A review of 2014 from a contractor’s perspective
As the New Year approaches we take a thumb through the tax diary and remind ourselves of the key tax events that affected contractors in 2014.
January
Following HMRC’s victory in November 2013 at the First Tier Tax Tribunal in the Philip Boyle case, the Revenue add contractor loan avoidance schemes to their ‘Spotlights’. Mr Boyle, an IT contractor, participated in an offshore scheme, marketed by Consulting Overseas, that involved foreign exchange loans. He failed to persuade the Tribunal that the scheme worked
‘Spotlights’ provide taxpayers with information about certain tax avoidance schemes which HMRC believes people should be aware of.
Representatives from specialised contracting industry bodies, Department of Health, Local Government Association, unions and business organisations all give evidence to the House of Lords Select Committee on Personal Service Companies (PSCs). HMRC also tells the committee that they underestimated the Exchequer risk posed by IR35 by £75 million!
A self-employed pharmacist is ruled to be a worker by an Employment Tribunal and given leave to pursue holiday pay for a 3 year period. Each time Mrs Wooler offered to send a substitute in her place this was rejected by Paydens Ltd, the pharmaceutical chain. As such, the reality was that personal service of the locum was a feature of the contract and helped create ‘worker’ status for the purposes of Employment Rights Act 1996. The ruling may give some crumb of comfort to contractors found to be caught by IR35 because of damning or careless evidence by the end client.
February
In the final session of oral evidence, HMRC tell the House of Lords Select committee on PSCs that nearly 200,000 contractors are ignoring the service company question on the self assessment tax return.
On the eve of the closing date of the consultation on ‘Onshore Employment Intermediaries: False Self-Employment’, HMRC confirm that the draft Finance Bill 2014 clause that proposes to amend the ‘Agency Legislation’ is not intended to apply to PSCs.
A First Tier Tax Tribunal ruling involving the Settlements Legislation costs two company directors an additional £27,500 tax. In the case of Donovan & McLaren v HMRC, the directors regularly waived dividends so that their wives could receive inflated dividends.
In its second report of ‘Review of employee benefits and expenses’ the Office of Tax Simplification (OTS) make a number of recommendations for improving the UK’s PAYE system with the aim of substantially reducing the number of P11D forms that are completed. With the changes they propose the OTS believe 99% of P11D’s could be eliminated.
March
In an unremarkable Budget for contractors, the Chancellor announces Finance Act 2015 will include measures that will allow HMRC to recover tax debts of £1,000 or more directly from the bank accounts of taxpayers who are financially able to pay and who have been contacted numerous times by HMRC in respect of the outstanding taxes.
April
House of Lords Select Committee on PSCs publish their findings in a report which also contains 16 recommendations which they hope will improve IR35.
PSCs are able to reduce their employers NIC by up to £2,000 for each tax year as from 6th April but only against employers NIC arising on employees earnings. The allowance cannot however be offset against any deemed payments, i.e. the operation of IR35.
May
The new Agency Legislation causes confusion amongst employment businesses due, in no small part, to HMRC’s ambiguous guidance with regard to PSCs.
HMRC issue letters to targeted individuals in an attempt to dissuade them from resorting to using tax avoidance schemes. The people who receive the Revenue correspondence are those whose name appeared on client lists of those scheme promoters who were required to disclose information for the period October 2013 – December 2013 under the Disclosure Of Tax Avoidance Schemes (DOTAS).
June
HMRC announce that the department raised a record £23.9 billion in additional revenue in 2013/14 from its compliance activities – an increase by over £9 billion on the figure three years earlier.
The Daily Telegraph reveals that HMRC launched 237,215 individual tax enquiries in 2013/14 compared with 119,000 in 2011/12. In that same time enquiries into the self-employed quadrupled, whilst annual prosecutions rose sevenfold in three years.
HMRC publish four consultation documents aimed at simplifying the administration of employee benefits and expenses, with the intention of introducing legislation in Finance Bill 2015.
HMRC replace their IR35 FAQs with updated guidance. With a few notable exceptions the document provides nothing new.
July
Daily Telegraph reports that following an investigation and report by Monitor, the health services regulator in England, 86 senior health officials using PSCs may be facing IR35 enquiries.
Finance Bill 2014 receives Royal Assent on 17th July and HMRC officially have new powers bestowed upon them enabling the department to force individuals, involved in disputed tax avoidance schemes, to pay up early. Accelerated Payment notices are expected to be issued to 43,000 taxpayers, raising an estimated £7 billion tax over the next 2 years.
The OTS are tasked with carrying out reviews of employment status and also tax penalties, with a view to producing a report in time for Budget 2015. IR35 however does not form part of this review.
Contractor Loans Settlement Opportunity provides around 16,000 freelancers, all users of contractor loan schemes, with the opportunity to pay the tax HMRC believe they owe or risk facing heftier tax bills and massive legal costs. Freelancers are given until 9th January 2015 to take up the opportunity.
August
Two new HMRC consultations both involving the issue of tackling offshore tax evasion, titled, ‘A new criminal offence’ and ‘Strengthening civil deterrents’ are issued. Both documents seek the views on a new strict liability criminal offence of failing to declare taxable offshore income and gains and options to strengthen civil sanctions for those evading tax by hiding taxable income, gains and assets offshore.
September
Real Time Information (RTI) penalties for late filed PAYE returns are postponed until 6th March 2015 for small businesses.
IR35 Forum finally publish its minutes of the meeting held on 7th May in which it is revealed that a a focus group of independent advisers recommended that the Business Entity Tests (BETs) should be scrapped. This follows concerns that BETs are being used incorrectly in the public sector.
The Association of Independent Professionals and the Self-Employed (IPSE), formerly known as the PCG set out four taxation proposals in their September manifesto, titled, ‘Britain’s Secret Weapon’, that the next Government must implement. One of these is the Freelancer Limited Company (FLC), a business model that would allow contractors to work IR35 free but not totally released from the shackles of employment status
October
It is revealed that HMRC have turned to psychologists and behavioural economists in an attempt to heap guilt upon those who do not pay their taxes on time. The wording in hundreds of thousands of letters sent out to taxpayers are subtly tweaked in the hope that it will provoke people to pay their taxes. A similar approach is being used to target potential tax evaders.
HMRC tell the IR35 Forum that they are keen for contractors to be able to assess their employment status by way of the Employment Status Indicator (ESI) tool.
HMRC agree to abolish BETs as from 6th April 2015. For IR35 enquiries that are opened on or after the 6th April 2015, the BETs won’t be taken into account. However, if HMRC opens an enquiry before then, and a business can show to HMRC’s satisfaction that they have taken the BETs with an outcome outside IR35 or in the ‘low risk’ band, then HMRC will close the enquiry.
November
HMRC begin issuing personal tax summaries to around 80% of the taxpaying population, the first of their kind. The summaries tell individuals how much tax and NIC they paid during 2013/14 and how this was applied to public spending, e.g. health, defence, overseas aid etc.
In a bid to further deter people from using tax avoidance schemes, HMRC publish a list of ‘10 things a tax avoidance scheme promoter won’t always tell you’.
Following huge opposition to its plans to be able to raid taxpayers’ bank accounts to collect outstanding debts, HMRC bows to pressure and tempers its proposals on Direct Recovery of Debts (DRD).
December
In his Autumn Statement, George Osborne, announces that umbrella companies are to come under the microscope and that the government will review the increasing use of overarching contracts of employment by employment intermediaries. Other measures include reviewing the rules for tax relief on travel and subsistence and the simplification of the administration of employee benefits and expenses.
Hot off the heels of the Autumn Statement announcement, HMRC publish a discussion document, ‘Employment Intermediaries: Temporary workers – relief for travel and subsistence expenses’
Contractor Loans Settlement Opportunity extended to 30th June 2015.
Here’s wishing all readers a most happy and prosperous New Year and that you stay IR35 free in 2015!
Leave a Reply