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Eight-and-a-half Thousand New Recruitment Agencies Formed Last Year

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Metal Wheel Concept of Recruitment Agencies in 2019

New research by a recruitment finance and back-office technology provider has revealed that almost eight-and-a-half thousand new recruitment agencies were set up in 2019.

The study by Sonovate drew on data from Companies House to discover that a whopping 8,456 new recruitment companies were formed last year – a two hundred and thirty per cent increase on 2010, when 2,556 were launched.  However, year-on-year, the increase was minimal: in 2018, 8,448 recruitment businesses were registered.

Regionally, Greater London and the South-East of England saw the most growth, followed by Birmingham, Leicester and Manchester.

“It’s great to see the recruitment industry in such good health, despite the uncertainty surrounding Brexit that has dominated the last year,”

commented Sonovate joint chief executive officer Richard Prime.

“The UK is a nation of entrepreneurs, and small, nimble recruitment specialists have come to dominate the market due to lower start-up costs, better access to finance and a more connected world.”

Additional research from Sonovate, based on a sample of 500 respondents, also revealed that healthcare, IT and education were deemed the most in-demand sectors among new recruitment start-ups last year.

“It’s no surprise to see more agencies emerging in the healthcare and IT spaces in particular, given the increasing skills shortages we are facing in such sectors here in the UK,” said Mr Prime.

Similar research commissioned by Sonovate last year showed that 39,329 recruitment agencies had been registered between 1990 and 2018, with 84 per cent of all registrations taking place in the 2008-18 decade.

16th January 2020.

Interest Rate Cut Likely As Inflation Drops To Three-year Low

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Stack of British Pound coins with one coin stood up at front as inflation drops concept

Figures released by the Office for National Statistics (ONS) on Wednesday showed that the Consumer Prices Index (CPI) measure of inflation dropped to 1.3 per cent in December, a fall from 1.5 per cent in the previous two months and the lowest level since November 2016.

The inflation news raised expectations that the Bank of England would cut interest rates when its Monetary Policy Committee (MPC) convenes on January 30.  Economists had been expecting inflation to remain at the previous month’s levels.

The odds of interest rates being cut are now at 64 per cent; a week ago they stood at 5 per cent.

Inflation eased in December as prices for hotel stays dropped.  Women’s clothing prices also fell with more items being discounted,” said ONS head of inflation Mike Hardie.

“Annual house price growth picked up with all regions growing apart from the East of England.

“After almost two years of poor growth, London house prices appear to be showing some signs of improvement.”

The Bank of England uses changes in interest rates as one of its monetary policy tools in order to control inflation, which is targeted at two per cent.  On Wednesday morning, Michael Saunders, one of two external members of the MPC to have voted for lower interest rates since November, said in a speech in Northern Ireland that “it probably will be appropriate to maintain an expansionary monetary policy stance and possibly to cut rates further, in order to reduce risks of a sustained undershoot of the 2 per cent inflation target”.

“With limited monetary policy space, risk management considerations favour a relatively prompt and aggressive response to downside risks at present,” Mr Saunders added.

Core inflation, which excludes energy, fuel, alcohol and tobacco, sank to 1.4 per cent, down from 1.7 per cent in November.  London house prices, which have been severely affected by the wider UK slowdown since the referendum on leaving the European Union in June 2016, rose by 0.2 per cent in November compared to last year, which was only the second expansion since March 2018.  Restaurant and hotel prices rose by 1.6 per cent in the year to December but, compared with a 3.1 per cent increase twelve months prior, the slower rate of growth subdued their contribution to the CPI rate.

“Coming after a triple whammy of weak retail sales and slowdowns in both the manufacturing and service sectors, this surprise fall in inflation will arguably put the doves in the driving seat at the Bank of England,” Ayush Ansal, chief investment officer at Crimson Black Capital, told the Financial Times.

Ruth Gregory, of consultancy Capital Economics, said: “The figures might be enough to tip the balance on the MPC towards an imminent rate cut. If the data fails to improve, interest rates could be lowered as soon as January 30.

“But if the figures continue to show signs of a turnaround, most MPC members may be content to sit on their hands. It will be a very close call.”

The news caused the pound to drop by 0.2 per cent, adding to earlier declines which meant it fell back below $1.30, trading at $1.299.  The two-year gilt yield fell to 0.451 per cent.

16th January 2020.

Off-Payroll Portal Offers Contractors Information On Client Policies

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IR35 Policy In UK

A leading contractor accountancy firm has launched an online forum allowing contractors to anonymously share news on how major companies are reacting to the impending IR35 reforms known as the Off-Payroll rules.

The portal reveals startling information – which has not been able to be verified by this website – about the effect the IR35 Off-Payroll rules are having on the UK contracting industry, even before they have come into effect in the private sector.

Whilst some companies appear to intend to apply the IR35 rules properly by assessing their contractors’ employment statuses on an individual basis, many major hirers of contractors appear to either be stopping hiring contractors altogether, offshoring their contract workforce or applying “blanket” inside-IR35 policies.

According to the website, all contractors at Virgin Media, Mastercard and AIG have been asked to leave by the end of March, and a substantial amount of end-clients have put in place PAYE-only policies where contractors are no longer allowed to work via their own limited companies, including major players such as IBM, HSBC and Santander Bank.

Aviva has signed a deal with Cap Gemini for all future project resource; Specsavers are using BJSS and Deloitte as an interim measure and intend to offshore their contingent workforce in the long-term.  Tesco, however, will be using KPMG’s assistance to assess contractors’ statuses fairly as per IR35.

The site also reports that HMRC are currently actively seeking contractors.

The portal can be found at https://www.offpayroll.org.uk/. The website also has a Twitter feed here.

15th January 2020.

UK Business Confidence Soars In Wake Of Election

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UK Business Confidence Rising

Business has reacted well to the ending of uncertainty over the nature and timing of the United Kingdom’s departure from the European Union and the election of a political party with a commanding majority, with confidence amongst chief financial officers at an all-time high, according to the 50th Deloitte quarterly CFO survey.

The UK business confidence survey, carried out between December 13 and January 6, showed the largest increase in business optimism in the 11-year history of the survey, taking the UK business confidence to its highest ever level and eclipsing previous surges that followed interest rate cuts during the financial crisis in 2009 and the European Central Bank president Mario Draghi’s “do whatever it takes” speech in July 2012.

Deloitte also cited the end to the immediate possibility of a “radical” Labour government and a marginally less gloomy global backdrop as contributory factors to the significantly enhanced outlook.

The UK business confidence survey provided some positive news as data published by the Office for National Statistics showed that GDP had shrunk unexpectedly in November in the run up to the general election, meaning that the economy grew by only 0.9 per cent in the year to November, the weakest annual growth rate for eight years, raising the chances of an interest rate cut on January 30.

In addition, CFO perceptions of economic and financial uncertainty fell sharply from sixty-two per cent in the third quarter of 2019, one of the highest ever readings, to a near-average level of thirty-four per cent.

Expectations for revenue growth increased, with the majority of CFOs now anticipating an increase in UK corporate revenues over the next twelve months, and corporate risk appetite shot up to its highest level in almost four years.

Pessimism over the long-term impact of Brexit fell to its lowest level since 2017, with sixty-six per cent of CFOs expecting the overall environment for business to be worse in the long term if the UK leaves the EU, down from a high of eighty-three per cent in the second quarter of 2019.

For the first time in four years, CFOs expect UK businesses to increase hiring and capital expenditure over the next twelve months.  The UK’s squeezed labour market meant that almost half of CFOs reported a rise in recruitment difficulties or skills shortages over the last three months, however.

Risks to business were judged to have receded across the board, with the effects of Brexit falling to third place for the first time since the EU referendum in 2016.  The top risk for UK businesses is now considered to be weak demand in the UK, with rising geopolitical risks worldwide ranked second.  An easing of trading relations between the United States and China seems to have assuaged concerns over the risks posed by greater protectionism and escalating trade wars.

119 CFOs participated in the UK business confidence survey, including the CFOs of 26 FTSE 100 and 46 FTSE 250 companies.  The rest were CFOs of other UK listed companies, large private companies and UK subsidiaries of multinationals listed overseas. 

The combined market value of the 80 UK-listed companies surveyed is £695 billion, or approximately 27% of the UK quoted equity market.

Commenting on the UK business confidence survey’s findings, Ian Stewart, chief economist at Deloitte, said: “The fog of uncertainty that has lingered over the UK since the 2016 EU referendum is lifting.  CFOs’ perceptions of external uncertainty have fallen from one of the highest ever readings to near-average levels, and they are beginning 2020 with sentiment levels that would have been unimaginable at any time in the last three years.”

Richard Houston, senior partner and chief executive of Deloitte North and South Europe, commented: “It is very encouraging to see such a dramatic uptick in business confidence.  The big question is to what extent positive expectations for revenues, spending and hiring, translate into an actual strengthening of corporate activity in 2020.

“In addition to boosting business confidence, a majority government is well placed to focus on the challenges and opportunities the UK faces.  Rebalancing the economy, driving growth across all regions and focusing on skills and social mobility can help to position the UK as an attractive place to do business in the long term.”

13th January 2020.

IR35 Changes Herald Surge In Permanent Hiring

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work as a contractor in UK

The latest Report on Jobs by KPMG and the Recruitment and Employment Confederation (REC) offers yet more gloomy news for self-employed individuals, who work as a contractor, this month, as permanent staff appointments rose in December for the first time in a year, with the REC attributing the upturn in part to the incoming extension of the Off-Payroll rules to the private sector.

However, the increased permanent hiring activity was also linked to higher business activity and the commencement of previously delayed hiring plans due to the moderating of months of uncertainty over the United Kingdom’s departure from the European Union.

Temporary and contract billings also rose “modestly” at the end of the year, surpassing November’s level, whereas growth in demand for contingent workers, defined as self-employed individuals such as freelancers, independent contractors, consultants, or others who work as a contractor, softened compared to the previous month.  Whilst temporary billings rose across all regions, the Midlands saw the steepest rate of growth by far.

The slowing of temporary vacancy growth meant that demand for staff overall grew at a “sluggish” pace, and although permanent vacancies rose at the quickest pace for three months, vacancy growth remained stuck near a decade low.

The number of people available for new roles continued to fall markedly in December, although less sharply than in November.  Permanent staff availability contracted at a quicker pace than the supply of temporary or independent workers who work as a contractor.  The drop in available talent was attributed to skill shortages and “lingering uncertainty” by recruiters.

Falling candidate availability contributed to further salary and rate increases for both permanent and temporary staff, which were sharper than in recent months but still the softest seen over the past three years.

Commenting on the latest survey results, Neil Carberry, chief executive of the Recruitment & Employment Confederation, said:

“After the uncertainty of 2019, there are some signs of a clearer outlook for hiring in today’s survey. With a new government in place and the path ahead looking more predictable, some businesses have decided that they have waited long enough. The first increase in permanent placements for a year should give encouragement to both recruiters and employers – let’s hope this is a sign of positive things to come.

“Feedback from recruiters shows that the upcoming IR35 changes are affecting both placements and the availability of flexible workers. This is a delicate period for the jobs market, and is the worst time to push through sweeping changes to the way we tax contractors. It is right that government engages further with business on the changes, but they should also delay implementation until next year to allow time for a full, independent review and effective regulation of the umbrella sector. As it stands, the government risks damaging ethical businesses and encouraging non-compliance.”

James Stewart, Vice Chair at KPMG, said:

 “It would appear that following the clarity of the election outcome, the jobs market finally began to show signs of life with permanent placements rising for the first time in a year.

“However, growth was modest and coming off a historically low base so UK business will be hoping for quick government action to get the UK back on the path to growth including an investment in upskilling the workforce.  Lingering uncertainty around the Brexit deal to be secured will continue to weigh on employers’ decision making around hiring and investment over the coming months, as well as job-seekers desires to seek new opportunities.”

The Report on Jobs is compiled by IHS Markit from responses to questionnaires sent to a panel of around 400 UK-based recruitment and employment consultancies.

10th January 2020.

Off-Payroll: What Does The Industry Think Of IR35?

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What does industry think of IR35?

Following the announcement on Tuesday that HM Treasury will be conducting a review of the implementation of the controversial reforms to IR35 known as the Off-Payroll rules, we take a look at the reforms, and the view that professional associations, industry bodies and big business have formed of the IR35 regulatory changes.

What is Off-Payroll?

Simply put, Off-Payroll shifts the responsibility for IR35 assessment from the individual contractor to the end-client that is hiring them.  However, this creates significant complications in the supply chain as the “fee-payer” becomes responsible for deducting PAYE at source in the event that the end-client determines that they are “inside IR35” – however, the fee-payer is usually a third-party recruitment agency.  This creates a knock-on issue of the transfer of PAYE debts along the chain in the event that a company defaults or goes bust.

The new IR35 rules eliminate the five per cent expenses allowance for IR35-caught contractors, leaving contractors working “inside IR35” paying full PAYE income tax and National Insurance but without any of the statutory rights afforded to employees.

To further complicate matters, small businesses are exempt from the IR35 rules, and the entire situation creates the need for a dispute process in the event that the contractor disagrees with the end-client’s decision, an outcome which is quite likely, given the difficulty in making clear-cut IR35 determinations in many cases. 

There is also uncertainty over how contracts that straddle the implementation date will be treated.

Phew! So why is the government changing the IR35 rules?

HM Revenue & Customs believe that there is widespread tax avoidance taking place under the current IR35 regime – they estimate that around 90 per cent of contractors who are caught by IR35 simply ignore the rules and pay themselves on a self-employed basis anyway.

HMRC estimated the cost to the Exchequer of IR35 non-compliance as £700 million in 2017-18, which they project will rise to £1.2 billion in 2022-23.  IR35 enforcement is a costly process and can end up with the contractor challenging HMRC’s decision at the tax tribunal, where HMRC have a questionable record of success.

However, the methodology used in arriving at these figures has been questioned by both the Freelancer & Contractor Services Association (here) and the Institute of Chartered Accountants of Scotland (in their consultation response).

HMRC claim that since rolling out the IR35 reforms to the public sector in 2017, an additional £550 million in income tax and National Insurance was raised.  However, there is evidence that some public sector bodies have simply applied a “blanket” approach, ruling all contractors to be “inside IR35”.  If that is the case, genuinely self-employed contractors would have been forced to pay a higher level of tax than they should have paid as a direct result of the Off-Payroll regime.

So what does industry think of the reformed IR35 rules?

Experts believe that the private sector is not ready for the reforms and that they should be delayed until at least April 2021.  The IR35 reforms have already been delayed by one year, but many believe that HMRC have been slow to inform the private sector of the detail of how the IR35 rules will work.  A consultation document on the changes was not published until four months after the 2018 Budget and the draft legislation was not published until July 2019, negating much of the benefit of the year’s delay.  This was exacerbated by the ongoing political uncertainty surrounding the United Kingdom’s departure from the European Union throughout 2018 and 2019.

There also remain concerns over the effectiveness of HMRC’s online IR35 status checker, CEST.

Who is calling for a delay?

Whilst not an exhaustive list, our research has revealed that the following people or organisations have called for a delay to the Off-Payroll roll-out in the public domain:

  • The Institute of Chartered Accountants in England and Wales (ICAEW) source
  • The Institute of Chartered Accountants of Scotland (ICAS) source
  • The Association of Certified Chartered Accountants (ACCA) source
  • The Association of Taxation Technicians (ATT) source
  • The Association of Accounting Technicians (AAT) source
  • The Chartered Institute of Payroll Professionals (CIPP) source
  • The Confederation of British Industry (CBI) source
  • The Institute of Directors (IoD) source
  • The Federation of Small Business (FSB) source 1  source 2
  • The Recruitment and Employment Confederation (REC) source
  • The Association of Professional Staffing Companies (APSCo) source
  • The Association of Independent Professionals and the Self-Employed (IPSE) source
  • Hays UK & Ireland source
  • Saffery Champness LLP source
  • ContractorCalculator.co.uk source
  • Qdos Contractor source
  • Stop the Off-Payroll Tax campaign
  • David Davis MP source

The Law Society, the professional body of solicitors in England and Wales, and the Institute of Chartered Accountants in Scotland (ICAS) both recommended scrapping the proposals altogether, whilst KPMG have said a delay is “preferable”.

In addition, to date 39 MPs from all major political parties have signed Early Day Motion #2379, which calls for the Off-Payroll extension to be abolished “if assurances cannot be given”.

An official petition to repeal Off-Payroll in both the public and private sectors reached over 30,000 signatures before being cancelled due to the 2019 general election.

In announcing the review of Off-Payroll, the government also committed not to delay the implementation of the new IR35 rules.  Many industry experts and businesses strongly disagree with this decision.  Affected individuals and organisations are now being urged to contact MPs to petition that the implementation is delayed for at least a further year, pending the results of the forthcoming review, and potentially a wider review of the impact that the reforms have had in the public sector.

9th January 2020.

Treasury Confirms IR35 Reforms Will Be Reviewed But Not Delayed

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IR35 now rather than later

The contracting sector was on alert on Tuesday as HM Treasury confirmed that reforms to IR35, known as the Off-Payroll rules, will not be delayed pending a review of their impact.

An IR35 review had been promised by chancellor Sajid Javid in the run up to the general election but until this week no confirmation had been made regarding its remit or when it would take place.

However, in a statement made on Tuesday by financial secretary to the Treasury, Jesse Norman confirmed that rather than looking at the merits of the IR35 policy as a whole, the intention of the review will be to “ensure smooth implementation of the reforms”. 

The IR35 review is expected to conclude by mid-February.

The Off-Payroll rules are intended to prevent tax avoidance by contractors falsely paying tax on a self-employed basis when they are in fact working under employed terms and conditions.  Under the current IR35 rules, contractors must self-assess their status; the new rules change this by making their hirers responsible for doing so and then paying their contractors accordingly.

However, critics of the new IR35 rules are concerned that businesses will simply side-step them by forcing all contractors to work as PAYE employees, effectively decimating the contracting sector.  Several major engagers of contractors such as HSBC, Vodafone and GlaxoSmithKline have already announced PAYE-only policies for their contractors that will be in effect when the IR35 Off-Payroll rules kick in on April 6th.

Contractors, end-clients and the recruitment industry will be concerned by the decision not to delay the IR35 reforms, which will be seen by many as a signal that they are now destined to be implemented in the new financial year – an assertion reinforced by Mr Norman’s statement that the review will look only at the implementation of the reforms, and that HM Revenue & Customs will “continue its comprehensive programme of education and support activities, proactively helping customers to prepare for the reform to Off-Payroll working rules in April 2020”.

The announcement was made by Mr Norman on the Treasury’s website hours before he was due to face questions from MPs in the Commons at question time.  He said in a statement: “we recognise that concerns have been raised about the forthcoming reforms to the off-payroll working rules.

“The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible.”

The Treasury also said a separate review will be launched to “explore how [the government] can better support the self-employed”, which will include improving access to credit, making the tax system easier to navigate and examining how enhanced broadband could improve flexible working opportunities.

Mr Javid had committed to a IR35 review of Off-Payroll on BBC Radio 4’s Money Box in November, only after Labour, the Liberal Democrats, the SNP and the Green Party had all made commitments to review Off-Payroll.  Many took this to mean that the review would look at the merits of the IR35 policy itself, rather than simply its implementation.  No commitments to review Off-Payroll were included in the Conservatives election manifesto.

An 83-page report into the 2019 Loan Charge by former National Audit Office chief Sir Amyas Morse published in December urged the government to press ahead with the Off-Payroll reforms, saying the changes to IR35 are “of the first importance … and will need and deserve support from Parliament”.

However, many professional advisers believe that detailed guidance on the application of the IR35 rules, which the Chartered Institute of Taxation (CIOT) have called “very complex”, has been lacking, which could be a factor in at least fifteen major end-clients’ decisions to stop using contractors post-April.

The Institute of Chartered Accountants in England and Wales (ICAEW) were unequivocal in their response to the Off-Payroll consultation published in September, calling the IR35 rules a “sticking plaster to a wider problem”, “overcomplicated” and imposing “excessive compliance burdens” on the hirers of contractors.  They also suggested that the draft legislation would “incentivise one type of employment status over another” and called for the rules to be delayed until 2021 to allow both businesses and HMRC more time to prepare for implementation.

The ICAEW also highlighted that the ongoing uncertainty in 2019 surrounding the United Kingdom’s exit from the European Union combined with the implementation of Making Tax Digital made Off-Payroll much more burdensome than it would be under normal circumstances.

Adrian Marlowe, head of Lawspeed and the Association of Recruitment Consultancies (ARC), warned contractors in May last year that HMRC’s intention may actually be to force companies to payroll all of their contractors: the so-called “blanket” approach.

“The contracting sector should be alive to the fact that HMRC may be seeking to achieve this outcome,” he said.  “Hirers can take some steps to protect against tax non-compliance, where PAYE and NICs are not paid to HMRC regardless of the hirer’s determination that the IR35 rules apply, but none can stop a tax investigation where the determination is that the arrangement is ‘outside’.  The impact of this risk is obvious – most will want to avoid it, particularly in the private sector where financial risk is much more a critical factor than in the public sector.”

Following the Treasury’s announcement on Tuesday, Dave Chaplin of the Stop The Off-Payroll Tax campaign group said:

“We know from our … campaigners that the chancellor of the exchequer has been heavily lobbied on this by his own concerned MPs, so the fact a delay wasn’t announced today is telling.  There may still be the opportunity to tinker around the edges, perhaps to soften the blow for firms, but for now, firms should start preparing immediately.

“Pushing ahead with this contract jobs-killing measure is insane.  As we leave the EU, reliance on a flourishing flexible workforce will be vital – yet the Chancellor has decided to pour glue on it.

“All parties likely to be affected by the new Off-Payroll Tax should urgently write to their MP and the Chancellor and request a delay, explaining the impact it will have on their business.”

For contractors there is some hope that Mr Javid’s announcement on Monday that the budget will be in March – weeks after the IR35 review concludes – may still provide the government with an opportunity to delay the implementation of Off-Payroll.  But that hope is waning fast.

7th January 2020.

Chancellor Sets March Date For His First Budget

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Budget 2020

Chancellor of the Exchequer Sajid Javid has finally secured a firm date for his first budget following the Conservatives’ landslide election win before Christmas.

The tax-and-spend set piece will now take place on March 11: a date which may provide a clue as to when Mr Javid’s promised review of planned IR35 reforms could take place.  If adopted, any proposed changes to the IR35 reforms could then be incorporated into the budget announcement and this year’s Finance Act.

Mr Javid is set to announce changes to the way in which the Treasury allocates capital spending across the UK’s regions in an attempt to “level up” spending to ensure that struggling towns in northern England and the Midlands receive as much investment as the south-east.

The government want to reward areas won by the Tories at the last general election by allocating tens of billions of pounds for investment on infrastructure projects such as the Northern Powerhouse Rail project that will link areas between Manchester and Leeds.

Announcing the budget date on a visit to the new £350 million Trafford Park tram line project in Manchester, the chancellor said: “People across the country have told us that they want change.  We’ve listened and will now deliver.

“With this Budget we will unleash Britain’s potential – uniting our great country, opening a new chapter for our economy and ushering in a decade of renewal.”

The chancellor will generate a £100 billion war chest by loosening fiscal spending rules to take advantage of what are expected to be permanently low interest rates by increasing borrowing.  The Conservatives pledged during the election to raise net capital spending from around 2 per cent of gross domestic product to three per cent.  Of the £100 billion, the chancellor has about £80 billion left to spend, after allocating some £22 billion in the Tory election manifesto.

The manifesto also promised to balance the budget within three years, giving Mr Javid the opportunity to exceed tax revenues with generous spending pledges this year.

The budget was moved by Mr Javid’s predecessor Philip Hammond from the spring to the autumn but Javid’s first budget, planned for November 6 of last year, was postponed due to the election being called.

In addition to significant infrastructure investment projects, the budget is expected to include an increase in the threshold for National Insurance Contributions to £9,500, investment in hospitals and an increase in the number of police officers.  Boris Johnson’s plans to increase the 40 per cent tax bracket were officially shelved when the Conservative election manifesto was announced last November.

7th January 2020.

Treasury Expected To Confirm Go-ahead Of IR35 Review This Week

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IR35 contractor tax review concept on keyboard

HM Treasury is expected to confirm on Tuesday whether it will be conducting a review of proposed IR35 reforms that are planned to take effect from April of this year.

Chancellor Sajid Javid pledged to review the controversial IR35 tax changes, which will see hirers of contractors become responsible for assessing their tax status, during the general election campaign, after the other major parties made similar commitments – however, no announcements on whether the IR35 review would go ahead or when were made before Christmas.

Conservative MPs Dominic Raab, John Redwood and Andrew Bowie all wrote letters to Mr Javid before Christmas requesting clarity on when the IR35 review will take place, with Mr Redwood requesting an “immediate” review take place.

Mr Javid has since had questions tabled for Treasury Questions on Tuesday by three MPs who will ask him to confirm the start and end date of any review and what steps a review may take, which should compel the Treasury to confirm, one way or another, when an IR35 review will take place.

With little over 12 weeks until the new IR35 rules are set to take effect, MPs and key figures in the contracting industry are urging the Chancellor to conduct a review of the impact of the changes immediately, to allow enough time for the review to take place.  There is also a chance that Mr Javid may opt to delay the implementation of the changes from their current April 6th start date.

The proposed IR35 changes have already led to a raft of major hirers effectively announcing that they would stop use limited company contractors altogether from April, as they move to avoid any obligation to carry out highly complex employment status assessments, and the associated financial risk of getting them wrong.  There is concern in the industry that if this trend continues, it may signal the end of contracting altogether, pushing highly skilled workers overseas and reducing the ability of business to draw upon a talented, flexible workforce, ultimately at great harm to the UK economy.

However, in his review of a controversial tax avoidance rule that has affected thousands of contractors published on the last day of Parliament before Christmas, Sir Amyas Morse advised the government to press ahead with the reforms to IR35, saying they were “of the first importance”.

In a year-end message from CEO Chris Bryce, contractor trade body the Association of Independent Professionals and the Self-Employed said holding the Conservatives to a “full and independent review” would be their “first priority” of the new year.

Ricky Chan, a financial planner at London-based IFS Wealth & Pensions, told CityWire that advisers need to be aware of the potential “knock-on effect” on the finances of contractor clients if they are affected by the changes to IR35.

“For example, if IR35 is deemed by a private company to apply, then the company would incur additional employer national insurance contributions,” he said. 

“This may lead them to reduce the day rate payable to contractors, which could have a knock-on effect on the client’s cashflow and ability to borrow, such as a mortgage.

“In addition to potentially seeing their incomes reduced, contractor clients falling within IR35 would still not receive any employee benefits, such as holiday pay, pensions, and sick pay,” he added.

“Therefore, if they compare contracting with employment on a like-for-like basis, they may conclude that being employed would make them financially better-off. This would of course have repercussions on financial planning and advice, such as reviewing whether insurance policies are still adequate, or reviewing their pension arrangements in light of a new workplace pension.”

Contractors will be watching the minister’s answers to any questions on the IR35 reform review very closely on Tuesday, hoping for more clarity on exactly when such a review would take place and how much independence it will have from the Treasury.

6th January 2020.

Review limits Loan Charge scope but thousands still face ruin

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HMRC letter contractor tax concept

The independent review into the controversial contractor tax, the 2019 Loan Charge was published on Friday to widespread consternation from the contractor community. Despite recommending key reductions to the scope of the levy and compelling HM Revenue & Customs to offer more manageable payment terms to affected taxpayers for this contractor tax.

The eighty-three page report, written by former National Audit Office chief Sir Amyas Morse, called the design of the Loan Charge or the contractor tax “highly unusual” and said it went

“too far in undermining or overriding taxpayer protections”.

The major bone of contention with the Loan Charge has been over its quasi-retrospective effect, which originally allowed HMRC to charge income tax and National Insurance to loan transactions made up to twenty years ago, even if the relevant contractor tax return was accepted by the tax authority at the time.  HMRC usually have up to six years to query tax returns.

The twenty-year scope resulted in taxpayers being charged crippling amounts, in some cases reaching hundreds of thousands of pounds in immediately payable tax payments. Several individuals are reported to have taken their own lives as a direct result of the contractor tax policy.

Sir Amyas’ report recommended cutting the window of retrospection by nearly twelve years, to December 2010, when “disguised remuneration” legislation was introduced by Parliament which was intended to outlaw loan schemes.

It also recommended that the contractor tax Loan Charge should not apply to loans made after 2010 where the loan scheme user declared their use of the scheme to HMRC and no inquiry was subsequently made by the Revenue into the individual’s tax return.

HM Treasury has committed to implement these recommendations and will be refunding any funds already paid to HMRC in relation to transactions outside of the contractor tax charge’s new scope.

Taxpayers will also now have three years, instead of one, to settle their Loan Charge debts.

Whilst the narrowing of the scope of the Loan Charge goes some way towards addressing its perceived injustices, campaigners were hoping for the retrospective element of the charge to be repealed entirely, and many taxpayers are still left with life-changing tax bills, a proportion of whom are now approaching retirement.

In addition, a significant number of contractors who face large Loan Charge bills are now expecting a substantial drop in net income as they are forced onto PAYE as a result of the impending changes to the IR35 legislation next April.

The report was met with dismay by contractors and the wider community of affected contractor tax payers.  Many decried the timing of the publication of the report – which was delayed by the general election – as cynical, given that it was released late afternoon on the last Friday before Christmas.  Particular issue was taken with financial secretary to the Treasury Jesse Norman’s use of the word “delighted” when announcing the release of the report on Twitter.

“’Delighted’ you sick, insensitive, psychopath [sic].  Issued Friday afternoon, 5 days before Xmas.  This is a whitewash and you’ll be fought in court!”

replied one Twitter user.

Retrospective legislation is unusual in UK law but not unprecedented.  The first time it was used in a tax avoidance context was in 1978 by Denis Healey to combat mass-scale avoidance by the infamous Rossminster bank.  At the time this was considered to be crossing a constitutional red line: common law presumes that legislation does not have retrospective effect.  In order to obey the law, one must know what the law is at the time of action – however, it was deemed a necessary step at the time to combat the loss of hundreds of millions of pounds to the Exchequer.

Retrospective tax legislation has been used sparingly since, albeit mainly against corporate avoiders.  In the case of the Loan Charge, campaigners had raised the issue that court rulings as late as 2008 that had upheld the validity of loan schemes were incompatible with the retrospective effect of the contractor tax charge.

The report also recommended that individuals subject to the charge should only be required to pay half of their disposable income annually towards Loan Charge debt, and should not be made to sell their primary residence or dip into their pension pots.  A recommendation that unpaid Loan Charge debt should be written off if still unpaid after ten years was rejected by the government.

In a thinly veiled critique of HMRC’s conduct in handling the Loan Charge, Sir Amyas also proposed that HMRC review its Charter “to set higher expectations of performance during interactions with members of the public”.  HMRC have been accused of using advanced behavioural psychology techniques to coerce, or “nudge”, contractor tax payers into complying with their requests.

“This review is a clear indicator that [HMRC] and the Treasury have been seen to overstep the mark, using legislation inappropriately to mend their own ineffectiveness,” Tom Wallace, head of tax at WTT Consulting, which represents almost 2,000 of the people affected, told the Financial Times.

Steve Packham, spokesperson for lobbyists the Loan Charge Action Group (LCAG), said: “It’s now been accepted that it is wholly unacceptable for this retrospective law to apply as far back as 1999, which was disgraceful, and that closed years prior to 2016 will no longer be subject to the loan charge.

“However, we continue to believe that the loan charge should not apply retrospectively at all and are concerned that many people will still be seriously impacted.”

21st December 2019.

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