Autoclenz – employment status court case

This recent case has moved the goalposts slightly in respect of employment status/IR35 scenarios.

The contracts in question contained the usual substitution and mutuality of obligations clauses which often point away from employment/IR35.  However, the Supreme Court decided that the reality of the situation over-rode these contracts.  The reality was that the workers had to do the work personally and could not send substitutes.

The court also said that the expectations of the parties need to be taken into account; no-one expected a substitute to be used.  Also that the bargaining power of the parties should be considered; i.e. was the contract a “take it or leave it” contract?

No doubt, the Taxman will be trying to turn this case to his advantage in the near future so beware out there!

IR35 defeats for HMRC

There have been two recent defeats for the Taxman in respect of IR35 court cases – Marlen and Primary Path.

In Marlen, the contractor’s flexible working arrangements (hours, holiday, absences) were found to be a key differentiator from employees of the end client along with the very low level of control that was exercised over the contractor by the end client.

HMRC argued that there was a mutuality of obligations but the court found otherwise, citing early termination of some of the contracts in question and one instant were the contractor was sent home without pay when the computers all went down.

With Primary Path, the contractor won when the court concluded that the services were carried out with very little involvement of the client (thus again confirming that degree of control is an important factor).  The court also noted that the ability to propose a substitute was inconsistent with IR35.

Finally, the court said that it was important that the contract between the contractor and the agency was also reflected in the contract between the agency and the end client.  This last point can be an unknown as often the agency-end client contract is not seen by the contractor until everything goes to court.

Latest figures for IR35 investigations

 
In response to a Freedom of Information request, HMRC admitted that the number of IR35 status enquiries fell from 158 in 2006/2007 to 23 in 2010/2011.The tax take also fell from nearly £2 million five years ago to almost £220,000 this year. 

The tax enquiries dwindled to a mere dozen in 2009/2010 – possibly as a result of speculation that IR35 was to be removed. However a report into the options for IR35 by the Officie of Tax Simplification resulted in a decision by the Government to retain the tax but improve its administration, which could result in renewed activity in the area.

Reports from HMRC to the IR35 Forum show that they will be continuing investigations but possibly taking a more targeted appraoch and focuses on ‘high risk’ areas – although it is not yet known what they will consider high risk.

The number of reviews opened by HMRC for the last five years, where the intermediaries legislation (more commonly referred to as IR35) was identified as a risk, is as follows:

  • 6 April 2006 to 5 April 2007 is 158
  • 6 April 2007 to 5 April 2008 is 104
  • 6 April 2008 to 5 April 2009 is 25
  • 6 April 2009 to 5 April 2010 is 12
  • 6 April 2010 to 5 April 2011 is 23

The tax yield recovered in relation to these reviews cannot be indentified. This is because a review is not always concluded in the same year that it was opened. However, HMRC can provide the tax yield received for the requested years, which is:

  • 6 April 2006 to 5 April 2007 = £1,906,619
  • 6 April 2007 to 5 April 2008 = £1,730,640
  • 6 April 2008 to 5 April 2009 = £1,430,358
  • 6 April 2009 to 5 April 2010 = £155,502
  • 6 April 2010 to 5 April 2011 = £219,180

The credit crunch – how it really happened!

Heidi is the proprietor of a bar and realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar.

To solve this problem, she comes up with a new marketing plan that allows her
customers to drink now, but pay later.

Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Heidi’s bar.

Soon she has the largest sales volume for any bar in the area.

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.

Consequently, Heidi’s gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi’s borrowing limit.

He sees no reason for any undue concern because he has the debts of the unemployed alcoholics as collateral!

At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS.

These “securities” then are bundled and traded on international securities markets.

Naive investors don’t really understand that the securities being sold to them as “AAA Secured Bonds” really are debts of unemployed alcoholics.

Nevertheless, the bond prices continuously climb – and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar.  He so informs Heidi.

Heidi then demands payment from her alcoholic patrons.

But, being unemployed alcoholics — they cannot pay back their drinking debts.

Since Heidi cannot fulfill her loan obligations, she is forced into bankruptcy.
The bar closes and Heidi’s 11 employees lose their jobs.

Overnight, DRINKBOND prices drop by 90%.

The collapsed bond asset value destroys the bank’s liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community

The suppliers of Heidi’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the BOND securities.

They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations; her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from the government.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi’s bar.

 

Valid VAT registration numbers

If you have doubts about the validity of a customer’s or supplier’s VAT number you can use the Europa website to check all VAT numbers in the EC.  Alternatively you can contact HMRC’s VAT helpline on 0845 010 9000.  See the Taxman’s website for more details.

IR35 win for taxpayer – ECR Consulting

Another IR35 defeat for the Taxman here.  Elaine Richardson, an IT contractor working for Vertex Data Science through her own personal service company, was facing a tax bill of £50,000.

The tax tribunal found that Elaine was clearly in business on her own account and not a disguised employee of her end client.

Business Records Check (BRC)

Despite the Taxman saying he would take until Autumn 2011 to finalise details of the BRC, it now seems that he has secretly launched this new volley which involves checking that businesses are keeping adequate books and records.

Our sources say that the areas currently affected are Sheffield, Scotland, Stockport, Swindon and Oxford.  We reckon some 1500 letters may have been issued to date.

As developments occur on this, we will post updates on this site.

Dress code for accountants

Recently Swiss bank UBS issued a 43 page dress code to its staff.  Below are some thoughts on this, courtesy of Accountingweb.co.uk.

Suits only in dark grey, black and navy blue (conveying competence, sobriety, formalism) – no problem with that.

No trendy eye-glasses – yep, go along with that too. No need to try to look like an architect or graphic designer.

Requiring light make-up for women (foundation, discreet lipstick, mascara) to enhance one’s personality – hmm, a bit sexist, not sure they could say that in the UK.

“Properly cared for hair and a stylish haircut increase an individual’s popularity” – what???

No wearing short-sleeved shirts or cuff links (obviously not together) – definitely not for UK consumption then.

No allowing underwear to show – let’s call a spade a spade, I think they mean bra straps 

And though it can’t show, underwear should be of good quality and easily washable – no, I’m not joking, they actually say that.

No using tie knots that don’t match face and body shape – now this one has me completely baffled, I only know one way to knot a tie. I suppose bow ties are completely out too!

Wristwatches are encouraged because they suggest “reliability and great care for punctuality” – or in the case of my £4.99 Casio watch, that I’m a cheapskate!

Most worrying for the short-sighted like myself is the dictat that ’Glasses should always be kept clean. On the one hand this gives you optimal vision, and on the other hand dirty glasses create an appearance of negligence.’ Just avoid eye contact, I say!

Any organisation that dictates when jackets must be buttoned and unbuttoned is not one that I would care to work for. Sadly, I can’t find a leaked copy of the full dress code on the Internet, butI’m sure it’s only a matter of time!

But closer to home, should a small UK accounting practice have a dress code for its people? I have never worked for a firm that had one, or if it was unwritten I never transgressed, although I should admit that my father was a gents outfitter so maybe I inherited some of his style.

If I DID have a dress code it would outlaw such style disasters as those awful coloured or striped shirts with white collars – I thought they died out in the late 1970s, but I still see a few around. And what about the 3-piece versus 2-piece suit debate? Has the 3-piece had its day or does it still have a place in the dynamic young accountant’s wardrobe? Personally I think waistcoats belong on Status Quo guitarists, not in the modern office.

And that’s before we get on to the whole dressing down thing. I don’t suppose UBS AG lets its staff come to work in jeans and T-shirts on Fridays! Many accounting firms do, and in our experience it doesn’t seem to bother the clients. In fact, I have some clients who INSIST that I don’t wear a suit when visiting them.

I’m heading back to Google to see how many ways I can find to knot a tie!

The Taxman’s big brother is watching you!

Should HMRC launch an investigation into your tax affairs, they will know your inside leg measurement even before they knock on your door. 

They obviously know about all your employment jobs but they also know about your rental income if you go through an agency as they have to tell the Taxman this information by law.  They will also know when you bought the rental property (thanks to the Land Registry) and who lives there (Electoral roll). 

The banks tell him how much interest you’ve earned on your savings, he knows where and when you’ve travelled around London (courtesy of the nice chaps at Oyster card) and where you shop and how much you spend (loyalty cards).

Expect them to be familiar with your Facebook and Myspace pages so your photos of expensive cars and holidays will need some explaining if you are only declaring £10k pa earnings!

And remember….walls have ears!

Budget 2011

Below are the major changes for 2011/12 affecting UK based contractors and small businesses as announced in the Budget on 23 March 2011:

Income tax

  • Personal Allowance increased to £7,475.
  • Basic rate limit reduced to £35,000 (equivalent of £31,500 for net dividends).

Companies

  • Corporation tax reduced to 20% for small companies.
  • Mileage allowance increased to 45p for the first 10,000 business miles driven in employees’ private cars.  Secondary rate of 25p for miles in excess of 10,000 remains.
  • IR35 rules are to be clarified by HMRC to remove grey areas.

VAT

  • Registration threshold increased to £73,000 pa.

National Insurance

  • Rate increased for employers and employees to 12% and 13.8% respectively if weekly earnings exceed £136 and £139 respectively.
  • Higher rate of NIC increased to 2%.

Pensions

  • Annual allowance for tax relief on pension contributions reduced to £50,000.

Capital gains tax

  • Annual exemption increased to £10,600.

Furnished holiday lets (FHL)

  • Losses may only be offset against FHL profits.
  • From April 2012 property must be available to let for at least 210 days per year and actually let for at least 105 days per year.

Capital expenditure

  • Allowances reduced to 18% per annum for periods ending on or after 1 April 2012.
  • Annual investment allowance is reduced to £25,000 pa.