Author: Theo Parkinson

Umbrella EXPENSES are BACK!

(Particularly welcome to those affected by current and potential IR35 reforms)

In 2016, the umbrella industry was seriously affected by HMRC new rules. 
The new rules came in 2 parts;

Rule 1 – The first rule – affecting Salary Sacrifice and the ability to gain tax relief on a weekly basis.

ITEPA 2003 – Section 289 (2) (b) denies an exemption for expenses paid under an arrangement whereby an employees earnings vary with expense reimbursements. 

For this reason if the expenses are set at a fixed level and do not vary the earnings then relief can be obtained.

Rule 2 – restricted the claiming of expenses if a worker is under;

SDC – Supervision, Direction & ControlSection 339A denies tax relief for travel and subsistence expenses where a worker;

1) Personally provides services to another person

2) Under arrangements involving an employment intermediary

These rules do not apply if the manner in which the worker provides the services is not subject to SDC.

The majority of umbrella organisations, including ourselves decided that the workload and extra costs in developing contracts, processes and systems were too onerous and as such have steered clear from processing expenses.

With the introduction of extended IR35 reforms, the industry saw a large swing from Personal Service Company contractors in to umbrella, often dictated to by blanket decisions being made by the Public Sector.

It is the expectation that this will happen again in the Private sector with the planned IR35 reforms expected in April 2020. 

For this reason NumberMill have taken the decision to invest in legal contracts, system updates and renewed processes to allow us to process expenses within the HMRC rules. As an FCSA Accredited umbrella these have been developed in order to meet the FCSA code.    

So the good news is, if your contractors meet the requirements, they can claimfixed expenses which will significantly improve their take home pay. 

We at NumberMill will ensure compliance by;

  • Issuing a specially developed DocuSign compliant contract
  • We will undertake an SDC assessment (providing detailed guidance on SDC status) NB This is different legislation to IR35
  • Agree with the contractor the level of fixed expenses (providing a detailed expense guide) 
  • Facilitate the compliant claiming of the fixed expenses through our state of the art portals
  • All contracts are issued automatically by our CRM providing evidence for HMRC
  • All discussions are recorded, again providing evidence for HMRC

Types of contractors which are likely to benefit;

  • Contractors who previously work via a Personal Service Company who are effected by the IR35 reforms in the public and Private sector
  • Contractors who earn more than £11/ hour

HMRC loses yet another high-profile case against TV Presenter!

Once again the importance of control wins IR35 case in being in business on own account.

Television Presenter and Radio Broadcaster, Kaye Adams successfully appealed against HMRC regarding her self-employed status under the IR35 legislation while she was presenting BBC Radio “The Kaye Adams Programme” during the 2015/16 and 2016/17 tax years.

According to Judge Tony Beare, Ms Adam was in business on her account as her 20-year career as a freelancer and roles outside the BBC supports this.

Adams and the programme’s editor, Colin Paterson, demonstrated that Kaye held a significant degree of control provided through oral evidence as well as this was backed by the fact that Adams would draft the scripts for the programme, with Paterson adding: “Kaye calls the shots”.

More information on the case can be found here: Kaye Adams Tribunal Case

HMRC wins case over loan scheme provider!

HMRC have recently won a legal case against Hyrax Resourcing Ltd a tax avoidance scheme promoter. This success is looking to help the tax authority collect over £40 million in unpaid taxes by demanding the promoter to disclose information of their scheme and details of individuals who were involved. 

Hyrax Resourcing was promoting a disguised remuneration avoidance scheme, in which they paid scheme users minimum wage and paid the rest of their income in loans to avoid paying the National Insurance and Income Tax on their earnings.

Scheme users paid Hyrax 18% promoter fees to allow them to access the scheme which paid employees and transferred loan agreements to offshore trusts.

They achieved this by not declaring the money they received from the loan agreements as income on the scheme users tax returns, therefore they did not pay tax on any of their earnings.

Further information on this case can be found here

Are you using a scheme like this or an arrangement that is similar?

  • If you are using a scheme like this, HMRC heavily recommends that you withdraw from the arrangement and settle your tax affairs.
  • Doing this will help you to avoid the costs of litigation and investigation as well as reducing the interest and penalty charges (where applicable) from the tax you should have been paying. The penalty for failing to disclose a scheme is £5,000 per client, as well as £5,000 per day for not fully disclosing the scheme.

Why these schemes and arrangements should not be used:

  • Fees paid towards the pay administration and promoters cannot be recovered.
  • Any outstanding loan balance will be subject to charge, therefore you are still liable for these loan charges.

For more information on loan schemes please follow the link here.