We’ve all heard of IR35, but do you know the rule changes that are being introduced? IR35 also known as the ‘off-payroll’ working rules and will kick in if a worker provides their services through an intermediary.  It’s been in the news for some time now affecting a lot of News and TV presenters and has been making big headlines.   From April 2020 this will now be affecting the private sector from any industry where they are working either through a limited company or as a sole trader but the relationship between themselves and the client could constitute an employer/employee relationship.

An intermediary will usually be the worker’s own personal service company, such as a limited company. They could also be a partnership, a managed service company, or an individual who is on self-assessment.

The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees.

The rules apply if a worker provides their services to a client through an intermediary but would be classed as an employee if they were contracted directly.

So, who decides?

If you’re a worker and your client is in the public sector like a school or library, it’s their responsibility to decide your employment status. You should be told of their decision; we’ve seen a large number of the larger companies starting to make changes to their arrangements with their subcontractors in preparation for this event.     This will affect everyone, including people who employ a Cleaner, a subcontractor in the building industry.   IR35 supersedes the CIS scheme i.e. its take priority over the CIS scheme above everything.

If you are a worker and your client is in the private sector, it’s your intermediary’s responsibility to decide your own employment status for each contract. The private sector includes third sector organisations, such as some charities.

HMRC do have a calculator on their website to help you see for yourself whether you would have to comply with the rules.

There are tests that are run to decide this for you.

https://www.gov.uk/guidance/check-employment-status-for-tax

Some of the tests are as follows

Who has the control, can you say no to projects or specific pieces of work, or are you required to take whatever work is given to you.

Do you use your own tools at work?

Do you have public liability insurance and employers liability insurance?

Can you send in a substitute for yourself?   Not a main point but it does get weighted on any HMRC decision.

The difference on what this will mean for you, is that you will no longer be able to claim the travel expenses you would have been able to claim before regardless of the distance you are travelling to work, plus you will pay the higher national insurance which currently is 12% for employees and 13.8% for  employers.   You effectively could pay out both rates, not just the one.

HMRC do not care if you have given up your employment rights, i.e. holiday pay and sick pay.    We are expecting them to spot check individuals at any point during 2020.

The costs to the private sector will be very high, we haven’t seen the updated budget expected to be out in March 2020.  But are expecting with all the news coverage and the actions the larger companies are planning, everyone could be affected imminently.

If you are facing this problem with your own subcontractors, please get in touch with us, we have a risk assessment template for our clients that they can use.   If you are a subcontractor yourself, it is worth getting in touch with your contractor to find out their plans for the system.   

A lot of these companies are planning on putting everyone on PAYE whether you receive the employment rights that go with that change, we are still waiting to see.

We’re in the full swing of the Summer Holidays, as a business owner this can be a very busy time if youre in the food and leisure industry, it can also be a quieter time as many owners see because everything appears to be put on hold when suppliers and customers take time off and are on holiday.

How does Summer affect you? I see many business owners not taking time away from their business and carrying on regardless. Its important to have time away to recharge the batteries and to re-evaluate where you are going with it.

A lot of my clients are small micros businesses who might not have an army of staff to take care of things whilst theyre away. Heres a few tips they’ve shared with me on how they still manage to run their business but still take some important r & r.

Plan the diary around their holiday, do the bigger more important jobs in the run up to the holiday then plan the next jobs to be in the diary when they return.

Take small breaks so time away isn’t too dramatic and they don’t face backlogs coming back. Ie a long weekend away a couple of times a year.

Use a subcontractor to keep things ticking over until they come back.

Those companies with staff, leave clear instructions on what is to be done whilst theyre away.

Others leave the mobile phone on in case of emergencies but limit their workload reduced over the time period.

Whatever your business please take that rest time, you will read time and time again, those owners who take time away and have the rest are far more likely to succeed, than someone who never takes time away.

Work life balance is important to keep in the mind, we all like to think of ourselves as workaholics, and fully committed. Our health and wellbeing, and feeling motivated and energised is important too.

This blog is intended for information purposes only and is only advice from past experience, you may have other suggestions of your own. It is not intended to be used to make all of your business decisions but as a guide only.

Highlights Budget 2015

The Budget was announced last week, here is the edited version of the speech

This week we accept the recommendations of the Low Pay Commission that the National Minimum Wage should rise to £6.70 this autumn, on course for a minimum wage that will be over £8 by the end of the decade. We have already taken steps to curb the size of the very largest pension pots. But the gross cost of tax relief has continued to rise through this Parliament, up almost £4 billion. That is not sustainable.

So from next year, we will further reduce the Lifetime Allowance from £1.25 million to £1 million. This will save around £600 million a year. Fewer than 4% of pension savers currently approaching retirement will be affected. However, I want to ensure those still building up their pension pots are protected from inflation, so from 2018 we will index the Lifetime Allowance. We have had representations that we should also restrict the Annual Allowance for pensions and use the money to cut tuition fees.

I am also today amending corporation tax rules to prevent contrived loss arrangements. And we’ll no longer allow businesses to take account of foreign branches when reclaiming VAT on overheads – making the system simpler and fairer.

We will close loopholes to make sure Entrepreneurs Relief is only available to those selling genuine stakes in businesses. We will issue more accelerated payments notices to those who hold out from paying the tax that is owed. And we will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence – while we protect those genuinely self-employed.

We’re giving more power to Wales. We’re working on a Cardiff city deal and we are opening negotiations on the Swansea Bay Tidal Lagoon. The Severn Crossings are a vital link for Wales. I can tell the House we will reduce the toll rates from 2018, and abolish the higher band for small vans and buses. It’s a boost for the drivers of white vans.

The legislation devolving corporation tax to Northern Ireland passed the House of Lords yesterday. We now urge all parties to commit to the Stormont House agreement, of which it was part.

Science and innovation

Our creative industries are already a huge contributor to the British economy – and today we make our TV and film tax credits more generous, expand our support for the video games industry and we launch our new tax credit for orchestras. Britain is a cultural centre of the world – and with these tax changes I’m determined we will stay in front. And we’ll invest in what is known as the Internet of Things. This is the next stage of the information revolution, connecting up everything from urban transport to medical devices to household appliances. So should – to use a ridiculous example – someone have two kitchens, they will be able to control both fridges from the same mobile phone. All these industries depend on fast broadband. We’ve transformed the digital infrastructure of Britain over the last five years. Over 80% of the population have access to superfast broadband and there are 6 million customers of 4G that our action made possible.

Small business

In two weeks’ time, we will cut corporation tax to 20%, one of the lowest rates of any major economy in the world. This April we will abolish National Insurance for employing under 21s; Next April we will abolish it for employing a young apprentice; And I can confirm today that 1 million small businesses have now claimed our new Employment Allowance.

From this April we’re also extending our small business rate relief and our help for the high street. But in my view the current system of Business Rates has not kept pace with the needs of a modern economy and changes to our town centres, and needs far-reaching reform. Businesses large and small have asked for a major review of this tax - and this week that’s what we’ve agreed to do.

The boost I provided to the Annual Investment Allowance comes to an end at the end of the year. However, I am clear from my conversations with business groups that a reduction to £25,000 would not be remotely acceptable – and so it will be set at a much more generous rate.

Today I’m announcing changes to the Enterprise Investment Schemes and Venture Capital Trusts to ensure they are compliant with the latest state aid rules and increasing support to high growth companies.

We set up the Office of Tax Simplification at the start of this Parliament and I want to thank Michael Jack and John Whiting for the fantastic work they have done. To support five million people who are self-employed, and to make their tax affairs simpler, in the next Parliament we will abolish Class 2 National Insurance contributions for the self-employed entirely.

12 million people and small businesses are forced to complete a self-assessment tax return every year. It is complex, costly and time-consuming. We will abolish the annual tax return altogether. Millions of individuals will have the information the Revenue needs automatically uploaded into new digital tax accounts. A minority with the most complex tax affairs will be able to manage their account on-line.

Duties

I have no changes to make to the duties on tobacco and gaming already announced. Last year, I cut beer duty for the second year in a row and the industry estimates that helped create 16,000 jobs. Today I am cutting beer duty for the third year in a row – taking another penny off a pint. I am cutting cider duty by 2% - to support our producers in the West Country and elsewhere. And to back one of the UK’s biggest exports, the duty on Scotch whisky and other spirits will be cut by 2% as well. Wine duty will be frozen.

Fuel

I am today cancelling the fuel duty increase scheduled for September. Petrol frozen again. It’s the longest duty freeze in over twenty years. It saves a family around £10 every time they fill up their car

Personal Allowance

In two weeks’ time it will reach £10,600 The personal tax-free allowance will rise to £10,800 next year – and then to £11,000 the year after. That’s £11,000 you can earn before paying any income tax at all. It means the typical working taxpayer will be over £900 a year better off. It will rise from £42,385 this year to £43,300 by 2017-18. So an £11,000 personal allowance. An above inflation increase in the higher rate. A down-payment on our commitment to raise the personal allowance to £12,500 and raise the Higher Rate threshold to £50,000. An economic plan working for you. And in this Budget the rate of the new transferable tax allowance for married couples will rise to £1,100 too. That’s the allowance coming in just two weeks’ time to help over 4 million couples – help that they would take away, but we on this side are proud to provide.

Savings

First, we will give five million pensioners access to their annuity. For many an annuity is the right product, but for some it makes sense to access their annuity now. So we’re changing the law to make that possible. From next year the punitive tax charge of at least 55% will be abolished. Tax will be applied only at the marginal rate. And we’ll consult to ensure pensioners get the right guidance and advice. So freedom for five million people with an annuity.

Second, we will introduce a radically more Flexible ISA. In 2 weeks’ time the changes I’ve already made mean people will be able to put £15,240 into an ISA. But if you take that money out – you lose your tax free entitlement, and so can’t put it back in. This restricts what people can do with their own savings – but I believe people should be trusted with their hard earned money. With the fully Flexible ISA people will have complete freedom to take money out, and put it back in later in the year, without losing any of their tax-free entitlement It will be available from this autumn and we will also expand the range of investments that are eligible.

Third, we’re going to take two of our most successful policies and combine them to create a brand new Help to Buy ISA. And we do it to tackle two of the biggest challenges facing first time buyers – the low interest rates when you build up your savings, and the high deposits required by the banks. The Help to Buy ISA for first time buyers works like this. For every £200 you save for your deposit, the Government will top it up with £50 more. It’s as simple as this – we’ll work hand in hand to help you buy your first home. This is a Budget that works for you. A 10% deposit on the average first home costs £15,000, so if you put in up to £12,000 – we’ll put in up to £3,000 more. A 25% top-up is equivalent to saving for a deposit from your pre-tax income – it’s effectively a tax cut for first time buyers. Access for pensioners to their annuities. A new Flexible ISA.

Today I introduce a new Personal Savings Allowance that will take 95% of taxpayers out of savings tax altogether. From April next year the first £1,000 of the interest you earn on all of your savings will be completely tax-free. To ensure higher rate taxpayers enjoy the same benefits, but no more, their allowance will be set at £500.

1. Stamp duty will be cut for 98% of people who pay it 

only the highest value residential properties will pay more Under the old rules, you would have paid Stamp Duty Land Tax at a single rate on the entire property price. Now, you will only pay the rate of tax on the part of the property price within each tax band – like income tax. Under the old rules, if you bought a house for £185,000, you would have had to pay 1% tax on the full amount – a total of £1,850. Under the new rules you don’t start paying tax until the property price goes over £125,000, and then you only pay tax on the price of the property within the tax bands over that price. Under the new rules, you’ll pay nothing on £125,000 and 2% on the remaining £60,000. This works out as £1,200, a saving of £650. This will make the system fairer, and means stamp duty will be cut for 98% of people who pay it. Our stamp duty factsheet explains this policy in more detail. You can also access our infographic which gives some examples of how the new system will work.

2. The tax-free personal allowance is being increased by a further £100 in April 2015, to £10,600 The personal allowance

the amount you earn before you have to start paying income tax – will be increased again from £10,000 to £10,600 in 2015 to 2016. Typically, someone earning between £10,600 and £42,385 will be £825 better off by 2015-16 as a result of increases in the tax-free personal allowance since 2010. Even while making difficult decisions to fix the economy, since 2010, the government has cut income tax for 26.7 million taxpayers. Read the Chancellor’s Autumn Statement speech in full.

 3. Children will be exempt from tax on economy flights This will apply for under 12s on flights from 1 May 2015, and for under 16s from 1 March 2016 

saving an average family of four £26 on a flight to Europe and £142 on one to the US. The government expects these changes should be clear to consumers, and will consult on making sure that the tax is displayed on ticket prices.

4. Spouses will inherit their partner’s individual saving account (ISA) benefits after death

Currently, if someone passes away they can’t pass on their ISA to their spouse, even if they have saved the money together. 150,000 people a year lose out on the tax advantages of their partner’s ISA when their partner passes away. From 3 December 2014, if an ISA holder dies, they will be able to pass on their ISA benefits to their spouse or civil partner via an additional ISA allowance which they will be able to use from 6 April 2015. The surviving spouse or civil partner will be allowed to invest as much into their own ISA as their spouse used to have, in addition to their normal annual ISA limit.

5. Business rates will be cut and capped

with extra Help for the High Street To support small businesses in local communities, the ‘high street discount’ for around 300,000 shops, pubs, cafes and restaurants will go up from £1,000 to £1,500, from April 2015 to March 2016. This is in addition to doubling Small Business Rate Relief for a further year which means 380,000 of the smallest businesses will pay no rates at all. The government will also continue to cap the annual increase in business rates at 2% from April 2015 to March 2016 – this will benefit all businesses paying business rates. Finally, the government will extend the transitional arrangements for smaller properties that would otherwise face significant bill increases due to the ending of ‘transitional rate relief’. Access our infographic on full employment, and the government’s long term economic plan.

6. No more employer National Insurance contributions (NICs) on apprentices under 25

To make it cheaper to employ young people, from April 2016 employers will not have to pay National Insurance contributions (NICs) for all but the highest earning apprentices aged under 25. This is in addition to the announcement made at Autumn Statement last year that employers won’t have to pay NICs on under 21s from April 2015. These are part of the government’s wider ambition to have the highest employment rate in the G7.

7. Creative sector tax reliefs will be extended to children’s TV

Following on from the success of the film, high end TV, animation, video games and theatre tax reliefs, a new children’s TV tax relief will be introduced from April 2015. This will counteract a decline in investment in children’s TV in the last decade. Eligible companies will be able to claim 25% of qualifying production spending back through the relief. The government will also consult on introducing a new orchestra tax relief in April 2016.

I am bringing up the balance sheet again as we have been seeing some sets of accounts coming into our business with insufficient information to be a credible balance sheet.

I am seeing far too many prepared using the cash accounting system. I know this is not the easiest of documents to understand when you’re reading a set of accounts so I wanted to tell you some of the differences between a good balance sheet, and one that has been thrown together as a last resort.

I have been preparing and reading this document for a number of years and have seen all shapes and sizes. Part of my training was to read ones prepared by the FTSE 100 companies, not recommended. The financial statements can be complex and lengthy.         But micro and small companies are done fairly simply so you don’t have to read 50 pages of detailed technical language.

Be sure that not only does the balance sheet contain information about the profit or loss you’ve just made during your trading year but has a number of components.

I would expect you to receive a detailed set of pages describing the different figures in the balance sheet. This doesn’t need to go to Companies House as small and micro businesses are abbreviated, but you should have a full copy that you can use for your business going forward, if you don’t you need to question this.

If you are going to sell your business or go to the bank to borrow money, you are going to need this important document. This is an accumulation of your whole trading history whether you’ve been trading for a year, or 50 years. A company that is 50 years old balance sheet will look different and may have complexities that a new business will not.

Components to expect.

Fixed Asset Register

There should be a summarisation of the fixed asset register detailing accumulative costs and deprecation and changes happening during the financial year. There should be a net book value at the end so you know the value of your assets.  Fixed assets are your machinery, vehicles, refurbishment, furniture etc.

Intangible assets

These can be patents, trademarks, goodwill. This needs to be highlighted in detail, with amortisation or not.

Debtors

This can be money in the bank Trade debtors, customers that owe you money Other debtors can be prepayments, accrued income, if the company has loaned money to a member of staff etc.

Creditors

Overdraft facility at the bank Trade Creditors, Suppliers you owe money to Taxation HMRC any of the taxes, Corporation tax, VAT, PAYE Other Creditors Accruals, invoices you havent received from a supplier, but paid, directors loan etc.

Long term liabilities

Can be bank loans, lease agreements, hire purchase. If these components are known to you and are not in your accounts, you must question this.

The balance sheet is a financial document that tells the reader the financial position of your business it is vital to be correct. It is even more important than a profit and loss, that only tells you one year timeframe.

Make your business a strong one, a weak set of information will not help you move forward, it can have the opposite affect and hold you back.

Its in your hands!