What Autumn Statement 2012 offers contractors
- IR35 & Controlling Persons
- IR35 & Public Sector
- Offshore Employment Intermediaries; Avoidance & Evasion
- Contracting & Work Opportunities
- Cash Basis for Calculating Tax (incl. Simplified Expenses)
- Personal Allowance Boost
- Get Self-Employed Aid from Day One
IR35 & Controlling Persons
(Ref: Autumn Statement 2012, 2.103)
As reported by ContractorUK yesterday, the Autumn Statement 2012 states that the government has decided NOT to proceed with the proposal to tax those who meet the definition of a ‘controlling person’ at source.
According to the Treasury, the decision has been taken because HMRC’s new approach to policing IR35, along with the measures introduced in the public sector this year, are sufficient to prevent the tax lost through disguised employment in this way.
Both the Treasury and HM Revenue & Customs yesterday declined to comment on what evidence each has obtained that there is “doubt” that IR35 applies to contractors who are office holders of their end-user. The departments were also unable to elaborate on what “strengthening IR35” will mean in practice. However the PCG claims it understands from HMRC that a “relatively minor change to the legislation” is intended.
Contractor accountancy firm ClearSky Accounting responded to the news that the ‘controlling persons’ proposal will not be introduced in 2013, as originally planned: “The decision not to press ahead with the controlling persons legislation represents a victory for common sense, and will be wholeheartedly welcomed by the contracting community.”
Contractor tax specialists Brookson agreed: “This is great news in particular for interim managers and contractors holding senior project manager positions.
“[And] we welcome the government acknowledging that HMRC’s new approach to policing IR35 is sufficient to ensure that contractors are tax appropriately.
“A word of warning however: HMRC has made it clear that they will police and enforce IR35 more vigorously than they have done previously so the importance of limited company contractors having appropriate IR35 support is now greater than ever.”
Meanwhile, tax advisors’ body the Chartered Institute of Taxation welcomed the announcement that use by senior executives of personal service companies when taking on full-time roles will be dealt with through existing rules (IR35), rather than through new measures (Controlling Persons). It says the government has stepped down on the issue following consultation over the summer.
“This is a welcome example of the government consulting, listening and acting on the responses,” said CIOT tax policy director John Whiting.
“The government is entirely correct in its wish to ensure that those running government agencies and other public sector bodies are paying their fair share of tax. But that can be met using a combination of enforcing existing legislation and the new rules for central government appointments.
“This is a practical and proportionate way forward. Legislation requiring deduction of PAYE/NICs at source for payments to intermediaries would have added unnecessary complexity to the tax system and would have added to administrative burdens in the private sector who were not the causes of the problem.”
Interim Partners, a staffing supplier, endorsed: “Forcing interim managers to pay tax as though they are employees was a terrible idea. The government’s U-turn will be a big relief to businesses that are heavily reliant on skills of interim managers.
“Businesses are particularly reliant on the skills of interim managers at the moment because of the challenging economy. This would have been the worst possible time for the Government to hit interim managers with a tax grab.
“Interims should not be treated as payroll employees, because they just aren’t the same. They do not have the legal protections that permanent employees have. Very often, interims have little job security, with their work coming in peaks and troughs. Interims often have long gaps between short periods of employment.”
IR35 & Public Sector
(Ref: 2.103, 2.105)
Martin Hesketh, managing director of Brookson, points out that the Autumn Statement at 2.103 mentions that the (off-payroll) measures introduced in the public sector this year to manage the IR35 status of contractors are “sufficient” to help manage employment status.
He said: “This is an indication that [the] required ‘assurance process’ is here to stay and public sector end –clients and agencies placing contractors in the public sector need to ensure their contractors have adequate, independent IR35 opinions in place.”
Meanwhile, referring to 2.105, IR35 expert Kate Cottrell points out that the Cabinet Office, who produced the assurance guidance, alongside HMRC are to come up with definitions of key concepts to deter avoidance from April 2013 which is when, Cottrell estimates, the government procurement contract comes to an end.
She reflected: “Could this be an opportunity for officials to say that most agency temps supplied are IR35-caught? Or we could simply see a rehash of the current assurance guidance, which has been misunderstood by most central government departments, as they all seem to be applying it all in different ways.”
Offshore Employment Intermediaries; Tax Avoidance and Evasion
(Ref: 2.104, 2.99, 2.100)
The government has committed to undertake an internal review of offshore intermediaries being used to avoid tax and NICs and provide an update at Budget 2013.
Brookson reflected: “We expect this to be another ‘nail in the coffin’ for offshore contractor payroll and EBT arrangements and contractors or agencies who are engaged with any such organisations should take advice now on how to restructure their affairs to mitigate further risk.”
On the eve of the Autumn Statement, the chancellor handed £77m to HMRC for it to tackle avoidance (as well as evasion and fraud).
Pointing to part of that investment, business advisory PKF said: “When it comes to tackling offshore avoidance, the figure of £5bn to be raised from the UK-Swiss agreement looks like a very round guesstimate – after all, the whole problem with Swiss accounts is secrecy. In practice, the Liechtenstein disclosure facility should raise more than the UK-Swiss deal.
“The idea of a disclosure facility for those individuals using partnership loss schemes is not encouraging: it is almost as though HMRC fears it will lose the cases when they finally come to court so is trying to tempt individuals into a short cut to raise revenue now.”
Referring to the Autumn Statement, the advisor said proposed legislative changes have also been announced which will close specific loopholes currently being exploited by the users of tax schemes.
The advisor reflected: “These have presumably been notified to HMRC under the disclosure of tax avoidance schemes rules, and will primarily be of interest to financial services companies.”
Elsewhere in the Autumn Statement, the government says it will publish a comprehensive offshore evasion strategy in spring 2013. It will also establish a “centre of excellence” on tackling offshore evasion, aimed at building HMRC’s offshore capability, making better use of HMRC data to identify tax evaders, reviewing HMRC’s legal powers in this area and developing a more proactive approach to international engagement to tackle evasion.
General Anti-Avoidance Rule
The chancellor yesterday confirmed that guidance and draft legislation on the UK’s first ever General Anti-Abuse Rule (GAAR) will be published later this month, with a view to taking effect from next year. The rule will apply right across the entire UK taxpayer base.
ClearSky’s boss Derek Kelly said: “As I’ve said before, the measure should focus on genuine tax avoidance and not deter potential entrepreneurs from going into business on their own.”
PKF’s John Cassidy preferred: “Although the chancellor has confirmed that a general anti-abuse rule will be introduced from April 2013, it is going to be very difficult to quantify how much revenue it will protect.”
Despite there being no announcement to address or tackle certain travel and subsistence schemes, the Office of Tax Simplification will carry out a review of ways to simplify the taxation of employee benefits and expenses (as well as employee termination payments). The OTS review will include an initial scoping exercise to identify which areas are “most complex” for taxpayers.
“History shows that the government tends to take forward OTS proposals.” said Ms Cottrell, who was seconded by the OTS for its review of IR35. “So it could be a case of ‘watch this space’ for expenses”.
But such action isn’t enough for the REC. In light of abusive schemes and an unsuccessful ‘pay-day-by-pay day’ model, the staffing body said: “[The government has] not made a commitment to improve their efforts to crack down on the abuse of travel and subsistence schemes.
“We will continue to argue for greater action. Abuse of these schemes distorts the recruitment market and gives unscrupulous recruiters an unfair advantage over those who play by the rules.”
Contracting & Work Opportunities
(Ref: 2.36, 2.123, 2.31, 2.75, 2.115, 2.9, 1.88)
Capital investment to kick start the UK construction industry is good news and will be welcomed by recruiters working in that industry as a boost to job creation, according to the REC.
Elsewhere in the Autumn Statement, the government says it will provide a UK Guarantee to support £1bn of Greater London Authority borrowing to finance the construction of the Northern Line extension.
For the capital’s “Tech City,” the government will provide up to £50m of funding to support the construction costs of the Open Institute as part of the Old Street Roundabout regeneration project.
In Wales, the government will make enhanced capital allowances available at designated sites in the Ebbw Vale and Haven Waterway Enterprise Zones, with the potential to deliver more than 1,000 new jobs.
Internally, the government will invest in expanding the online services that HMRC offers over the next three years. SMEs will be able to access all the tax services they need from a personalised homepage with secure digital messaging. Taxpayers in Self-Assessment will be able to conduct all tax transactions online. Pay As You Earn taxpayers will be able to transact with HMRC online for the first time.
Also in Whitehall, a recently published document - the Digital Efficiency Report, sets out how departments could save approximately £1.2bn over the remainder of the current spending review period by continuing to move their transactional services online and become ‘digital by default’.
For the UK as a whole, the second wave of cities in the government’s Urban Broadband Fund, intended so the UK can have the “best connected communications networks in Europe,” have been identified. They are Brighton and Hove; Cambridge, Coventry, Derby, Oxford, Portsmouth, Salford, and York in England; Aberdeen and Perth in Scotland; Newport in Wales; and Derry/Londonderry in Northern Ireland.
Additional contract, job and employment opportunities may emerge from a five-year rail investment plan (supporting £9.4bn of investment); a flood defences programme (of £120m) and investment in science infrastructure and roads (sharing £5.5bn with new free school and academy builds). (Ref: 1.77 and Figure 1, p36 of the AS).
Editor's Note: Further Reading - Autumn Statement 2012 - Contractors' financial review
Cash Basis for Calculating Tax
The Autumn Statement confirms the government will introduce a new cash basis for small, unincorporated businesses to calculate their tax from April 2013.
Businesses with receipts of up to £77,000 will be eligible and will be able to continue to use the cash basis until receipts reach £154,000.
Ed Molyneux, of accountancy software firm FreeAgent, said this announcement of optional cash-basis reporting was the “most important” out of all yesterday’s offerings for the smallest business sector.
“The costs of compliance - usually for tax filing - for most micro businesses are hugely disproportionate to their profits, so having the option of cash-basis reporting is great news,” he said. “It will make the whole process easier and less expensive for millions of small businesses across the UK which, in turn, will help them to flourish and grow."
The announcement was also welcomed by the CIOT. “A system of cash accounting for the smallest businesses, as envisaged by the OTS, would reduce burdens and compliance costs for those businesses,” said the institute’s Andrew Gotch
“The OTS’s proposals were for a truly simple system that businesspeople can understand but HMRC’s initial proposals were not. It does sound as if changes are afoot and we can only hope that the result is what it should be: a simple system.”
Both of the tax captains will also presumably welcome a system of ‘simplified expenses’ for the same small, unincorporated business (Ref 2.95), which the government says it will introduce. Under the system, such self-employed traders will be able to use flat rates to calculate some types of expenses rather than having to calculate actual amounts.
Personal Allowance Boost
Particularly helpful to self-employed workers on low and middle incomes, the government will increase the personal allowance by a further £235 in April 2013, taking it to £9,440.
As a result, the rise of £1,335 is the largest ever cash increase. This will benefit an estimated 24.4m people and lift an additional quarter of a million people out of income tax altogether. Most basic and higher rate taxpayers will gain equally by £47 from this increase.
An accountant serving the self-employed, DNS Associates, indicated that its clients wouldn’t sniff at the increase.
Managing director Sumit Agarwal explained: “I personally feel that government has done right thing by not bringing in any additional legislation [on the self-employed] while offering some good news – that [the] personal allowance is increased to £9,440, which is huge boost for hard-working self employed people.”
Get Self-Employment Aid from Day One
The chancellor used Autumn Statement 2012 to extend the New Enterprise Allowance scheme, with the effect that job-seekers can now access self-employment support from day one of their Jobseeker’s Allowance claim.
- Main rate of corporation tax to fall by 1% to 21% (but no change to the SCR), from April 2014
- A temporary two-year increase in the Annual Investment Allowance from £25,000 to £250,000
- Creation of a £1bn business bank to help smaller businesses access finance and support
- Extension of the temporary doubling of the small business rate relief scheme for a further 12 months from April 2013
- Corporation tax reliefs for the video games, animation and high-end television industries from April 2013
- Three pence fuel duty rise cancelled.