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
publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to
know about each week.
You can obtain future issues by registering here>>>