HMRC update position on historical position post April 2020.

HMRC update position on historical position post April 2020.

In their policy paper “HMRC issue briefing: reform of off-payroll working rules” published on 22 October 2019, HMRC have stated that “have taken the decision that they will only use information resulting from these changes to open a new enquiry into earlier years if there is reason to suspect fraud or criminal behaviour.”

This is absolutely welcome news and will give contractors who are deemed inside IR35 a little comfort that their current contract will not be subject to enquiry purely because of a decision made by their engager.

It does not state that the information will not be used in the course of a random enquiry, or indeed an ongoing enquiry, just that it will not use the decision to open a new enquiry on the basis of it. The cynical among us might suggest that a whole screed of new enquiries could be opened up on “IR35 targets” before any decisions have been made.

This is definitely good news for contractors and its always good to hear HMRC communicate in clear, non-fuzzy language. Because we all know HMRC always do what they say, right?

It’s not the first time I’ve said this, and I’m sure it won’t be the last, but HMRC are a very fickle and capricious adversary and it is very difficult to second guess them.

More informaiton on this to follow.

RBS announce IR35 position

RBS announce IR35 position

Acumenica has seen an email which has been issued by one of RBS’s Staffing Solutions providers and it doesn’t look good.

The bank has stated that after 6 April 2020, most contractors won’t be able to work for RBS via their own limited company.  They will therefore be subject to PAYE deductions for income tax and National Insurance Contributions.

Therefore RBS will not engage with most limited company contractors after 29th February 2020 and they will either be expected to engage through an umbrella or use the staffing solutions firm’s PAYE solution. Presumably NatWest and Ulster Bank will also take the same position.

Whilst this is obviously not great news, there is a chink of light in that they have stated they will “most contractors will not be able to work for RBS” which suggests that some will. We expect when the details comes down, it may well be that this is similar in approach to Tescobank in that contractors need to start working on a more business-like footing to be considered appropriate for contracting positions. 

It’s also telling that RBS’s default will be Umbrella or agency payroll which may well leave the door open for a reversal should things change.

All Acumenica clients who are affected by the news can be assured that we are working hard on a solution. We’ve a ways to go but we’re confident we can continue to support you beyond April 2020.

Will the Off-Payroll Extension have any retrospective implications?

Will the Off-Payroll Extension have any retrospective implications?

With many end-clients deciding to make blanket decision and deem all contractors inside IR35 after April 2020, we’re asking what impact could this have on the contract if you have previously deemed it to be outside. Surely, it stands to reason that, if you’re inside after April 2020, then if you were engaged on exactly the same terms before April 2020, the whole for this contract would also be deemed inside, and therefore open you up to further scrutiny from HMRC and perhaps ultimately a status enquiry?

HMRC have stated that they “will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35” and that “decisions about whether workers are within the rules will not automatically trigger an enquiry into earlier years. They key words in these sentences are “targeted” and “automatically” both of which add a layer of ambiguity to the statements. 

I guess it comes down to how much you trust HMRC to stick to their word. At Acumenica, we remain to be convinced that HMRC will be able to resist the allure of such low hanging fruit. The Treasury will come under enormous pressure to ensure that these changes are a success and will seek to maximise the tax recovery. Your current contract may well be in their sights.

So what’s to be done? If you believe that the changes could make you an increased target there are a few things that you can do between now and April:

  • If you haven’t already done so, get your current contract and working practices reviewed. Either use the HMRC’s own CEST tool or get an independent review carried out. While this might not help prevent an enquiry opening, it will perhaps help close it down quite quickly.
  • Consider not accepting your contract under the new terms. Might be a bit extreme, but if you really and truly believe you’re outside IR35 have the courage of your convictions and walk away. If you don’t accept the new terms there are two benefits: (a) There won’t be a link between the contracts and therefore HMRC are less likely to look closely, and (b) If enough people do this, the client will be forced to sit up and take notice.
  • Close down your company. Granted this will not prevent HMRC reviewing your contract status per se, but it will make it more difficult, and this could be a survival of the fittest play: HMRC won’t be able to investigate every contractor and are likely to pick off the easy targets. If you’re seen as a difficult target, they may well move onto someone else.
  • Get some tax enquiry insurance. If you do become the subject of an enquiry, it’s very expensive and very stressful. Make sure your advisers are up to the job to help with the stress bit and get some insurance to defray the cost/ Acumenica clients can get this via the office for £159 offering £100,000 in cover for fees  and costs arising as a result of an enquiry. 

It’s important to note that even if you take the steps recommended above, you might still be selected for enquiry. On the other hand, even if you do nothing, you might NOT be selected. HMRC are a fickle bunch and it can be very difficult to second guess them. Best advice is to keep compliant, do all the right things, plan appropriately and keep your fingers crossed.

Tescobank declares position on IR35

Tescobank declares position on IR35

Tescobank has become the latest financial services company to announce their plans in light off the proposed Off-Payroll Extension next April.

Tescobank are currently in a holding pattern while they assess the options for managing off-payroll resource, but in the meantime:

Any new contracts and contract extensions can be offered but are limited to the end of March 2020

For existing contracts which have an end date beyond March 2020, Tescobank will expect on 1st April 2020 that the contract is inside IR35 and treat it accordingly.

Crucially, there will be no rate adjustment.

So, that looks like another inside blanket decision. However, Tescobank have conceded that when hiring on a consultancy basis, if it is a truly flexible resource brought in to deliver a specific outcome, it’s less likely to be in scope of IR35 but will still need to be assessed under the current legislation. 
This position reinforces the guidance in our article Want to Avoid IR35? Stop Acting Like An Employee. If Tescobank will engage flexible resources on an outside IR35 basis, then you need to ensure that your services are delivered on a truly flexible basis.

Want to avoid IR35? Stop acting like an employee

Want to avoid IR35? Stop acting like an employee

So, the Off-Payroll Working Rules are set to be extended to the private sector in April 2020. If you’re a contractor, and you’ve somehow managed to avoid hearing about this, basically, your end-client (engager) will decide whether you’re employed or an independent contractor. Unless you get on the ball now, you’ll have next to no influence on how you are deemed.

HMRC don’t like it when workers decide their own status: they think that all contractors are pretty much tax dodgers and only operate through a limited company to avoid tax – and to be fair there are a fair few who do – but what HMRC fail to realise is that the steady erosion of the tax advantages over recent years has weeded out the chancers

There three main “pillars” upon which a status decision should be based: mutuality of obligation (MOO), direction and control (D&C) and right of substitution (RoS). RoS is the golden ticket: if you can send a substitute to provide the services your company is contracted for, then it is impossible to consider it a personal service contract, and therefore it cannot be deemed an employed scenario. D&C and MOO are a bit more difficult to establish but they should always, always be considered. It’s also good practice, if you don’t want to be treated like an employee to stop behaving like one.

If you want a business-to-business (B2B) relationship with your client, then act like a businessperson, not an employee. There’s an employment mindset that can exist in large client sites and this needs to stop. Less savvy contractors can get carried along on this wave, and end up talking about “bosses” and “line managers”, and maybe you submitted a CV to be considered for the job put forward by a recruitment agency. Does that sound like the way a genuine self-employed contractor acts? Think about the way you last engaged a self-employed person in your day-to-day life: when that guy came to fix your roof, did you ask to see his CV? Does your cleaner call you boss? Of course not, so maybe it’s time you applied the same principles to your business engagement. Here’s some changes to implement in your business next time you’re being put forward as a contractor:

Don’t provide a CV. CV’s are for individuals seeking employment. You should instead be providing a Business Experience Profile which shows all the areas that your business, and it’s key people, are able to provide expertise in, and what you’ve done in the past.

Don’t attend interviews. Interviews are for employees. Instead offer to attend an exploratory meeting or discussion with the prospective client to determine if you can do business together.

Don’t ask for a job description. JD’s are for employees (are you seeing the trend yet?). Instead ask for a project-based scoping document. That means that the client will need to be a bit more specific. They can;t just say “Systems Analyst” and be done with it. You need to know the key deliverables, the timeframe and any milestones that need to be achieved. Don’t accept that the client will tell you how to do the work (remember Direction and Control). Think of it as a taxi ride, with you as the driver, and the client in the back. They’ll tell you the deliverables (the destination) but you decide the process (the route).

Understand that at the end of the project, that’s the end of the relationship. After this project (that the client has carefully specified) concludes, we both understand that the client is not obligated to provide any new work to my business, nor is my business obligated to undertake it. If the client has got a new project they’d like my business to work on, we’ll put together a separate contract with those specifications embedded as before.

Remember you don’t have a boss or a line manager. And you don’t want an employee pass, or an employee parking space, or to go on work’s nights out. You’re a self-employed contractor so stop looking for, or blythely accepting, the perks of an employee.

Don’t accept an outside-IR35 contract if it does not align with your understanding of the working practices. We appreciate that this can prove challenging as the working practices may not become clear until after you have signed the contract. But it is very important that the contract reflects the working practices and vice-versa. Under enquiry, HMRC will be far more interested in the working practices than the contract wording and if it can be established that the contract is a sham, then you may have some tough questions to answer. 

Now, we appreciate that is a rather large departure from how things currently are with most projects but if you want to continue in a self-employed capacity beyond April 2020, then things are going to need to change. Successful implementation of these changes obviously relies upon the will of the engager and the agency as well as the contractor, and if it seems like a bit of a reach, and that you just wouldn’t possibly be able to get to an agreement along these lines, then you might well be part of the problem. Anything less is probably going to fall foul of the off-payroll rules and you should probably be employed anyway. If you want to remain self-employed, time to stand up and be counted. Walk away from projects if the terms of engagement doesn’t suit. The more people that do, the better the chance that the clients will take this seriously.

IR35 – Where Are We Now?

IR35 – Where Are We Now?

It’s been one helluva summer at Acumenica Towers trying to keep abreast of all the changes and prepare for April 2020. There’s been a lot of talk, we’ve had meetings with MPs, there’s been questions asked in parliament and there’s been a constant churn of conjecture and speculation from the Rumour Mill.

But the truth is, we don’t know where we are yet. The end clients hold the cards and they’re tight against their chest at the minute. Until they start showing them, we – that’s Acumenica, our clients, and the wider contracting community – must exist in a kind of limbo.

It’s important to remember that the legislation isn’t changing and, at least in theory, someone who can at the moment accurately be deemed an independent contractor should still be able to be a contractor after April 2020. The only change is that the person responsible for determining the status of the contractor is moving from the contractor himself to the engager (end client). The obvious and very real fear is that the big banks and financial institutions will take a risk averse view and deem all contractors inside-IR35. This is what is being known as a “blanket approach” or a “blanket ruling.” So, what we are able to advise depends very much on what position your end client takes:

  • If the client blanket rules everyone inside IR35, then there’s little we can do other than try to mitigate the losses: you can either wind up the company, or continue on an inside basis with all of the tax and none of the benefits of independent contractor status, or you can potentially move to a staff position.
  • If the client indicates that they will be looking at each contractor engagement on a case-by-case basis, then we are in a much better position to influence the outcome. Then it becomes very much a play on how you position yourself. This is where you need to define working practices, terms of engagement, removal of “part and parcel” style arrangements etc.

This is an ever-changing landscape so please, please keep coming back here, the advice tomorrow could be very different from the advice today.