HMRC guidance is issued on secondary contributor: special rules: the agency worker: on or after 6 April 2014.
Paragraphs 2 & 9 of Schedule 3 Regulation 5 to the Social Security (Categorisation of Earners) 1978 (As amended by The Social Security (Categorisation of Earners) (Amendment) Regulations 2014 / Statutory Instruments 2014 No. XXXX) Where a person is supplied by a foreign employer, or by or through an agency, there are special rules that determine who is the secondary contributor. The regulations treat someone in the United Kingdom (UK) as the secondary contributor.
Find out more at http://www.hmrc.gov.uk/manuals/nimmanual/NIM33750.htm
The 2014 Budget has confirmed that new powers will be given to HMRC to recover taxes.
It was announced that users of DOTAS (Disclosure of Tax Avoidance Schemes) or any individuals who have effectively received a tax advantage from using schemes targeted by GAAR will now be looking to pay the amount of tax prior to the case being tested in law!
Find out more at https://www.gov.uk/government/collections/budget-2014-hm-revenue-customs#anti-avoidance-fairness-and-planning
HMRC issue statement on Agency Legislation: Definition of Supervision, Direction and Control for employment status purposes.
Please be advised that the summary of responses document to the Onshore Employment Intermediaries: False Self-Employment consultation has now been published and I attach a link to it here:
Alongside this HMRC have also published draft guidance for supervision, direction and control and a link to this document is provided below:
HMRC are currently in the process of updating the Employment Status Manual guidance in relation to the Offshore and Onshore measures and expect to publish this in the near future.
Probes into the tax affairs of builders and property developers are an increasingly significant source of revenue for the public purse, official figures show.
The yield from HMRC compliance investigations of the construction sector – which has long been believed by the department to encourage tax avoidance through false self-employment – grew by 18% to £78.9m in 2011/12, from £66.9m the 12 months before.
The most recent amount was the highest in five years, rising from £56m in 2006/7, shortly before the introduction of the Revenue’s construction industry scheme (CIS) to regulate the taxing of subcontractors’ pay by contractors.
It can be hard for firm to work out if a subbie should be covered by CIS or be treated as an employee, according to Graham Jenner, director of the NoPalaver group, which acquired the government data through a freedom of information request. He claimed the taxman sees construction businesses as easy target of a wider effort to boost income through compliance efforts.
“Working arrangements in the sector are complex, with self-employed subcontractors moving between jobs on a regular basis. Irregular working patterns like this create plenty of opportunities for errors with paperwork and tax status,” said Jenner, whose company provides accounting services to contractors and personal service companies.
He stressed the importance of good recordkeeping by construction businesses and workers “to prove to HMRC that their tax treatment of a sub-contractor is justified”, and went on to claim the annual revenue from builders and property developers is small compared to that from the Revenue’s overall compliance investigations.
The situation “begs the question as to why the department is spending time pursuing small contractors and subcontractors when it could be focusing its limited budget on the tax affairs of much bigger businesses”, added Jenner.
Article from www.taxation.co.uk written by Graham Jenner of No Palaver Umbrella
Fact: All umbrella companies have to work in exactly the same way and the only difference in take home pay between one and another will be any difference in their margin.
But no, I hear you cry, if you type ‘umbrella company’ into Google, you will be greeted by all sorts of different claims – 100% HMRC compliant, 90% take home, extra £1000 per month against tax etc. etc. So surely all umbrella companies can’t be the same?
If you follow the, invariably, paid ads you will be taken into a world of very basic websites which give very few details as to how you will manage to pay virtually no tax, but have reassurances that their offering is ‘QC approved’.
So, let’s break down all these claims:
‘HMRC approved’ – another quick Google search will take you to HMRC’s own website which states, quite categorically: HMRC never approves tax avoidance schemes. Sometimes you will be led to believe that the scheme has been approved because it has been given an SRN under the DOTAS rules, but all this really means is that the promoter has complied with his legal obligations to tell HMRC about an avoidance scheme. It does not mean that HMRC has approved the scheme or that you can rely on it.
So ‘90% take home’. Let’s take a moment to think about it. The basic rate of income tax in the UK is 20%; the basic rate of corporation tax is 20%, so that doesn’t stack up! You also have to bear in mind that the scheme provider will take a cut – usually around 8% - so your contribution to the Government’s coffers will be about 2%. The types of scheme that offer this sort of return will usually use some type of loan scheme which has no commercial rationale and has been devised for no purpose other than to avoid tax. Again, if we refer to HMRC’s website on this subject they say:
Tax planning to be wary of:
· It sounds too good to be true.
· Artificial or contrived arrangements are involved.
· It seems very complex given what you want to do.
· There are guaranteed returns with apparently no risk.
· The scheme is said to be vetted by a top lawyer or accountant but no details of their opinion are provided.
You may say that HMRC are bound to say this sort of thing to scare people away from tax planning, but in 2014, new legislation is being introduced which will give HMRC unprecedented powers. They will be able to demand underpaid tax, interest and penalties from users of schemes, which haven’t been tested in court using the same mechanism as those that have. The Offshore Intermediaries legislation will mean that a recruitment agency will be liable for PAYE and NIC obligations if they work with an offshore umbrella company. The Onshore Employment Intermediaries legislation will prevent umbrella companies from registering contractors as sole traders which avoids Class 1 National Insurance contributions and the General Anti Abuse Rule will catch anything else not covered by all the other new legislation.
The upshot of all this is that compliant umbrella companies will only pay you through PAYE, their margin will be around £25-£30 per week and that should be able to answer any question you ask. Before you settle for any one company, do your research – contractor forums are a great place to learn from other people’s experiences – HMRC can go rifling back through your tax affairs for years and they are not known for their understanding – current penalties go up to 200% of tax owed!
Keeping you up to date with news from the Contracting Industry, new or changes to industry legislation and umbrella company activity.