Author: Steve Jones

Leading business organisations have criticised the Government’s decision to scrap the northern leg of HS2, despite its promises to divert £36 billion into new transport in the Midlands and north of England.

High-Speed Rail Group, which represents rail and engineering firms, described the move as the “biggest and most damaging U-turn in the history of UK infrastructure”.

The replacement scheme, “Network North”, includes schemes already in progress or where funding was expected, alongside previously paused or cancelled projects.

Prime Minister Rishi Sunak said the “facts have changed”, and it was time to ditch the high-speed rail project between Birmingham and Manchester in the face of increasing costs.

He confirmed that, contrary to some ongoing fears, the HS2 line would still continue into central London, ending at a scaled-down Euston station.

As part of the plan, £9.6bn would be reinvested into the Midlands, including a rail hub for the region, and an additional £1bn for the West Midlands city region, whose Conservative mayor Andy Street had earlier indicated he was considering leaving the party if HS2 was scrapped.

The £19.8bn from scrapping HS2’s second phase would be spent on electrifying rail lines, with £2bn going to Bradford and £2.5bn for West Yorkshire, including the tram in Leeds.

Commenting on the decision, Chris Fletcher, greater Manchester chamber director of policy at the British Chambers of Commerce, said:

“Whilst this may sound like a better use of the money with new lines promised, we are still no nearer getting the transport network that we actually needed years ago to unlock the north’s potential.

“HS2 was a major investment opportunity for the UK that would unburden a worn-out network already at over capacity; boost the country’s net zero ambitions and open up labour markets and job opportunities on a scale like never before.

Plus, it was also a cornerstone of Northern Powerhouse Rail. Network North has to deliver all this, and more and in a shorter timescale.”

Talk to us about these changes

A Treasury task force explained on the 9 October how listed companies and financial firms will have to outline plans to cut carbon emissions in the transition to a 2050 net-zero economy.

The plans dovetail with pre-existing mandatory climate standards, which are set to be replaced by new measures from the International Sustainability Standards Board (ISSB).

The blueprint by the Transition Plan Taskforce (TPT) builds on the ISSB’s plans and draws on work by the Glasgow Financial Alliance for Net Zero.

Listed companies and financial institutions will be expected to use the framework to disclose their transition plans for 2025 and onwards, which means the first reporting deadline will be in 2026.

Joanna Penn, a junior Treasury minister in Parliament’s upper house, said making transition plans mandatory is an essential part of Britain’s plans to become the world’s first net zero financial centre:

“The transparency and accountability offered by transition plans are vital to the fundamental shift in business and finance required for the economy-wide transition to net zero and a climate-resilient future.”

Michael Izza, chief executive of the Institute of Chartered Accountants in England and Wales (ICAEW), also praised the framework, saying:

“For the first time there is a definitive guide and insight into the risks and opportunities that surround the development and implementation of a climate transition plan.”

Amanda Blanc, group CEO of insurer Aviva and co-chair of the taskforce, said in a statement: “Backing up net zero ambitions with high quality and clear transition plans is crucial if we are to collectively deliver net zero.”

The net zero strategy builds on the Government’s ’ten-point plan for a green industrial revolution’ published 18 November 2020. It set out policies and proposals for decarbonising all sectors of the UK economy to meet the Government’s net zero target by 2050.

The Government stated net zero means “any emissions would be balanced by schemes to offset an equivalent amount of greenhouse gases from the atmosphere, such as planting trees or using technology like carbon capture and storage.”

Contact us to learn more.

HMRC has reopened the self-assessment tax helpline from 4 September after it was closed for three months over the summer.

Between 12 June and 3 September, callers were redirected to digital services to give HMRC staff time to deal with other phone enquiries and handle the postal backlog.

This was not the first time HMRC has limited access to helplines to reallocate staff elsewhere, but it was the first time the tax authority completely shut down a service for a significant period.

Adam Harper, director of professional standards and policy at the Association of Accounting Technicians, said:

“The need for such a pilot, in order to redirect staff elsewhere, highlights the much bigger challenge that HMRC faces in balancing competing priorities with a constrained budget. Ultimately, the Government must address the root problem that more investment is needed.”

In June, Victoria Atkins, financial secretary to the Treasury, suggested that the closure of the self-assessment helpline would not be the last, saying:

“We will be watching this very, very carefully. If it is helping with some of the customer service problems we have, then we will look to see if we can surge people at other times of the year when there are peaks and troughs into the higher activity areas.

“It is about using our people as effectively as possible when customers are trying to contact HMRC.”

Talk to us about your self-assessment tax return.

The Chancellor of the Exchequer, Jeremy Hunt, has announced that he will present the Autumn Statement to Parliament on 22 November.

Hunt will use the Statement to set out future tax plans and departmental spending plans, although he may hold back on serious plans amid inflationary pressures.

The Chancellor may also decide against favourable announcements until the Spring Budget as part of the general election, which must be held in January 2025 at the latest.

Hunt also confirmed he has commissioned an Office for Budget Responsibility forecast that will be presented alongside the statement.

The announcement will be Hunt’s third fiscal statement following his first in November 2022, which came as a hurried remedy to his predecessor Kwasi Kwarteng’s divisive mini-budget in September 2022.

Since then, he and Prime Minister Rishi Sunak have repeatedly promised to halve inflation amid a series of Bank of England interest rate rises.

Confirming the new budget date, he said: “On Friday, the Office for National Statistics published an update to the UK’s GDP growth figures which shows the UK economy was 0.6% larger than pre-pandemic levels by the fourth quarter of 2021.

“It means our economy had the fastest recovery from the pandemic of any large European economy, thanks to decisions such as furlough that protected millions of jobs.

“For that growth to continue we now need to halve inflation, which I am pleased to report is now nearly 40% below its 11% peak. I can also tell the House I will deliver the Autumn Statement on November 22.”

Tom Selby, head of retirement policy at AJ Bell, said:

“Rishi Sunak has placed tackling the cost-of-living crisis front-and-centre of his premiership after pledging to halve inflation by the end of 2023.

“By the time the Autumn Statement arrives in late November, we should have a pretty clear idea of whether that target – a target the government has very limited control over – will be hit.”

Talk to us about how the Autumn Statement affects you.

Employers are turning to generous counter-offers in a bid to retain staff as skills shortages persist, new research suggests.

According to the Chartered Institute of Personnel and Development (CIPD), 51% of employers who make counter-offers to keep employees have offered a higher number over the last 12 months.

A quarter of employers who have made competing offers think they will need to offer more in the next year, with only 8% to offer less.

The CIPD survey of 2,000 UK employers, taken between 9 June and 5 July 2023, also found that 38% of counter-offers matched the salary of the new job offer, and 40% offered even higher sums.

However, 29% of employers believe counter-offers are ineffective at retaining staff. According to the CIPD, this suggests it “may only be valuable as a short-term option and employees will move if the wider package does not meet their expectations”.

Jon Boys, senior labour market economist at the CIPD, said:

“While pay is often the most typical focus of a counteroffer, there are other things employers should consider in making roles more attractive, such as flexible working, additional paid holiday, opportunities for career development, or better pension contributions.”

Talk to us about your business.

What you need to know about trusts, including how they are taxed.

Trusts are legal arrangements where assets are placed into the care of an individual or organisation that manages them for the benefit of someone else.

For the person setting up the trust, this arrangement means they know their assets will be properly looked after until they come under the legal control of the beneficiaries.

Crucially, there are also tax advantages to setting aside assets in a trust, especially in the context of estate planning. That’s why we want to go over them with you.

What are trusts?

A trust is a relationship between three parties:

• the settlor is the person who places the assets in the trust
• the beneficiary is the person who benefits from the assets in the trust
• the trustee is the person or organisation appointed to manage the trust on behalf of the settlor and beneficiary.

So, in a trust, the settlor gives over the financial management of selected assets and capital to the trustee(s). Depending on the terms of the arrangement, generated income from the assets or the assets themselves will go to the beneficiary — often a younger person or someone who is unable to care for their own finances at present.

As a general rule, anyone over the age of 18 can be a trustee, but some solicitors and accountants also have trustee services.

It’s also worth noting that these three parties aren’t always different people: it’s fairly common for the trustee and settlor to be the same person. In some cases, settlors can even be their own beneficiaries.

Types of trusts

There are many different types of trusts, which all work in their own way. They include:

• Bare trusts — assets placed in a trust are held in the name of a trustee, yet the beneficiary has the right to all trust capital and income when they turn 18 (or 16 in Scotland).
• Interest in possession trusts — the beneficiary receives income generated by the trust but is not entitled to the underlying assets.
• Discretionary trusts — the trustees have absolute power over how the trust assets are used and distributed. Very popular with grandparents, who often name their grandchildren as the beneficiaries and their children as the trustees.

Knowing which type of trust is right for you can be difficult. Talk to us, and we’ll help you decide the route to take.

Income tax

Trustees or beneficiaries may be responsible for paying tax on the income from trusts; the amount due depends on the type of trust.

For accumulation or discretionary trusts, the first £1,000 of dividend-type income is taxed at 8.75%, while the first £1,000 of all other income is taxed at 20%. Above that amount, dividend income is taxed at 39.35%, while all other income is taxed at 45%.

When it comes to the tax treatment of interest in possession trusts, dividend-type income is usually taxed at 8.75%, with all other income taxed at 20%. Sometimes, though, the trustees ‘mandate’ the income to the beneficiaries, meaning it goes to them directly. In this case, the beneficiary would need to include the income on their self-assessment tax return.

Beneficiaries of bare trusts are responsible for filing a self-assessment tax return and paying tax on income.

If you’re a beneficiary of income from a discretionary trust, you are deemed to have received it net of 45% tax – but you can reclaim the difference if you fall into a lower tax bracket.

Similarly, for an interest in possession trust, there may be additional tax reclaimable or payable by the recipient. The trust will have paid income tax at 8.75% or 20% but if the taxpayer’s effective tax rate is different to this, they will pay or reclaim the difference.

Capital gains tax

Capital gains tax (CGT) is usually paid on the profit that is created by selling an asset for more than you bought it for. It can also apply when you give an asset away or transfer it to someone else.

CGT may need to be paid when:

• assets are put into or taken out of a trust
• a beneficiary gains access to the assets in the trust
• the trustee is no longer a resident in the UK.

There are, however, some instances when an asset can be moved but CGT is not liable. Firstly, if a person dies and they leave their assets to the beneficiary, there is no CGT liability. Likewise, there is no charge if a beneficiary of an interest in possession trust dies and the assets are passed to someone else.

There are some allowable costs that can be deducted when working out a trust’s CGT liability, as well as specific reliefs. Be sure to get professional advice to find out which of these apply to you.

Inheritance tax

Trusts can be great for estate planning because of how inheritance tax is applied to the value of assets and capital held in trusts. For the majority of trusts, inheritance tax will be due if transfers into them exceed the threshold of £325,000 at 20% — in contrast to the regular 40%.

If you die within seven years of making a transfer into a trust, your estate will have to pay inheritance tax at the full amount of 40%. If no tax is due, the value of the transfer is added to your estate.

If you make a gift into any type of trust but continue to benefit from it (for example, you give away your house but continue to live in it), you’ll have to pay 20% on the transfer and the gift will count as part of your estate. There are potential ways to negate this, such as having the settlor pay rent on the property while they live there, but be sure to seek advice if you’re considering this.

An inheritance tax exit charge also applies to most transfers of capital out of a trust, up to a maximum of 6%. A transfer out of a trust can occur when:

• the trust comes to an end
• some of the assets within the trust are distributed to beneficiaries
• a beneficiary becomes ‘absolutely entitled’ to enjoy an asset
• an asset becomes part of a ‘special trust’ (for example, a charitable trust or trust for a disabled person) and it ceases to be ‘relevant property’
• the trustees enter into a non-commercial transaction that reduces the value of the trust fund.

10-year anniversary

On the day before each ten year anniversary of the trust, inheritance tax is charged on the net value of the relevant property in the trust. The way this charge is calculated is complex, so get in touch with us for more technical information.

If the beneficiary dies

A trust’s assets or income will be distributed if a beneficiary dies, depending on the type of trust.

For example, because beneficiaries are entitled to both the income and assets of a bare trust, this becomes part of their estate when they die.

This is not usually the case with interest in possession trusts, as beneficiaries are only entitled to the income generated by the trust. There are certain circumstances where the value of this type of trust is added to the deceased beneficiary’s estate.

Get in touch for advice on trusts and inheritance tax.

The UK is no longer a global economic outlier after a huge revision to its post-pandemic economic performance by the Office for National Statistics (ONS).

GDP, the size of the country’s economy, climbed back above pre-pandemic levels by the end of 2021, the ONS said last week — much higher than previously thought.

The ONS originally said the economy was still 1.2% smaller than its pre-lockdown size in the final three months of 2021, but now says GDP was 0.6% higher than before the pandemic.

The ONS said that “the unprecedented shock of the coronavirus pandemic” led to large recisions as “the substantial changes in the rate of economic growth are more difficult to measure with the same level of precision as smaller changes during more ‘normal’ times”.

Companies had also continued adding to piles of unsold stock instead of selling them down as had been thought, while wholesalers and the health sector had produced much more in 2021 than ONS data had previously suggested.

Former Tory leader Sir Iain Duncan Smith said:

“It is time for the ONS and other forecasters to accept that their forecasts are almost always wrong.”

“Instead of using their dire forecasts to beat the UK up, they should talk up the remarkable record of British business in defying the forecasters and succeeding.”

Chancellor Jeremy Hunt said the revisions show that the UK economy “had the fastest recovery from the pandemic of any large European economy, thanks to decisions such as furlough that protected millions of jobs.”

“For that growth to continue, we now need to halve inflation”, he added.

However, the revision came as separate figures suggested that the manufacturing sector shrank last month at its fastest rate since the pandemic.

The latest statistical release also showed that the average UK house price fell in August at the sharpest annual rate seen in 14 years, £14,600 below their August 2022 peak.

Contact us for business planning advice.

London’s ultra low emission zone (ULEZ) aims to improve air quality and public health.

The latest ULEZ expansion means that many more businesses and individuals could face charges when driving vehicles that don’t meet emissions standards.

We’re here to help you understand how to comply with these clean air schemes and offer advice on minimising the extra financial and administrative burdens.

What is ULEZ?

First introduced in 2019 to tackle air pollution in London, ULEZ initially covered the same area as the congestion zone. As of 29 August 2023, the scheme now applies to all London boroughs.

Under ULEZ, motorists must pay a £12.50 daily charge when driving high-emission vehicles in the zone. According to London Mayor Sadiq Khan, this will help with the “vital task” of improving air quality and tackling climate change.

However, with businesses already stretched thin by the cost-of-living crisis, the decision to expand ULEZ has been divisive. One primary concern is that the expansion will place a greater financial burden on many businesses in and around London, which could be damaging for small firms and sole traders.

When does the ULEZ charge apply?

ULEZ operates across Greater London 24 hours a day, every day of the year, except for Christmas Day. Charging days run from midnight to midnight, meaning drivers travelling late at night could incur two charges for one journey.

Unless exempt, most motorists driving in the zone will need to pay a daily £12.50 charge if their vehicle does not meet the following emissions standards:

• petrol vehicles — Euro 4 standard
• diesel vehicles — Euro 6 standard
• motorcycles — Euro 3 standard.

You can usually find your vehicle’s emissions standards on your vehicle registration document or by checking the Transport for London (TfL) website.

Making your payment

If you drive a non-compliant vehicle in the ULEZ, you must pay the charge by midnight on the third day following the journey. You can also pay up to 90 days in advance.

TfL may issue you a penalty charge notice (PCN) if you fail to comply. You could also incur a fine by paying for the wrong date or the incorrect number plate.

Larger vehicles

ULEZ emissions standards don’t apply across the board. Businesses that use vehicles such as HGVs, lorries, and buses may need to comply with low emission zone (LEZ) rules instead.

Penalties for not meeting LEZ emissions standards are often steeper, so it’s essential to look into which scheme applies to the vehicles you use in your business.

Discounts and exemptions for businesses

Short-term exemptions

Certain charities, sole traders and small businesses with fewer than 50 employees can apply for a temporary ULEZ exemption. This grace period can give you up to six months to comply with requirements.

To qualify, you must have either ordered a new vehicle that meets the ULEZ emissions standards, or booked one to be retrofitted to meet them.

While you can submit your application until 29 May 2024, you will only qualify for a short-term exemption if you order your new vehicle or book the retrofit before 29 November 2023.

There is no limit to the number of vehicles you can apply for, but you must make a separate application for each vehicle you use in your business.

Scrappage scheme

Under the £160 million scrappage scheme, many London-based charities, sole traders and SMEs can access increased Government grants worth between £6,000 and £11,500 to help them afford a compliant vehicle or retrofit. Grants for wheelchair-accessible vehicles have also increased from £5,000 to £10,000.

However, the scrappage scheme has limited funds and works on a first-come, first-served basis. As such, you should speak to your accountant about making a claim as soon as possible.

Tax implications

If you cannot secure a temporary exemption or replace a non-compliant vehicle, you’ll need to pay the daily charge when driving within the zone — but there are still ways to minimise costs.

HMRC recently confirmed that ULEZ charges count as an allowable expense. That means self-assessment customers can claim these costs against their taxable income, but only if incurred wholly and exclusively for business purposes.

Advice for employers

Employees who pay the charge for work-related travel are also entitled to tax relief, although this excludes commuting.

The good news is that reimbursing employees for the charge is no different from reimbursing bridge tolls or car park costs.

Other clean air zones in the UK

It’s not just Londoners who need to think about the effects of clean air zones on their businesses. Several English and Scottish local authorities have already launched similar schemes in cities such as Bristol, Sheffield, Edinburgh and Glasgow.

Policymakers are also considering introducing further clean air strategies in the UK, including in Wales and Northern Ireland.

How can businesses navigate clean air zones?

1. Know your obligations

Researching the specific rules, charges and exemptions of different clean air zones before you travel can make it easier to stay compliant. Planning ahead can also give you more time to make alternative travel arrangements and avoid incurring unexpected charges.

2. Weigh up your upgrade options

If you or your employees often travel into ULEZ or other clean air zones for work, investing in a more eco-friendly vehicle or retrofitting an existing one could save you money in the long run.

3. Maintain good bookkeeping practices

Keeping detailed records of payments and maintaining good bookkeeping practices can make it easier to stay on top of your finances and claim the charges on your tax returns.

4. Work with experts

If you need help complying with the rules, your accountant is your first port of call. To minimise any extra costs to your business, we’ll offer expert advice on managing your finances efficiently, helping you apply for Government grants so you can replace non-compliant vehicles more easily.

We can also prepare and submit your tax returns for you, making sure we claim any ULEZ or clean air zone charges you incur to reduce your taxable profits.

Contact us to discuss your business finances.

How to register for and file your self-assessment tax return.

 If you’ve never had to complete a self-assessment tax return, the first time can be daunting. But don’t worry: we’ll demystify the process in this article. And if you have completed one before, this guide might still teach you a thing or two about doing your self-assessment better.

What exactly is self-assessment?

Self-assessment is the way millions of people in the UK report and pay their taxes. Specifically, 11.7 million people filed their tax return via self-assessment for the 31 January deadline in 2023.

As the name suggests, self-assessment is all about the taxpayer assessing their own tax liabilities by telling HMRC about their financial activities and income via form SA100. HMRC then uses that reported income to work out how much tax and National Insurance contributions (NICs) you need to pay.

This is in stark contrast to employees, who have their income tax and NICs automatically deducted through the PAYE system — this doesn’t happen for self-employed workers, or for some other sources of income, such as dividends, pensions or income from savings and investment, which is again where self-assessment comes in.

Who has to register?

In general, self-assessment is due for anyone who receives income that is not taxed at source.

So, in the case of a sole trader, because your income received through invoices does not have NICs or income tax subtracted, you must tell HMRC about your income, even if it turns out that you don’t owe any tax.

Income from abroad, income from rental properties, investment income, dividends from your limited company — it all has to be reported via self-assessment.

Employees who earn over £100,000 also have to register for self-assessment. This is because once you make above this amount, your personal allowance changes. HMRC requires people in this category to file a self-assessment tax return so they can ensure the correct tax has been paid.

What about side hustles?

Freelancing on the side is an increasingly popular way of supplementing income nowadays. You might have reporting duties if you do this and earn more than the trading income allowance.

This allowance allows you to make up to £1,000 from one or more trades in a tax year without having to inform HMRC about it, subject to certain conditions.

Be aware that the allowance applies to gross income, which is your overall income before you remove expenses.

When to register

Before you can file a tax return, you need to register for self-assessment with HMRC by 5 October following the tax year you’re filing for. As an example, if you need to file for the 2022/23 tax year for the first time, you should register by 5 October 2023.

If you miss the deadline, you may have to pay a fine. The good news is that you’ll never have to register again — unless you tell HMRC you no longer need to file a tax return.

Once you’ve registered, you have until 31 October after the tax year in question to file a paper return, but in all honesty, you’re far better off filing online. However, if you have partnership or trust income, or are non-resident, you can’t file online — your easiest option is to use an accountant as they’ll be able to file for you using software.

There’s no worry about your return getting lost in the post, the tax you owe is automatically calculated based on what you’ve entered into the form, and you can check your account at any time for mistakes.

Plus, the deadline for online filing is later — the 31 January that follows the tax year in question (in our example above, 2024). This is also the date at which you need to pay any tax you owe, lest you receive a financial penalty.

What you’ll need when registering

Registering is actually relatively straightforward. You’ll just need to supply some personal information, like your full name and date of birth, a phone number, email address, and National Insurance number.

In return, you’ll get a unique taxpayer reference (UTR) number through the post that HMRC will use to identify you.

Filing your return

Once you’ve registered for self-assessment, it’s time to file your tax return. Watch out for these common mistakes:

1. Missing or incorrect UTR/National Insurance number

Accuracy is key when it comes to tax returns, and that begins with your identification numbers. You’d be surprised at how many people make a mistake at the first hurdle.

2. Incorrect figures and incomplete information

The last thing you want to do is under-report your income and incur a penalty. The second-to-last thing you want to do is over-report and chase HMRC for a refund. Get your figures right the first time by checking and double checking them.

3. Ticking the wrong boxes

To prevent mistakes and unnecessary delays, make sure you’re ticking the correct boxes when completing your self-assessment tax return.

4. Over- or under- claiming allowable expenses

As a sole trader, landlord or self-employed individual, you can claim a range of allowable expenses for some costs and expenses. Make sure you include them on your tax return — their value can be deducted from your pre-tax profit, leaving you with a smaller sum that HMRC applies a tax charge on, and thus a smaller tax bill.

But make sure you’re not over-claiming allowable expenses — they must be made “wholly and exclusively” for trade to be allowable.

5. Missing some sources of income

Deliberately missing out earnings from your tax return is called underreporting, which is tax evasion. Mistakenly missing sources of income won’t be punished as harshly, but save yourself the headache and report all of your income.

6. Leaving your tax return until last minute

Leaving your tax return until the week before the deadline can cause serious problems if you realise you don’t have all the financial records you need to complete it at hand. Late filings also come with an automatic £100 penalty and interest on any payment due.

Speak with us

Self-assessment is complicated, especially for the uninitiated and those with particularly complex and numerous revenue streams.

Don’t get caught out: hire an accountant for a fraction of the cost of what you might have to pay if you get your tax return wrong.

Get in touch for support with self-assessment.

How the off-payroll rules will affect you and your business.

Contractors and freelancers operate through a private company to enjoy a better tax treatment compared to sole traders — but a more favourable tax position is actually never guaranteed because of off-payroll working rules known as IR35.

According to IR35, if a contractor or freelancer has a working relationship with a client that is more akin to regular employment, that worker has to pay income tax and National Insurance contributions on their income, rather than the more generous corporation tax.

This is called ‘deemed employment’, and working out whether you or your contractor are deemed employees can be difficult.

At first, the responsibility for determining employment status fell solely on the worker themselves. However, reforms in 2017 for the public sector and 2021 for the private sector shifted this burden to the client engaging a contractor’s services.

According to estimates by HMRC, around 130,000 workers are likely to have been affected by the 2021 reform. It’s essential that both contractors and clients understand how to comply with off-payroll working rules and what happens when it goes wrong.

Whether you’re a contractor yourself or hiring someone to carry out work for you, making mistakes can lead to time-consuming tax investigations and costly penalties.

Who determines IR35 status?

These days, the client (or “deemed employer”) is usually responsible for determining the worker’s IR35 status. However, there are exceptions to this rule.

For example, if a contractor provides services to a small private sector client, the contractor’s intermediary must determine their employment status instead. (An ‘intermediary’ under IR35 might be the contractor’s own limited company.)

There are a number of different factors that are used to assess whether someone falls within the boundaries of IR35 or not. In short, these include:

• Substitution: could you send a substitute to do your work?
• Control: do you have autonomy over how, where and when you work?
• Mutuality of obligation: can you choose whether to accept work or not, and can your client choose whether they provide it?
• Risk: do you take on the financial risk of the arrangement?
• Equipment: do you provide your own equipment to do the job?
• Payment: are you paid once the project is complete (rather than on a regular basis)?
• Number of clients: are you able to have multiple clients at the same time?

These are just a few of the factors that might make a difference to your determination. Make sure to speak with a financial adviser to iron out the details of all of them.

HMRC investigations

If you determine that you fall outside the scope of IR35 but HMRC thinks off-payroll working rules could apply, they may launch an enquiry.

In this case, HMRC will send you an initial letter asking for the following information:

• the reasons you’ve determined IR35 does not apply to you
• a breakdown of your business income for that tax year
• copies of all your written contracts for work in that same year.

If you provide “adequate evidence” that you fall outside IR35, HMRC will close the enquiry.

However, if HMRC still believes IR35 may apply, they’ll send another letter to schedule a face-to-face meeting with you. These meetings aren’t compulsory, but speaking to a representative in person can help resolve the matter more swiftly.

HMRC’s decision

At the end of the enquiry, HMRC will issue an opinion on whether you have complied with IR35 or not.

If you disagree with HMRC’s ruling, you can object and the tax authority will take your reasoning into account before making their final decision on your case. After that, you can choose to appeal against the decision and take the matter to tribunal.

As with any tax investigation, it’s important to seek professional advice as soon as possible — especially if you disagree with HMRC’s verdict.

Penalties

If HMRC finds that you fall within the scope of IR35, you’ll need to repay the tax you owe as well as any interest accrued on these amounts.

Depending on your case, you may also need to pay a penalty — for example, if you failed to take “reasonable care” in determining your employment status. You could also receive a more severe penalty if HMRC finds that you deliberately misled them.

If you get IR35 wrong as a client

It’s vital to take reasonable care when determining a contractor’s IR35 status, and you’ll need to issue a status determination statement (SDS) when you make your decision.

If you incorrectly determine that a worker falls outside IR35 but HMRC decides that they fall inside IR35, you may become the subject of a tax investigation, as explained above.

Some companies take a blanket approach to these rules to avoid triggering an investigation. However, it’s important to look at each contract individually.

For example, if you say a genuine contractor or freelancer is inside IR35, they could end up paying more tax than they need to — which, in turn, could do damage to your business’s reputation.

Handling disagreements

Unfortunately, disagreements between contractors and clients can happen. If a worker challenges your decision as a client, you should consider their reasons for disagreeing with your determination. After that, you’ll need to either maintain your determination or provide a new one.

Once you’ve been notified of the disagreement, you’ll have 45 days to respond with your decision. Until then, you should continue applying the rules in line with your original determination.

How to get IR35 right

Navigating off-payroll working rules can be complicated, but there are a few things you can do to avoid getting it wrong.

As a client, you’ll need to ensure your process for determining employment status is watertight. Reviewing each contract on a case-by-case basis can make it easier to stay in line with IR35 legislation.

It’s also a good idea to speak to your employees and contracted workers about off-payroll working rules to make sure they understand how to comply.

If you’re a contractor, you should review your contracts and working practices from the outset, paying attention to the list of factors we mentioned earlier. For example, bringing your own computer or other equipment to the job,  or not working fixed hours might help to keep you out of the boundaries of the legislation.

This can also help you build up a robust defence if HMRC does launch an enquiry.

Work with tax experts

As your accountants, we’ll help you understand how off-payroll working rules affect your taxes, offering specialist advice on ways to minimise your liabilities while meeting your obligations to HMRC.

Get in touch for advice about IR35.