Example Letterhead and Invoices

All businesses should prepare standardised documents for their correspondence and invoices. An invoice is basically a standard letterhead with the addition of a number of billing points. The examples set out here assume that your business is a limited company.

If you are a sole trader or if you operate as a partnership, you can ignore the bits about a company registered number and registered office address.

Your trading address must be included in all cases. If your company registered office and your principal place of business are one and the same, that you only need to show the address once, provided that it is clear that they are one and the same!

Example Letterhead

Example Invoice (non-VAT)

Example Invoice (VAT)

The legislation is set out here and it includes a requirement that you show these details on your web site and somewhere within your emails:

The Companies (Trading Disclosures) Regulations 2008

and

The Companies (Trading Disclosures) (Amendment) Regulations 2009

Student Loan Statements

In July 2020 the Student Loans Company emailed everyone on their records to say that they will no longer send out paper statements like this example.

They claim that you can get this data from their new web site. You cannot.

Write to the Student Loans Company using a traditional paper letter, and tell them that you want to opt in to receiving paper statements because your accountant needs precise data for every tax year. Use the form of words below and (if necessary) adjust the tax year for the one just ended.

Thank you for your email dated 14 Jul 2020 which states “We’ve listened to your feedback and created a quicker and easier way to view your student loan balance, update your personal details and get information about your loan”. I logged in to the portal to get information about my loan. In order that I can complete my self assessment tax return I need an annual statement which provides a clear analysis of:

the balance on 6 Apr 2019
the monthly rates and the amounts of interest charged
credits received from HMRC
the balance on 5 Apr 2020

Your site provided me with none of the above, and no way to find that data. My accountant needs this information. Your email also states “With our new service you’ll be able to view and print a copy of your annual statement“. Your new service does no such thing.

The new portal is worse than useless. I want to opt back in to receiving paper statements. Please let me have a paper statement setting out the precise details listed in my four bullet points above. Thank you.

Feel free to copy the image file above and embed that in your letter, so that they are in absolutely no doubt about what we want.

Covid-19 Bounce Back Loans

From 4 May 2020 a number of UK banks are taking part in the government sponsored Bounce Back Loan Scheme (BBLS). This is the name given to the policy announced by Rishi Sunak on 27 Apr 2020 whereby small loans to qualifying businesses are subject to simpler rules than the Coronavirus Business Interruption Loan Scheme (CBILS) and these BBLs are underwritten 100% by the government.

1 of 3 Covid-19 Measures in General
2 of 3 Covid-19 Support For Freelancers
3 of 3 Covid-19 Bounce Back Loans

You cannot apply for a BBL if:

  • You’re already claiming under CBILS; or if
  • Your business was an “undertaking in difficulty” as at 31 December 2019.

In short:

  • There is no cap on turnover for a micro business applying for a BBL;
  • Loans will be from £2,000 up to 25 per cent of a business’ turnover or £50,000, whichever is the lower;
  • Banks will no longer require forward financials or business plans;
  • You should have access to the funds within days;
  • Loans will be interest free for the first 12 months; and
  • Thereafter the annual rate of interest is capped at 2.5%.

The loans will be easy to apply for through a short, standardised online application, and you will be required to self-certify that you are eligible for a Bounce Back Loan.

The government announcement is here.

A list of participating banks is here and that page will also lead you to a summary page about your bank which leads you to the start of loan application.

Apply directly to your bank. This is a Government initiative and not an HMRC initiative. Consequently, Proactive can not apply on your behalf.

Covid-19 Support For Freelancers

The details below are given in good faith based on the prevailing information as at 12.30pm on 27 Mar 2020.

1 of 3 Covid-19 Measures in General
2 of 3 Covid-19 Support For Freelancers
3 of 3 Covid-19 Bounce Back Loans

This report should be one big flow chart, but in order to make it fully accessible, a numbered list is more straight forward. Please follow the instructions line by line, and follow “go to” instructions as soon as you meet them. Stop at the first mention of “stop” that you come across.

Update 15 April 2020 – owing to recent changes in HMRC guidance, lines 1000 and 1010 have been renumbered and repositioned as lines 1033 and 1034.

1020 Do you have limited liability protection because you operate as a limited company?

1030 Yes – go to 3020

1033 Did your freelance work commence on 6 Apr 2019 or later?

1034 Yes – go to 7000

1040 Has your self employment (or partnership) income declined directly as a result of the Covid-19 crisis?

1050 No – go to 7000

1060 Take care with this double barrelled question, and check your tax return if you are unsure . . .

1070(a) Are you a partner in a traditional partnership and have a page P1 on your last tax return?
1070(b) Are you a sole trader with self employed accounts and a page SE1 on your last tax return?

1080 If you answered “no” and “no” go to 7000

1090 Annual income includes all earnings, all investment income and rent received etc. Is your self employed profit (or partnership share) less than 50% of your annual income?

1100 Yes – go to 7000

1110 Has your self employed trade (or partnership) ceased in 2019/20?

1120 Yes – go to 7000

1130 Will you (or but for the effects of the Covid-19 crisis, would you) continue to trade in 2020/21?

1140 No – go to 7000

1150 Work out the annual average of your net profit between 6 Apr 2016 and 5 Apr 2019 (or pro rata annual profit for businesses that commenced between those two dates). Is your annual average net profit greater than £50,000?

1170 Yes – go to 7000
1180 No – go to 2000

2000 Based on your response, you are eligible for support under the 26 Mar 2020 measures “for the self employed”. HMRC has this info already (from your tax returns) and will contact you. They have asked that you do not contact them. The plan is set out here and grants are expected to be paid in June 2020.

2010 From 13 May 2020 claims can be made here. Look for the “Start Now” button in the middle of the page. There’s also a big warning saying “You must make the claim yourself. Your tax agent or adviser must not claim on your behalf as this will trigger a fraud alert, and you will have to contact HMRC. This will cause a significant delay to you receiving your payment.“. Moreover, you will need the start date that HMRC sent to you by email, SMS or letter. They definitely don’t want to let accountants get involved for some reason!

2020 Stop

Update 15 April 2020 – owing to recent changes in HMRC guidance lines 3000 and 3010 have been renumbered and repositioned as lines 3033 and 3034.

3020 Do you have a proper contract of employment with your own company?

3030 No – go to 6000

3033 Does your company have a PAYE account with HMRC?

3034 No – go to 5000

3040 Has your company’s income declined directly as a result of the Covid-19 crisis?

3050 No – go to 5000

Update 15 April 2020 – owing to recent changes in HMRC guidance lines 3053 and 3054 have been added.

Update 17 April 2020 – HMRC guidance has changed (again) – different conditions for qualifying employees have been added to a new line 3053.

3053 Were you on your employer/company PAYE records on 28 Feb 2020? Friday 28 is the key date, even though there were 29 days in February in 2020. If you officially left before 28 Feb or officially started after 28 Feb, then you should answer no.

3053 Were you on your employer/company PAYE records on 19 Mar 2020? If you officially left before 19 Mar or officially started after 19 Mar, then you should answer no. If your first ever payslip from this employer is dated after 19 Mar 2020 then you should answer no. The criteria require that HMRC was notified of this employment via any payroll RTI submission by 19 Mar 2020 at the latest.

3054 No – go to 5000

3060 Have you been laid off with no work (officially termed “furloughed”) owing to the Covid-19 crisis?

3040 Yes – go to 4000
3050 No – go to 5000

4000 Based on your response, your employer is eligible for support under the 18 Mar 2020 “Job Retention Scheme” and ultimately you should receive some Government funded income through your employer’s payroll system. It is the responsibility of the employer to make a claim to HMRC using an online tool which they say is due to be available “at the end of April 2020”. More details are given here. Office holders should note that this applies only to salary and not to dividend income.

4010 Stop

5000 No support under the 18 Mar 2020 “Coronavirus Job Retention Scheme”.

5010 Stop

6000 As a director, your salary is usually paid to you for the responsibility involved in “holding the office of director” and not for “work done”. This causes two issues.

6010 A director cannot be furloughed according to the Companies Act 2006. The Act does not say that exactly, but the combination of rules means that a director is always active on company affairs. Update 11 April 2020 – HMRC guidance has been adjusted, go to 6080.

Update 11 April 2020 strike out lines 6020 through 6070

6020 Furthermore, a director is not an employee in a strict sense even though the words employee and employment are often used in everyday dialogue about directors. There is no definition of “employee” in Statute. Sometimes case law helps, but there is still no definition of “employee”.

6030 What is clear is that to qualify for support under the 18 Mar 2020 “Coronavirus Job Retention Scheme” the employee must be engaged to do work “under a contract of employment”. Unfortunately “holding the office of director” is not the same thing as “doing work” and you don’t need “a contract of employment” in order to hold an office.

6040 This Government web page has ignored these fine points of detail and professional bodies are seeking clarification from HMRC. To be honest, some of the dialogue on that page demonstrates clearly that the civil servants who authored it have no idea what the legal definition of “self employed” is!

6050 Arguably, this is just legalistic torture but the law is the key issue in all of our interactions with Government. It could be hoped that Rishi Sunak will soon be hauled back to announce further measures. The thing many people want to hear is something like “irrespective of the provisions of the Companies Act 2006, for the purposes of the Coronavirus Job Retention Scheme HMRC will permit directors without contracts of employment to be deemed as furloughed provided that all the other conditions of the Scheme are satisfied”.

6060 And then what would you get? Possibly your company will get 80% of your salary. And nothing extra on account of your dividend income. Go back now and look at line 4000 if you want to, but read the rules carefully, it’s about salary only.

6070 Unless Rishi Sunak suddenly reverses the Government’s attitude to freelancers who operate as small limited companies you currently stand to get nothing. Maybe there will be movement on directors’ salaries. A change of heart on dividend income is highly unlikely given that HMRC has previous form with the original IR35 legislation and later additions to those rules.

6080 Update 11 April 2020 – the desired text (at line 6050 above) has in effect been published here. Office holders may be entitled to claim JRS.

Update 15 April 2020 modify line 6090

6090 Go to 4000

6090 Go to 3033

6100 Stop

7000 No support under the 26 Mar 2020 measures “for the self employed”.

7010 Stop

Footnote

We know where Boris Johnson lives if you want to write to him.

Covid-19 Measures in General

Disclaimer

This report was published, in good faith, based on the prevailing information, at 1.00pm on 23 Mar 2020. The situation is changing on a daily basis and any updates to this report will be clearly marked with a date time stamp.

1 of 3 Covid-19 Measures in General
2 of 3 Covid-19 Support For Freelancers
3 of 3 Covid-19 Bounce Back Loans

Overview

The Government measures are designed to target employees and businesses which are directly affected by the Covid-19 issue. We can argue that we are all affected, but having had dealings with HMRC for 35+ years they can be tricky, and so we suggest that you keep evidence in case you need to (at a later date) show how you have been affected. That includes:

• Medical correspondence for those worst affected.
• Employer correspondence for those laid off.
• Business correspondence for those who experience a downturn.

Do not routinely delete those emails. If somebody cancels a piece of work (or worse) please keep a copy of that email for 6 years beyond the end of your trading year (or tax year).

VAT Registered Taxpayers

VAT due for quarters ended 29 Feb 2020 through to 30 Jun 2020 inclusive will not become due until 7 Aug 2020 at the earliest. This right is automatic and (Government says) no action needs to be taken. If you have VAT to pay, you can pay it on your normal due date if you wish, or hold on to the cash and pay on 7 Aug 2020. No interest will be charged. If you are due a VAT repayment these will be processed as normal.

If you pay quarterly VAT by Direct Debit and want to delay your payments then we recommend cancelling the Direct Debit now. We know from experience (foot-and-mouth disease in 2001 and the farming sector) that “this right is automatic” may not be enough to stop HMRC Direct Debit collections.

Apparently a further announcement is to be made which will allow accumulated VAT debts to be paid over time, and you are to be given until 5 Apr 2021 to bring things up to date.

Irrespective of actual payment dates, VAT returns must still be submitted within the correct time frames.

Mainstream Businesses

Most of the best measures that have been announced are contingent on you being a mainstream business, that is to say, one which:

• has commercial premises subject to business rates; and
• is eligible for either Small Business Rate Relief or Rural Rate Relief.

In these cases you will qualify for grants of up to £10,000 (originally the announcement was £3,000). Whichever local authority deals with your business rates will be in contact you and will automatically initiate the process for you.

All Businesses

Loan scheme – talk to your bank. The Government has agreed to underwrite 80% of any loan capital advanced by your bank under these emergency measures. Theoretically that makes you a lesser risk today that you were a few weeks ago. However, nothing really changes between you and the bank, your application still needs to be well founded and your repayments need to be affordable. The protection is for the bank in case your business goes bankrupt.

Employers and Employees

The Chancellor announced a new a grant from HMRC to employers to cover furloughed workers and keep people on payroll rather than laying them off. The coronavirus job retention scheme would pay up to 80% of employees’ salary to a maximum of £2,500 a month.

The job retention scheme will be backdated to 1 March, with no limit on the amount of funding, and The Chancellor stated that it will be open initially for “at least three months” but didn’t take off the table the option to extend the scheme for longer if necessary.

HMRC will implement a process to fund employers. However, HMRC is in the business of collecting tax and has less experience of handing out grants. The infrastructure to do this is currently a work in progress. Nobody knows when the first grants will be paid.

27 Mar 2019 12.30pm Update – strike out this headingSelf Employed Trade or Partnership

27 Mar 2019 12.30pm Update – new heading – All Self Assessment Cases

Self assessment tax instalments due on 31 Jul 2020 have been postponed, without interest etc, and will now become due on 31 Jan 2021. This is automatic and no action needs to be taken.

27 Mar 2019 12.30pm Update – strike out this para – Apparently you need to be in a self employed trade or be a partner in a traditional partnership to take advantage of this. That means (until we hear otherwise) that self assessment tax instalments due on 31 Jul 2020 on account of your rental income or dividend income, etc, are still due.

Freelance Limited Company

Other than claiming the 80% job retention scheme figure (see “employers” above) there are no specific provisions for small freelance limited companies.

27 Mar 2020 12.30pm update – even the eligibility for this 80% has been questioned by some legal experts. Please see this newer blogpost.

The Government is still addressing this issue and has called for submissions to made by 5pm GMT on 23 Mar 2020.

https://twitter.com/CommonsTreasury/status/1240620040803803136

Use the email address specified in that tweet and (in meaningful words) spell out precisely what you want The Cabinet Office to help with.

Other Resources

Well respected tax lecturer Giles Mooney has posted a 17 min video on YouTube:

Although we have covered key points above, clients of Proactive may be interested in the following sections:

• 10min02 – 10min40 – statutory sick pay
• 10min41 – 11min30 – the self employed
• 14min10 – 15min25 – loan guarantee
• 15min25 – 15min59 – claiming on business insurance

The Government Support for Business page is here:

https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

The Coronavirus helpline: 0300 456 3565

This telephone number has been rebranded as the Coronavirus Helpline. It’s not a new service as some claim. It has been in existence for many years and is also known as the Business Support Helpline. As far as we know, it is mainly of use to taxpayers who wanted to negotiate “time to pay” arrangements.

Public Sector Bodies and Freelancers and IR35

On Saturday 21 Jan 2017 the National Audit Office in Victoria opened its doors to a range of geeks and devotees, both within and beyond Government, for the now annual unconference called UKGovCamp. This one was special, the 10th event, and there was a considerable buzz among the 220 participants.

Somehow, my session ended up in a very early slot (one of eight concurrent streams) and a small, intense discussion of IR35 took place.

This is an extremely complex subject. I have recently concluded an IR35 enquiry for a client. It took over 4 years and we won. One firm in Bristol who specialise in IR35 enquiries proudly claim to have won 1,498 out of 1,500 cases they’ve worked on. At the moment I’m happy with “played one, won one” and a tentative claim to a 100% success rate! HMRC are (allegedly) working 600 cases per year, and that’s as much as they can do with the staff at that section.

Anyway, you cannot rely on one session from UKGovcamp, nor this one blogpost, to tell you the full story. And every case is different so you need to get specialist advice. What I am going to focus on here is the changes which are due for 6 Apr 2017 and which relate to freelancers who work in Public Sector Bodies.

The Scales of Justice

The law on this comes from two pieces of legislation:

These rules are collectively known as “IR35” because that was the number of the 1999 press release which foretold this nightmare.

The relevant bits that you need are sections 48 to 61 of ITEPA and all of the Social Security Regs (fortunately that has only 11 sections). The most salient detail is to be found at s49 of ITEPA and s6 of the Social Security Regs. The dialogue is almost identical in each piece of legislation, and I will explain the subtle difference later on. For now, you just need to read the rules below and where it says “intermediary” think “freelance limited company”.

The bullet points

Here’s what you need from the Social Security Regs:

6–(1) These Regulations apply where–

(a) an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another person (“the client”),

(b) the performance of those services by the worker is carried out, not under a contract directly between the client and the worker, but under arrangements involving an intermediary, and

(c) the circumstances are such that, had the arrangements taken the form of a contract between the worker and the client, the worker would be regarded for the purposes of Parts I to V of the Contributions and Benefits Act as employed in employed earner’s employment by the client .

The Case Law

It’s sub section (c) above about “the circumstances” which leads to the inevitable debate about whether a freelancer is truly freelance or is in “disguised employment” and is caught by the IR35 rules.

The most poignant piece of case law which helps us interpret sub section (c) is:

  • Ready Mixed Concrete(South East) Ltd v Minister of Pensions and National Insurance 1968

This case came out in favour of the worker who was truly freelance, and in his judgement Justice MacKenna set out three tests of how we are to decide if somebody is an employee or not. The three tests in the Ready Mix case can be summarised as . . .

  • Personal service must be provided by the worker; and
  • The engager has a right of control of the worker; and
  • Mutuality of obligation must exist.

If you can show that any one of these three tests is failed, then you are not an employee.

What’s changed as at 6 Apr 2017?

The core legislation hasn’t changed and the case law hasn’t changed. If you were not caught by IR35 before 6 Apr 2017 then, in theory, you are not caught by IR35 from 6 Apr 2017.

What has changed is the decision maker, but only in cases where the worker is working on the premises of a Public Sector Body. Will this later be extended to the private sector? Officially HMRC says they have no plans to do so. The accountancy profession respond to that with a collective and cynical “oh yeah?”

If HMRC can make these rules work in the Public Sector Body then I have no doubt that they will be extended to all engagements involving freelancers.

Under the old rules, it was the responsibility of the freelance worker who decided if the IR35 rules applied. Usually that involved a discussion with his or her accountant, but in law, the responsibility remained that of the freelance worker.

Under the new proposed rules “a person at the Public Sector Body” where the worker is working, will have to make the decision. Somebody on the premises! The rules commence at s.6 Finance Act 2017 and are set out in detail at Schedule 1 to that Act.

The new rules on the decision maker are set out in a new Chapter 10 to be added to Part 2 to of ITEPA 2003. It’s not in the 2003 Act on the legislation.gov.uk web site so the only place we can read about the new section 61T is in The Finance Act 2017. In effect s.61T(1) says that the engager (referred to as “the client” in the legislation) has to tell the end worker that “a conclusion” on status has been made and what that conclusion is.

That is what is changing. It’s not the freelancer, not the recruitment consultant (if there is one involved) but somebody in a payroll office or finance department of a Public Sector Body who will have to “certify” that the freelancer is genuinely freelance, otherwise they will have to operate PAYE on all the income of the freelancer. Early discussions of these changes indicated that the recruitment consultant will make the decision. Later discussions show that this has changed, as the recruitment consultant will not have first hand knowledge of what precise arrangements exist in the workplace. It’s going to be a government worker on government premises who makes the decision.

To help them there will be a new online “status checker” tool. It’s being written by HMRC, so you can guess what sort of bias it’s going to have, and apparently it will be available by the end of January 2017. [Update – then they said “on 20 Feb 2017” then they said “end of Feb 2017” . . . ]

The online tool was finally released at 4pm on 2 Mar 2017. Instead of the clear Yes/No answer that we were all expecting, it sometimes gives a “don’t know”. It has been tried out with a number of famous “stated cases” and it does not always give the same answer that the Tax Tribunals arrived at! Try it if you wish:

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

In short, somebody at your school, your GP practice, your library, or your ministry is going to understand all of this and certify that you are truly freelance. Yeah? Pull the other one! Whether it’s a smaller or larger Public Sector Body I allege that nobody will risk their own role by making “a wrong decision” and upsetting the powers that be.

This is going to prove very tricky for any freelancer who was “truly freelance” before 6 Apr 2017 and who discovers that apparently they are now not “truly freelance” and therefore presumably were not “truly freelance” before! Quite a few more tax office enquiries will start later this year!

Here’s a suggestion, if you have to make that decision in your public sector body you might decline to do so, on the grounds that you have insufficient legal training to make such a complex decision.

The New Scales of Justice

Where is the new legislation? I can’t find it!

It’s not in the Finance Act 2015 nor the Finance (No. 2) Act 2015 following George Osborne’s announcement of these rules in the 2015 Budget.

It’s not in the Finance Act 2016 which would have had it firmly in place by 6 Apr 2017. And although, in his 2016 autumn statement, Philip Hammond talked about Public Sector workers paying proper taxes, there is no sign of a Finance (No. 2) Act 2016.

We shall have to wait until after the 2017 Budget on 8 Mar 2017 and the Finance Bill 2017 in order to see the rules in black and white. In a normal year the Finance Bill secures Royal assent in about August and then becomes the Finance Act. That assumes that it gets through the committee stages and The Lords without amendment. If you’re unhappy about the proposed new rules contact your MP now.

As the date of UKGovcamp on 21 Jan 2017 all we have is a “consultation process” and an 87 page PDF from HMRC dated 26 May 2016. And a lot of newer memos circulating in the accounting sector and on “paid for” subscription services.

But there is no clarity.

What will I be paid?

Yep! Good question! And even the payroll software industry doesn’t know. I buy payroll software every March, as I need the upgrade before the March payrolls are run, in order that the April payrolls start correctly.

Software houses need to ship the product by mid March at the latest, but nobody knows exactly what the new rules are. What we do know is that:

  1. payroll software pays individuals
  2. payroll software has never before had to pay freelance limited companies
  3. freelance contracts with limited companies provide no date of birth and no national insurance number
  4. payroll software requires either a date of birth or a national insurance number otherwise it won’t work – it won’t know which National Insurance table to use!
  5. workers with relevant student loans have their student loan repayments taken under PAYE
  6. “deemed workers” under these new rules will be liable for income tax and National Insurance under PAYE but will be liable for student loan repayments on their own Self Assessment tax returns and not via PAYE.
  7. payroll software to date has never had to distinguish between liable and not liable for student loan repayments on the basis of “deemed worker” status.
  8. any payroll clerk who gets a form SL1 for you just logs it into the software, because that’s what the rules say.
  9. payrolls are subject to Real Time Information – HMRC gets a packet of data on the day the payroll is run – so this all has to work by pay day in April 2017.
  10. the first weekly payrolls of 2017/18 will be run on or before Friday 7 Apr 2017.
  11. salaries are outside the scope of VAT, but many freelancers are VAT registered and add 20% on to their invoices
  12. payroll software has never had a mechanism to handle VAT because salaries are outside the scope of VAT!
  13. it seems that finance depatments automatically know this and will now just pay you the 20% VAT without paying the net figure from your invoice, because they are naturally clairvoyant!

And, some low paid payroll clerk in some Public Sector Body is not going to worry too much about how accurate the payroll calculations are, they’re just going to somehow do it. In my own experience of working in the Public Sector and in the Private Sector, no payroll clerk has ever taken much interest in getting anything exactly right, other than making sure that their own net pay is correct!

And what will it cost the Public Sector Body? An extra 13.8% in employer’s National Insurance. So whatever their budget is now, they will have to find an extra 13.8% in order to pay their freelance workers (or “deemed workers”). Wait a moment! No! There’s VAT on top of that! So an extra 20% of 13.8% effectively makes the employer’s National Insurance bill 16.56%.

This is moving from the ridiculous to the sublime!

Maybe the recruitment consultancy (if there is one) will cover that extra National Insurance bill! You bet! And they will increase the fee to the Public Sector Body proportionately.

And by the way, “deemed workers” will not be entitled to SSP, SMP, holidays and all the other trappings that you get from being an employee. Just all the taxes with none of the advantages.

The perverse nature of all these rules means that Public Sector Bodies will have all of their workers on an equal footing when it comes to PAYE costs (but no employment obligations). The big problem is that it will cost Public Sector Bodies an extra 20% to engage any freelancer who is VAT registered. And that’s because Public Sector Bodies are not businesses that “make taxable supplies” and are not able to recover the VAT. Have you been told that? Have you included that in your departmental budget for the next year?

Yeah, well thought out George Osborne and Philip Hammond!

Appeals

The good news is that if you’re unhappy with a decision that treats you as a “deemed worker” and not a freelancer, you can appeal . . . to an Employment Tribunal. That’ll take time! The “tribunal stage” of the IR35 case that I recently won took 18 months.

The bad news is that if you want to appeal to a Tribunal, then you will have to wait until after the end of the tax year. So, no appeals on these new rules until April 2018 at the earliest! And based on my expereince no ruling until 18 months after that, making it October 2019 by the time you get an answer to your April 2017 question!

Wiggle room

What scope is there for steering the decision making process? Colin Bishopp points you to some wiggle room. The minor difference between . . .

  • s.49 Income Tax (Earnings and Pensions) Act 2003
  • s.6 Social Security Contributions (intermediaries) Regulations 2000

. . . is that section 6 of the Social Security Regs gets a specific mention in another stated case which was heard before Colin Bishopp, a Special Commissioner for HMRC.

  • Usetech Ltd v HM Inspector of Taxes [2004]

Colin Bishopp said:

“when that analysis shows that those two sub-paragraphs are satisfied sub-paragraph (c) involves an exercise of constructing a hypothetical contract which did not in fact exist”.

And what that means for us is that, in order to come up with a decision about status under IR35, somebody has to prepare a hypothetical contract.

Your first questions about any new freelance engagements in the Public Sector should now be:

“Can I please have a copy of the hypothetical contract that was drawn up in order to evaluate Reg 6.(1)(c) of the Social Security Contributions (intermediaries) Regulations 2000?”

“Who drew it up, and on what date, and what position do they hold in which organisation?”

Let me know how you get on with that. I genuinely would like to know! It’s the sort of document that you’ll need at Tribunal.

Sledgehammer Policy

The Government doesn’t do joined up thinking.

The conversation in the room at the end of the session can be summed up by saying:

  1. give up on freelancing in the public sector
  2. move to the private sector
  3. let that particular public sector body suffer from under staffing
  4. the more they suffer the better, it will make government rethink the rules
  5. some public sector bodies would seize up if all the freelancers left
  6. alternatively, just take a PAYE job directly with the public sector body (with the added safeguards of all the employee law)

The worst thing that can happen is that the freelancer community succumbs to the new rules, accepts lower take home pay and signals to the Government that the policy works. That will lead to the imposition of similar rules on the private sector within a year or two. This is another “poll tax” moment and requires a commensurate reaction.

And if you are inclined to just “go on payroll” you will need a large salary to give you the same disposable income you were accustomed to as a freelancer.

We’ll take the example of a software developer on a day rate of £500 who worked a full year. That’s 233 work days allowing for weekends off, bank holidays off, and 4 weeks holiday. The equivalent annual income at £500 a day is £116,500. The equivalent PAYE salary, to give you the same net as a freelance worker would be £242,700.

Do you work in finance in a public sector body? Here are the figures for you:

  • Freelancer: 116,500 plus 20% VAT plus the recruitment agency fees
  • Equivalent employee: 242,700 plus 13.8% employer’s National Insurance

In short, think of a number and double it. I want £500 a day as a freelancer or £1,000 a day as an employee.

To date, budgets in public sector bodies have been based on the premise that you can get freelancers much more cheaply than you can get staff. I can’t believe that George Osborne and Philip Hammond did not already know this. Or have they secretly been plotting to destroy the NHS and other public sector bodies, whilst trying to deflect the blame onto “greedy” freelancers who want ridiculous salaries?

Makes you think? Doesn’t it? The government appear to be trying to crack a nut with a sledgehammer. They’re more likely to be shooting themselves in the foot.

I suppose we could all emigrate?

I really enjoyed UKGovCamp this year!

Auto Enrolment – the Basics

Proactive is not authorised to give pensions advice, and the comments here are a guide to complying with new legislation. It is not a guide to pensions! The figures below relate the tax year 2016/17 and may change every April as each new tax year starts.

Do I need to comply?

You may not need to offer auto enrolment if your business employs no regular staff, but only directors, and none of those directors have a contract of employment. If that’s the case then check this report.

For everybody else, the key points are listed below.

What is a staging date?

The Pensions Regulator writes to all new employers telling them their staging date, the date from which auto enrolment must be in force for qualifying employees. The staging date varies depending on the age of your business and the number of employees. The Government would be unable to handle everything all at once and so this policy is being phased in for existing employers over the period 1 Oct 2012 to 5 Apr 2017. New employers will be assigned a staging date by 28 Feb 2018 at the latest.

You can start earlier if you wish.

Who qualifies?

If all of your staff are already in a workplace pension scheme, then you have no additional duties under auto enrolment.

Staff aged between 22 and state pension age who earn more than £8,105 a year, must be offered a workplace pension scheme and the employer must make contributions. Staff can opt out if they wish, but you must offer a workplace pension scheme!

Staff who do not meet the criteria above, and who are older than 15 and younger than 75, and who earn more than £5,564 a year, can opt in to a workplace pension scheme. If they choose to do so then the employer must provide one, and make contributions.

Employers will also need to enrol any workers aged 16-74 who earn less than £5,564 a year, and who ask to opt in to the scheme, but you don’t need to pay contributions for them.

Employers are prohibited from offering incentives or perks to encourage staff to opt out.

What contributions need to be paid?

It depends!

As time goes by, you will be required to make greater contributions and so will your staff. The timing and the amount of the contributions depends on your staging date.

Here is a broad overview, and the highest level of contributions will be in force by 31 Oct 2018.

The minimum contribution will start at 2% of a worker’s gross earnings (of which at least 1% must be paid in by the employer).

By 31 Oct 2018 the minimum will have risen to 8%, made up of at least 3% from the employer, up to 4% from the employee, and 1% in tax relief.

These percentages don’t apply to all of an individual’s salary, but only to what they earn over a minimum (currently £5,564 for 2016/17) up to a maximum limit (currently £42,475 for 2016/17).

What do I have to do now?

Establish a workplace pension scheme through either a commercial business of your choice or through the Government’s NEST scheme (National Employment Savings Trust). The choice is entirely yours.

The NEST web site sets out key steps in the process of implementing a workplace pension.

Once you have a workplace pension scheme in place, let us know and we will log the details in our payroll system. We need one month’s notice of this in order that payrolls comply with the Real Time Information rules implemented back in 2013.

Call us on 020 3051 2462 if you need to chat more about this.

National Insurance Contributions and the UK State Pension

We are accountants and tax advisers, and we do not get involved in pension matters. However, this is what we know about the interaction between National Insurance Contributions and the UK State Pension.

If you are following our recommended director shareholder payments pattern, then your salary should be high enough to give you a National Insurance credit, even though you don’t pay Class 1 National Insurance.

A full year at this level is a “qualifying year”. This page https://www.gov.uk/state-pension/eligibility used to say:

“You might not pay National Insurance Contributions because you’re earning less than £XXX a week. You may still get a qualifying year if you earn between £YYY and £XXX a week from one employer.”

However, the rules keep changing and at the moment the “eligibility” explanation on the Government site takes you round in circles and no longer explains the position for paid employees and directors on low salaries.

If you want the relevant information, the best thing you can do is a twofold approach:

Firstly

Write (with your NI number) to . . .

National Insurance Contributions Office
Benton Park View
Newcastle Upon Tyne
NE98 1ZZ

. . . and ask for a copy of your National Insurance record for all years since [date of your sixteenth birthday] showing contributions paid and any credits received.

Secondly

Complete a form BR19 and send it to . . .

The Pension Service
Newcastle Pensions Centre Futures Group
Mail Handling Site A
Wolverhampton
WV98 1LU

Once you have the two replies, check that the number of “qualifying years” is the same on both documents. If there is anything that you think needs attention, write to the National Insurance Contributions Office again seeking help, particularly if credits are missing for qualifying years.

Lastly, you won’t get your State Pension automatically, you have to claim it. You should receive a letter 4 months before you reach State Pension age, telling you what to do. Put a note in your diary now, for 3 months before you reach State Pension age, in case that letter doesn’t turn up.

Budget Day Bombshell?

We are indebted to Richard Dyson of The Daily Telegraph for this news on pensions. Though we stress that it’s a forecast and not an absolute certainty.

A tax break set to be axed within weeks

And at the same time, we need to remind you that we are not authorised to provide pensions advice, but we can tell you about tax law and possible changes to it. If we are to believe everything which we read in the Press, which we hear in Accounting Bulletins and which we learn on our CPD courses, then the March 2016 Budget is going to squeeze middle Britain like never before.

201601240504mattCartoonPensionAdviceMatt Cartoon
Pension adviser: “Have you considered befriending a wealthy despot?”

George Osborne has already announced that new punitive tax rates will be applied to dividend income from 6 April 2016 and that buy to let landlords will be hit with restrictions on tax relief. Now, it seems that higher rate taxpayers who have private pensions will also be hit.

If you’re a higher rate tax payer investing in pensions, and you’re used to getting 40% (or 45%) tax relief on pensions, then you may be shocked to see that tax relief reduced to 20%. Let’s assume you’re a 40% taxpayer. Up to now, for every £1,000 you added to your private pension, you gained an instant 20% boost as The Exchequer would add £250 to your pension pot, and your pension provider would then have £1,250 to invest on your behalf. Then, a few months down the road, you do your Self Assessment Tax Return, you get back (in your hand effectively) another 20% (being another £250), because your tax bill is reduced by that amount.

That means that your pension provider has a pot of £1,250 which cost you £750 of your money. That’s how 40% tax relief works.

Now if, as seems likely, the Chancellor changes the rules on 16 March 2016 then you may find that your tax relief is restricted to 20% and thus your pension provider will have a pot of £1,250 which in future costs you £1,000 of your money.

Richard Dyson of the Telegraph suggests you pour your money into pensions now, before this forecasted measure is introduced. Our view is that, if you were going to be investing in your pension anyway, in 2016/17 and later years, then you could potentially get more tax relief by bringing forward that investment and doing it in 2015/16 and preferably before Budget Day on 16 Mar 2016.

Is there any alternative? Well perhaps yes! For those of you who are a director and shareholder of a UK limited company, get your company to invest in a pension, rather than do it yourself. All things being equal, your company will get tax relief at its company rate, and your personal income from the company can come down to match the contributions. That way, you’ll find that rather than funding your pension out of your own taxed income, you’ll have a lower income, a lower tax bill, and your company will have a lower tax bill too!

 

The Pensions Regulator Letter

Proactive is not authorised to give pensions advice, and the comments here are a guide to complying with new legislation. It is not a guide to pensions!

The Government decided in about 2012 to shake up UK pension provision, and as a result, a lot of smaller businesses have to comply with the new laws from 2015 or 2016. It appears that they launched a campaign in Spring 2015, sending letters like this example, to the smallest of UK employers.

201506120600pensionsregulator

Oddly, if the new legislation does not apply to you, then you still have to comply with the new legislation, by telling The Pensions Regulator that the new legislation does not apply to you! That’s law makers for you! The key question to consider is “do I have any eligible employees”? The long answer is to be found on the The Pensions Regulator web site.

The short answer is “if you have staff with a contract of employment and a decent wage” then you probably have to provide some pension arrangements. The key in all this is “contract of employment” and if this is an issue for you check this report and we can explore the way forward with a dedicated payroll service.

What if you are a director of your own company, with no employment contract and a very basic salary? We found another short answer (well not exactly short, but shorter) on the Accounting Web UK forum.

201506120630pensionsregulator

That means two things:

  • Proactive can continue to provide you with basic payroll services.
  • You have to notify The Pensions Regulator that the new legislation does not apply to you.

If you visit the page below on the Regulator’s website you will find a pre-populated email to send to them which should ensure the record is updated to show that the small business is not an employer.

http://www.thepensionsregulator.gov.uk/employers/what-if-i-dont-have-any-staff.aspx

For those of you who don’t like to rely on form to email solutions like that one, here’s the text of the standard message which you can use to send your own email to customersupport@autoenrol.tpr.gov.uk or send a Recorded Delivery or Special Delivery letter on your business letterheaded paper to the address shown.

The Pensions Regulator The Pensions Regulator
PO Box 16314 Napier House
Birmingham Trafalgar Place
B23 3JP Brighton
BN1 4DW

I confirm that [add your company name here] is not an employer for the purposes of automatic enrolment for the following reason.

[please select one option from the list below and delete the others]

  1. There is only one director and there are no other staff working for the company.
  2. The only people working for the company are directors and none of them have an employment contract.
  3. The only people working for the company are directors and only one of them has an employment contract.
  4. The company does not or no longer employs any staff because it has ceased trading/is terminally insolvent eg has gone into liquidation/has been dissolved.

The letter code for the company is: [add your letter code here]

The PAYE scheme(s) reference is: [add your PAYE reference(s) here]

The Companies House number (where applicable): [add your Companies House number (if you have one) here]

The name, email address, address and telephone number of contact at the company: [add these details here]

You may already have enough email to deal with, so rather than send an email (which automatically provides them with an email address for you) send them a letter by Special Delivery as a number of our clients have suggested!