Showing posts with label ir35. Show all posts
Showing posts with label ir35. Show all posts

Thursday, May 19, 2016

10 Reasons why it's still worth going Limited

With the recent increase in dividend taxation, many of our clients are asking whether it still makes sense to incorporate when you are a Sole Trader. It's a tough question to answer as indeed, the tax benefits of running a business as a Limited Company have now been seriously curtailed. If you extract all of the profits from your company as they arise, the total tax and national insurance (NI) paid is now almost identical whether your are operating as a Limited Company or a Sole Trader.

There are still a number of benefits however to operate as a Limited Company. Here they are:

1. Better legal protection

As the name suggests, if you run a Limited Company, you are protected in case things go wrong. Assuming no fraud has taken place, you will not be personally liable for any financial losses made by your Limited Company. Those running a business as self employed do not enjoy such protection from financial claims if things go wrong with their business. While it's possible (and recommended) to subscribe to a professional liability insurance, there is always a risk of running foul of the fine print...

2. More professional image or status

In some industries, having a Limited Company can provide a more professional image. If you are doing business with larger companies, you may find that they prefer to deal only with Limited Companies rather than Sole Traders or even partnerships. Indeed by being transparent, adhering to regulatory requirements and opening up company accounts to public scrutiny, you are demonstrating that the business is being correctly managed and this inspires confidence.

3. Wider availability of some contracts

The reason bigger corporations do not hire Sole Traders is not just image or professionalism but IR35 risk. The IR35 regulation was put in place to prevent employees to set up shop as free-lancers just to save tax. In other words if HMRC decides that a free-lancer behaves as an employee, then he is required to pay the same amount of tax and NI as an employee would. He he does not, whoever hired him is responsible for the back tax and NI, unless he operates as limited company (and in which case that limited company is responsible). It's easy to understand then why some organisations will only deal with limited companies!

4. Name protection

Once you register your company with Companies House, your company name is protected by law. No-one else can use the same name as you, or anything deemed to be too similar. As a Sole Trader, you can use a trading name but it's not protected and there is nothing to prevent a competitor to start using the same trading name as you. While it's possible to protect a trading name with a trademark, it will be in practice a lot more expensive than just creating a company with that name.

Thursday, March 21, 2013

HMRC finds it hard to police IR35 Compliance

Despite a six-fold increase in IR35 investigations during the first half of this tax year, HM Revenue and Customs has failed to turn up any compliance failures by contractors, according to data obtained by tax and accounting group Bloomsbury Professional. HMRC ramped up its investigation into "disguised employment" after it was alleged that a number of senior public sector figures had illegitimately received income through personal services companies to avoid liability to personal income taxes and national insurance contributions.

During the first six months of the tax year, 193 new investigations were launched but these have yet to yield a single penny for the tax man. This is despite a massive hike in enforcement activity, up from 59 investigations for the full tax year 2011/12. Martin Casimir, Managing Director at Bloomsbury Professional, commented: “HMRC has been stung into action by a handful of very high profile cases where individuals and employers may not be IR35 compliant. Ordinary contractors and freelancers are now dealing with the fallout.”

Monday, November 12, 2012

What is the settlements legislation?

Sharing dividend income from a limited company with a non-fee-earner has been a classic tax avoidance tactic employed by consultants, contractors and locum doctors who operate through limited companies. It is useful as it allows the use a non-fee-earner’s tax allowances and progressive taxation rates in order to save significant tax.

However, unless the non-fee-earner is a spouse or civil partner qualifying for a spousal exemption, HMRC could treat all the company’s fee income as that earned by the contractor, and tax them accordingly. The settlements legislation will apply if a contractor gives shares in their contractor limited company to a partner, family member or friend who does not work in the business yet receives an income.

Sunday, May 13, 2012

HMRC publishes new IR35 test

HMRC has begun the process of overhauling its operation of the IR35 regime for personal services companies with new guidance that sets out some basic risk factors that will affect a contractor’s chances of being investigated. This overhaul will mean an increase in the number of IR35 investigations, the tax department confirmed.

The new guidance includes 12 business entity tests, each one receiving a different score, and they are designed to build up a picture of how a contractor’s business works and how they provide their services. These tests and their individual scores are:
  1. Business premises test - Does the business own or rent business premises separately from the contractor’s home or end client’s premises? (10 points if yes)
  2. PII test - Does the contractor need professional indemnity insurance? (2 points if yes)
  3. Efficiency test - Has the business had the opportunity in the past two years to increase its revenue by working more efficiently? (10 points if yes)
  4. Assistance test - Does the business employ any workers who bring in at least 25% of the yearly turnover? (35 points if yes)

Monday, April 16, 2012

Top tax saving tips for the self-employed

The most frequent question I get when I meet clients starting their new business is how to reduce their taxes. Obviously this is a loaded question and most of the work we do is geared towards insuring that our clients pay their fair share but not more! There are hundreds of ways you can reduce your tax liability but if you can do just 5 things, here they are:

1. Incorporate

When you start your own business, you have basically 2 options: run your business as a sole trader (or a partnership) or setup a limited company. The sole trader option can seem quite attractive since it's quite simple to administer. However, using a limited company can bring significant tax savings since companies are not subject to National Insurance. As a matter of fact, for a company with annual profits of £80,000 the overall tax savings can be as much as £5,000 per year.

Tuesday, September 27, 2011

Is IR35 regulation worth the hassle?


The tax yield generated through reviews using the UK's controversial intermediaries legislation amounted to around GBP200,000 last year, HM Revenue and Customs has said, figures a leading freelance body says demonstrates that the difficulties caused by the system are 'completely unnecessary'. The legislation, generally referred to as IR35, was introduced in April, 2000, and was designed to combat the avoidance of tax and national insurance contributions (NICs) through the use of intermediaries in circumstances where an individual would otherwise, for tax purposes, be regarded as an employee of the client.

In a report published earlier in the year, the Office for Tax Simplification suggested that reforms, including the merger of the income tax and NIC systems and a reduction in the differential rates applicable to different incomes and legal forms, could remove much of the pressure on the employment and self-employment boundary and should result in the IR35 legislation becoming obsolete.

Sunday, February 27, 2011

What is IR35?

The IR35 legislation was introduced by HMRC in April 2000 and is intended to combat tax avoidance. Any contractor that is deemed to be employed (rather than self-employed) is said to fall under IR35. In that case the contractor is required to extract all the money out of his limited company as salary (instead of dividends) and to pay both the employee and employer Class 1 National Insurance (23.8% of gross salary, to increase to 25.8% next year). Moreover, since April 2007, after the introduction of the Managed Service Company (MSC) legislation, contractors can only receive dividends if they operate their own personal Limited Company. If they receive payment through an intermediary then they can only receive payment via PAYE, which means paying income tax and both employee’s and employer’s national insurance, even if they fall outside of IR35.

It's easy to understand why a number of contractors want to ensure that they do not fall inside of IR35. HMRC has put together a number of simple questions that one can answer which will help determine the IR35 status. If you answer "yes" to the following then it is likely you will be deemed a "disguised employee" and will therefore fall inside IR35:
  • Do you have to do the work yourself?
  • Can someone tell you at any time what to do, where to carry out the work or when and how to do it?
  • Will you work a set amount of hours?
  • Can someone move you from task to task?
  • Are you paid by the hour, week or month?
  • Will you receive overtime pay or bonus payment?