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A wide-ranging review of smaller business taxation will have implications for the way that contractors are taxed.

The IR35 regime, introduced to prevent contractors reducing their tax liabilities, has come in for criticism over the time it has been operating.

Mark Prisk, the small business minister, has said:

“We want to make sure that we could undertake a comprehensive review of small business taxation in a way that makes the need for the current IR35 legislation redundant. But we want to make sure whatever we change is a lasting settlement. One of the problems with IR35 is that it’s a constantly changing set of rules.”

Philip Fanthom (Managing Director, Jenrick IT - Specialist IT Contract & Permanent Recruiter) commented:

“We welcome this review and are more than happy to continue contributing to the debate, as we have done for a number of years. In fact, last year were one of a select group of agencies who attended the House of Commons to discuss this issue. There has to be a more efficient, user friendly and fair taxation system that works for all parties concerned. At least this government appears to be willing to listen to those who are affected.”

The small business tax review is to be carried out during the summer.

Further details of the case were posted by CrystalUmbrella.com, see below:

It has come to light that the contractor at the centre of the Novasoft case actually found himself fighting HMRC over his employment status as he had volunteered his contract to them. Novak Brajkovic had taken advantage of Revenue and Customs’ contract service which actually led to them launching an investigation into his employment status.

Speaking to Contractor UK, IR35 firm Bauer & Cottrell reflected:

“It all started because the contract was sent to HMRC for review which demonstrates that this customer service by HMRC can turn into a full blown IR35 investigation.”

The firm’s co-founder and former tax inspector, Kate Cottrell added:

“[Nonetheless this is ] a very welcome win but it is shocking that the case has gone on so long”.

However, Cottrell stated that Brajkovic made the right decision when he dropped the advisors he had previously had on his side from the private sector.

She said: “He was no longer supported by previous advisers, and choosing to go on to represent himself at the tribunal effectively denied HMRC of the right to cross examine him. Control – What, Where, When and How” was the deciding factor for the tribunal, which heard what its judge categorised as a “borderline” case of IR35. As with all cases, it all boiled down to whose evidence the tribunal preferred on the day and the reality of the working practices,” the advisor said.

She concluded:

“Despite HMRC having the end-client on-side, the reality was that Mr Brajkovic had different rights to employees, and he exercised them.”

Click here to read full details of the judgement

Article Source: ContractorUK

We regret to report that HMRC will be rubbing their hands together today, as Larkstar’s Alan Brill has decided to call a halt to his appeal.  Although Alan is keen to fight (not least because of the stress he has been subjected to over the past 7 years), with retirement now upon him he does not want to submit his family to further stress.

This case was opened in 2003 and saw 7 years of intense activity from the Revenue including a Tribunal AND a High Court Hearing.  The High Court referred it back to the Tribunal and it was only at this stage - the ‘Re-Appeal’ of the Appeal! - that PCG’s advisers, Accountax, managed to persuade HMRC to close the case.

Unfortunately, this has come at a cost: after Mr Brill makes his final pension payment and settles some cursory bank charges, the Revenue will be able to help themselves to whatever is left of the £129.79 that remains in the Larkstar business bank account.  This is likely to be circa £10 for each year of investigation.  To secure this monumental sum, the Revenue have agreed not to pursue Mr Brill or any other Directors of the business for any liability to the PAYE or NI that they feel is owed.

I am sure you will join us in wishing Alan Brill all the best in his retirement.  Moving forwards, the PCG will be adding the detail of this case to our lobbying efforts as further evidence that IR35 is an onerous and ineffective bureaucratic burden.

Conservatives to reform IR35

Mark Prisk, the Conservative Shadow Business Minister, has announced that a Conservative Government would undertake a full review of small business taxation, including IR35.  The aim will be to provide a simpler and clearer tax regime. 

Mark Prisk said:

“For the last 13 years, Labour have constantly meddled with the tax rules for freelancers and self-employed, IR35 has especially proved to over-complex, uncertain and often unfair”.

Prisk claims that IR35 has cost business £73 million over 10 years, adding.

“This is why a Conservative Government would mandate the independent Office of Tax Simplification to undertake a fundamental review of current arrangements with the aim of providing a clearer, lasting and fairer tax regime”.

Click here to view the full press release.

Article Source: APSCo Newsletter 29 March 2010

One suspects this could be a pre-election rally to the agencies and contracting community, but could be very good news should it lead to the demise of this directive.

Members of the Conservative party front bench including, David Cameron, Jonathan Djanogly, John Penrose, Mark Prisk, Jeremy Wright, and Patrick McLoughlin have tabled the following EDM seeking to revoke the Government‟s AWD regulations:

That the Agency Workers Regulations 2010 (S.I., 2010, No. 93), dated 20 January 2010, a copy of which was laid before this House on 21 January, be revoked.

A motion endorsed by the leader of the official opposition, David Cameron, in theory has to be debated on the floor of the House of Commons. However, with the dissolution of parliament looming as the General Election approaches there may not be time enough for this to take place.

Article Source - APSCo Newsletter 15 Mar 2010

Lamb warns that, under the legislation, as well as the right to annual leave and bonus schemes, agency staff will also have the right to take up to 26 weeks maternity leave without breaking their 12 weeks ’continuous service’ record. Lamb adds that employers that flout with the rules or who move staff around in very different roles every 11 weeks to avoid triggering their employees’ continuous service rights could face tribunal claims and fines.

Lamb explains: “Although the new rules don’t come into force until October 2011, employers will need to think about how they will budget for these new requirements now, and how they are going to place agency staff within their business in the future, to ensure they can still maintain a flexible workforce without breaking the rules.

“Obviously it is important that employees receive fair treatment within the workplace, whatever their employment status. However, the cost implications of these new rights could be quite significant for manufacturers in our region, in particular. Employers often rely on the flexibility offered by agency staff. They will be keeping a very close eye on their costs as we move out of recession and into recovery.”

But Ann Swain, chief executive of the Association of Professional Staffing Companies (APSCo), says recruiters could be left footing the bill for such costs.

“End users will be able to push the cost of complying onto recruiters by getting recruiters to indemnify them in respect of any claims made in connection with the Regulations. This will leave ‘vulnerable’ workers no better off and heap further costs on recruiters.

“The Regulations will give temporary workers who are pregnant or new mothers more rights than equivalent permanent employees. This will impose significant costs on staffing companies.”

Final regulations for the UK implementation of the EU Agency Workers Directive (AWD), which confirmed delayed implementation until October 2011, were laid before Parliament yesterday.

Kevin Green, chief executive at the Recruitment and Employment Confederation, says: “Professional recruiters will bear the brunt of making these complex regulations work on the ground and we are pleased that some of the recruitment industry’s key concerns have been taken on board.

“In particular, we welcome the delayed implementation date and the decision not to impose potentially damaging restrictions on the fees charged by agencies where a temporary worker is taken on permanently by an employer.

“However, there are real concerns that these EU regulations are ill-adapted to the UK labour market and could limit job opportunities at a time when flexible working options are providing a crucial route into employment. The priority now is to ensure that effective guidance is developed for employers and recruitment agencies.”

David Yeandle, manufacturers organisation EEF head of employment policy, says: “Manufacturers will be pleased the government has confirmed that this legislation will come into force in October 2011 and that it has resisted pressure for its earlier implementation.

“However, we remain concerned about the costs and administrative burdens that this new legislation will impose on employers and, in particular, about the decision to include some bonus payments in the definition of pay that will be used for equal treatment.

“It will now be important for the government to publish clear and practical guidance for employers on these regulations well before their implementation in October 2011.”

Source: The Recruiter

PCG

As we flip the calendar onto a new decade we inevitably start to reflect on the past, set goals for the future and ponder on what fate has in store for us.  Sadly, the one thing clearly evident is that we face a very uncertain future.  Despite signs that the economy is picking up with the stock market, retail and manufacturing all indicating positively (we may even officially be out of the recession) it is clear that unemployment and inflation will continue to rise and this will have repercussions on how we emerge, whether we see a double dip and ultimately how strongly we will develop as an economy.

Uncertainty abounds in our political future too, will Gordon Brown survive today’s challenge to his leadership?  Regardless of the outcome of this challenge, all signs point to a government change in the spring and indeed, even if Labour return to power we are looking at a much changed political environment.  Whatever the flavour of future government they will need to be observant, fleeter of foot, more creative and prepared to effect real and often fundamental change.

In this environment PCG is renewing its call for a fresh approach to freelancing, emphasising the vital role freelancing has to play in assisting growth.  Government and policy framers have failed to recognise the value of the UK’s 1.4 million freelancers despite overwhelming evidence that freelance businesses are the bedrock of the economy, bringing essential flexibility and skills.

In Quarter 4 2009 PCG launched its Fairness, Clarity, Recognition: Manifesto for Freelancing.  Copies have been sent to all MPs and Prospective Parliamentary Candidates as well as stakeholders.  We will be emphasising these points hard in the run up to the election.

PCG is leading the way by calling for a fairer tax and regulatory regime.  We need a pro-business climate fostered in the UK, a real commitment from policy framers to think small first, not just say it.  Fair regulation means regulation that is clear, accessible and not unduly burdensome.

Fairness means allowing freelancers easier access to the market for their services.  The Government needs to ensure regulatory barriers, burdens and costs to tendering are reduced, so freelancers can truly compete with larger businesses.

Heavy handed and senseless laws weigh business down like a ball and chain.  This is even more so with nano-businesses.  Every hour spent complying with red tape is an hour not spent productively.  We need to free up Britain’s talents to create wealth, not stifle them with top down bureaucracy.

Elsewhere, PCG is asking that in future all Government departments will have to ensure that 10% of their procurement budgets will go to nano-businesses and that Government departments and their contractors must not discriminate against freelancers who do not have pre-existing security clearance when it chooses which freelancers to award a contract to.

Looking at short term opportunity and long term competitiveness issues, Intra Company Transfers (ICTs) to flaunt immigration laws could have a very profound long-term effect as well as limiting the current opportunities for our freelance contractors and consultants.  Government must be vigilant to such problems and prepared to stand up to large companies who are breaking the rules.

It is PCG’s fundamental belief and echoed by most leading business commentators that flexibility in the labour market is the key to ensuring Britain’s future economic success.  The next Government must encourage freelancing as a flexible, innovative and entrepreneurial way of working that enables business to perform more cost-effectively, especially when recovering from recession.

The start of a new decade provides an opportunity for fresh, innovative thinking.  We will be continuing to push this message up to the election and beyond.

This article is courtesy of www.pcg.org.uk