by David Watkinson Watkinson Black Accountants
As I am writing this column I am, like everyone else, awaiting the budget this Wednesday March 3rd with bated breath.
One thing is certain, however. With the success of the vaccination program, together with the fall in infections as a result of the lockdown, people are looking forward to the return of some degree of normality in the not too distant future. Therefore, in either the budget or the pre-budget recovery plan the Chancellor will announce the future financial measures in Covid assistance that will sit alongside Boris Johnson’s roadmap out of lockdown. We shall look at all these measures once they are announced.
A second thing that is certain is that the changes in the off-payroll working (known as “IR35”) regulations that were introduced in respect of contractors working within the public sector in 2017 will be extended to all contractors working within the private sector from the start of the new tax year on 6th April. Originally, this extension was due to take place in April 2020, but this was delayed for a year due to the Covid pandemic.
IR35 ensures that contractors who
a. Provide services through their own intermediary, normally a Limited Company of which they are director/shareholders; and
b. Would have been an employee if they provided their services directly to the client pay broadly the same tax and National Insurance contributions as an employee.
Before 2017 it was the responsibility of the contractor to determine whether they were within the IR35 regulations and to calculate the deductions accordingly. Unsurprisingly, the end result was that the majority of contractors decided that IR35 did not apply to them, resulting in lower income to the Exchequer. In 2017, the responsibility for determining the status of a contractor who provided their services to a publicly funded client was transferred from the contractor to the client, with substantial penalties being payable by the client if they incorrectly determined that IR35 did not apply. Unsurprisingly, most clients determined that their contractors were subject to the IR35 regulations, and deducted tax and national insurance accordingly.
The Chancellor has been under some pressure from trade bodies representing Contractors to delay this again. As well as arguing that the “clients” have had other matters to worry about, such as survival, and have had insufficient time to prepare, these bodies argue that Contractors provide a large amount of flexibility in the labour market. In particular, they do not enjoy the benefits that are bestowed on employees, such as holiday pay, sick pay and maternity pay. Also, they do not have any of the employment protection that is enjoyed by employees. They argue that experience in the public sector has been that Contractors are reluctant to pay the price of employment without receiving any of the benefits. This reluctance, they say, will hinder recovery from Covid, and is a burden that the economy cannot afford at present. The Chancellor has consistently resisted these pressures to delay.
However, there has been small concession that has been very recently announced. HMRC have confirmed that it will adopt a light touch to penalties in the first year. Additionally, it an attempt to dampen down Contractors’ fears of retrospective legislation, they have also promised not to use any information collected under the new regime to open any enquiries into previous years’ returns.
That promise, however, is subject to a number of conditions that cause a degree of nervousness. HMRC has stated that it is subject to them not suspecting any fraudulent or criminal behaviour. It is also subject to the caveat that “The scope of our compliance activity is not solely related to the application of the off-payroll working rules, but includes all arrangements that result in less tax being paid than should be the case, such as tax avoidance schemes that claim to avoid the rules”. Anyone who has dealt with HMRC will know that caveats such as these are open to a wide range of interpretations, most of which will not be favourable to the taxpayer.
Only time will tell whether these changes will cause any delay in the economy recovering from the current lockdown. However, a third thing that is certain is that we will provide all possible assistance to any clients whose own interpretations of the rules disagrees with those of HMRC.
For further information on changes in the budget please keep an eye on https://www.warrington-worldwide.co.uk/ where we will provide details as they become available.
WatkinsonBlack have considerable experience in all areas of taxation and business services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.
