engage.  We recommend that you:

• Conduct general audit of existing workforce (both contractors and wider staff), together with internal systems, HR and procurement policies and procedures in place.
• Carry out detailed review of each individual worker’s employment status contracting through an intermediary on a case by case basis.

If you are an intermediary, then you will need to consider how your end users will likely apply these rules.  The liability for getting it wrong will fall on them and so you will need to gather such evidence as you can to make a strong case that you will continue to fall outside of the IR35 rules.

How can we help?

Our wide experience of the intermediaries’ legislation, employment status and associated HMRC enquiries means we can help you efficiently manage this process.

We can work with you to implement changes that will minimise the impact of the new rules and help you establish a robust compliance structure for the future.

 

For further information, please contact your usual engagement partner or

Debbie Dolega on Debbie.dolega@sgllp.co.uk 

Alternatively, call us on 020-7447-9000