Budget fallout, MTD timetable, Employment status tool

The recent Budget contained three announcements which will impact small businesses from April 2018 concerning; national insurance (since amended), the dividend allowance, and MTD reporting. Our most recent email covered all three points in more detail. We also shared news of HMRC’s relaunched employment status tool. It’s not as useful as it might be.

`Below we share just part of one of the above 3 tax tips – see the side boxes on this page to learn how you could subscribe to receive the full 3 tax tips every week.

Employment status tool

For the last 17 years, individuals who provide their own services through an intermediary, and the businesses who engage them, have struggled with the intermediaries legislation known as IR35. The key issue is how to determine whether a particular engagement is within the IR35 rules.

From 6 April 2017 the burden of deciding whether the worker is caught by IR35 falls on engagers in the public sector, rather than the personal service company. Engagers in the private sector are not affected for now.

To help the public sector body make this decision HMRC has produced a new employment status service (ESS) tool. This is an enhanced version of the employment status indicator (ESI), which could not be used for IR35 checking purposes.

The new ESS tool can be used by the any of the parties to the contract; the worker, the agency or the engager. It’s use not restricted to contracts involving a public body.

The ESS will provide one of three answers:

  • inside the IR35 legislation
  • outside the IR35 legislation
  • unable to determine the tax status of this engagement

The third option is not much use to anyone. However, the first two answers may be helpful as HMRC has promised to be bound by the decision of the tool, if accurate information was provided when answering the ESS questions.

The problem is that the ESS tool itself is not very accurate in its analysis. It doesn’t cope with the situation where the worker has multiple concurrent customers. It also doesn’t question how the work is done, which is a key indicator of whether the engager controls the worker. The ESS tool also fails to address the question of mutuality of obligations between the worker and engager.

The use of the ESS tool is anonymous, so you can test it without fear of your answers being recorded on an HMRC file with your name on it. If you get the desired result, record that alongside the questions you submitted. If you don’t get the desired result, and you are not a public body, ask our employment status experts for a more nuanced opinion.

Maternity Allowance, Intermediaries reporting, VAT on meals

Last week we had three examples of how ordinary people and businesses are not well served by our incredibly complex tax system. We explained how self-employed women may lose their entitlement to the maternity allowance, and how employers can be fined for not telling HMRC that nothing was paid. We also had a cautionary tale of a business which was set up to help housebound individuals but was hit with a VAT bill.

This is an
extract from our topical tax tips newsletter dated 20 October
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Intermediaries reporting 
Since 6 April 2015 employment agencies and employment intermediaries have been required to report payments to workers they place with third parties, or find work for, if those workers are not paid under PAYE. We outlined the conditions for this reporting requirement in our newsletter on 9 July 2015. 
Note that personal service companies (PSC) who supply only one worker are not considered to be employment intermediaries for this purpose, so don’t have to report. If the PSC supplies more than one worker it will fall under this reporting requirement, if it also doesn’t operate PAYE on all the workers’ payments. 
The report must include details of: 
  • The agency’s name, address and postcode; 
  • The worker’s name, address, NI number (if held) UTR number; 
  • The worker’s engagement and payment details, including the customers’ details in most cases; and 
  • why PAYE was not applied 
The report must be submitted online using a report template provided by HMRC, which essentially is a spreadsheet in the form of a ODS or CVS file. There may be commercial software available which can do this. 
The report can be submitted for periods to suit the agency, but it must be supplied at least for every quarter in the tax year, within one calendar month of the end of the reporting period. For the quarter to 5 October 2016 the report must arrive with HMRC by 5 November 2016. 
If the agency has not supplied any workers in the period it must submit a nil report by the deadline. Many employment intermediaries are not aware of this requirement. 
HMRC has the power to issue stiff penalties for late reports.
Our employment tax experts can advise on how to appeal these penalties and how to meet the reporting requirements.

This is an
extract from our topical tax tips newsletter dated 20 October
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

full newsletter contained the remainder of this item plus links to related source material and the
other two topical, timely and commercial tax tips. We’ve been
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Employment intermediaries, Share option gains, Tax free childcare scheme

Last week’s Budget contained a few surprises which we will analyse as required in the future. Meanwhile there is a pressing deadline to worry about: 5 August – to submit the first quarterly report under the new employment intermediaries rules. Our newsletter also clarified the confusion created by share options and explained why there is good news for clients who operate childcare voucher schemes.

Employment intermediaries reporting

In our newsletter on 9 April 2015 we warned you about the new requirements to make quarterly reports under ITEPA 2003, s 44 (Agency workers). HMRC has reminded firms that the first quarterly reports are due in by 5 August 2015.  
The examples in the HMRC guidance on this new requirement all relate to employment businesses, but the legislation actually catches far more than just employment agencies. It covers any business that meets all of these conditions:
  • has a contract with an end-user client (not just another intermediary in the chain);
  • provides more than one worker’s services to a client (single worker personal company is not caught);
  • provides the worker’s services in the UK, or if the services are provided overseas the worker is resident in the UK; and
  • makes one or more payments for those services.
In summary these revised agency rules catch any business that supplies workers who will provide personal services to another business, who ought to be treated as employees of that business. However, the distinction needs to be made between the business who is contracting to provide the worker, and the final customer.
For example; a building firm that uses subcontractors to help with a project is unlikely to be within the scope of the agency rules. This is because the building firm is using the subcontractors to supply a service to its own customer, it is not supplying a worker to someone else’s business. The customer of the subcontractor is the building firm; the subby is not providing a personal service to the person who commissioned the building project.
Some employment agencies are getting very jumpy about this and are asking contractors to sign declarations saying they work through a personal service company (PSC) and account for all the tax due on their remuneration receivable through that personal service company. They have possibly misunderstood the rules. As long as the worker is a director of his PSC, the worker’s remuneration from the PSC will be employment income (dividends are not remuneration).
Our employment taxes experts will be happy to help you determine which of your clients need to make quarterly reports of their workers’ details and payments under these new rules.

This is an
extract from our tax tips newsletter dated 9 July 2015. The newsletter
itself contained links to related source material for this story and the
other two topical, timely and commercial tax tips. It’s clearly written
and extremely good value for accountants in general practice. Try it
for free by registering here>>>

Pension withdrawals, Employment intermediaries, VAT-MOSS or cancel registration

The new tax year has brought new opportunities for pension withdrawals, and new burdens for engagers of self-employed workers, as we explain in this week’s tax tips newsletter. We also highlight new VAT-MOSS guidance from the EU and look at how someone can deregister for VAT.

Employment intermediaries 
A new quarterly reporting requirement came into force from 6 April 2015 for agencies and employment intermediaries. It is designed to provide HMRC with information on who is working as “false self-employed” or through off-shore agencies, but the regulations could catch many businesses who don’t think of themselves as employment intermediaries.      
The Income Tax (Pay As You Earn) (Amendment No. 2) Regulations 2015 (SI 2015/171) define an intermediary for this purpose as: “a person who makes arrangements under or in consequence of which an individual works for a third person or if an individual is remunerated for work done for a third person.” This could apply to any contractor company in many industry sectors, including construction or security. 
There are exceptions in the regulations which exempt the contractor company from the reporting requirements if: 
·     it does not provide more than one person’s services to a client; or 
·     those persons are all its employees; or 
·     it applies PAYE to the pay of the workers it places with clients.     
Thus one-person personal service companies (PSC) don’t have to a worry about this new regulation, but if the PSC engages a substitute who is not an employee a reporting requirement may kick-in.   
The definition of an agency in the regulations is very broad: ”a person other than the worker, the client or a person connected with the client”. This could catch almost any business where there is another client in the contractual chain, even an organisation that connects clients with tax advisers for specific pieces of work. 
The contracting company which has the potential to be deemed to be an “agency” for these regulations needs to show it is the “client” for the services it commissioned, rather than an agent, in order that the reporting regulations do not apply. 
Our employment tax experts can help you decide if these new reporting regulations apply to you or your clients. 
This is an
extract from our tax tips newsletter dated 9 April 2015. The newsletter
itself contained links to related source material for this story and the
other two topical, timely and commercial tax tips. It’s clearly written
and extremely good value for accountants in general practice. Try it
for free by registering here>>>