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  • What Contractors and Employment Agencies Should Know about GAAR Nov 27, 2018

    The General Anti-Abuse Rule (GAAR) was enacted in July 2013 to address taxation arrangements that took advantage of loopholes in the tax law. The rulings are of importance to self-employed workers and entities that take part in shady employment schemes to avoid taxation.

    The GAAR Advisory Panel oversees the application of the anti-abusive law. This panel determines whether the arrangements are abusive in any way. In case they are found to be abusive, HMRC may issue an accelerated payment notice (APN) and impose a penalty on the guilty party.

    Schemes that Violate the GAAR Law
    The GAAR law specifically address employment schemes that try to evade taxes.

    A number of cases are there in which HM Revenue and Customs (HMRC) have accused workers and companies of disguising taxable income through schemes such as the employer-financed retirement benefit scheme (EFRBS).

    A simple example can help understand the schemes that are considered illegal as per GAAR and could result in a penalty.

    Suppose that Mr. Z offered services to XYZ company through A Ltd. XYZ pays A Ltd. £15,000 and MR. Z £10,000 salary plus a loan of £90,000.

    The total taxable income in the above case will be £100,000, and not £10,000, since it is considered a disguised tax scheme according to GAAR. Mr. Z would be liable to pay unpaid accrued taxes on the total taxable income since the date of employment to HMRC.

    The intention in cases such as that mentioned above is clearly to avoid taxes by taking advantage of loopholes in the taxation laws. The scheme is created to disguise the net income of the contractor. Once it comes under the radar of HMRC, the GAAR advisory panel will provide a ruling against the contractor and may even impose a hefty penalty.

    Implications of GAAR Law
    The aim of GAAR is to make it difficult for workers to take advantage of gaps in the taxation system. Contractors and employment agencies are required to fully understand the implications of
    the law. They need to avoid a narrow interpretation of tax rules and understand the legal status of all employment arrangements.

    Most tax avoidance schemes may seem to be working during the initial stages allowing the workers to save a lot in taxes.

    However, such shady schemes are sure to backfire, resulting in grave financial difficulties for all the involved parties. That’s why it’s essential to get help from a professional independent advisory body such as Qdos Contractor to know about the tax implications of any scheme. Taking this precautionary measure to ensure conformity with GAAR rules can help avoid financial and legal problems later on.
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  • Private Sector Independent Contractors Advised to Prepare for IR35 Reform Nov 26, 2018

    Independent workers and UK private businesses alike were dismayed to hear the announcement in Budget 2018 that IR35 reform rules will be extended to the private sector in April 2020.

    Once the reform is implemented, medium and large private businesses in the UK will be handed the responsibility to determine the tax status of self-employed and independent contractors.

    In view of the disastrous impact of the public sector IR35 reform, many contractors rightfully fear of being unfairly placed inside the IR35 rules.

    Despite all the criticisms, the Government is unlikely to change its plan about the implementation of the taxation reform rules. In this context, private sector contractors and self-employed individuals need to prepare for the inevitable to avoid any grievances later on.

    Qdos Contractor, an IR35 legislation specialist, has offered the following advice for private sector self-employed contractors to prepare for the inevitable implementation of IR35 reform in 2020.

    Discuss with Engagers

    Self-employed individuals and contractors are advised to proactively consult with their engagers about IR35 tax status.

    Let the engagers know about the IR35 reform requirements. The proactive stance will help prevent rushed decisions that could be costly in the long run.

    Understand Contract Arrangements
    Independent contractors should understand the work arrangements to ensure that the contract is IR35 compliant. Consider obtaining a Confirmation of Agreements (CoA) from the engager in this respect.

    A CoA document can help in convincing HMRC about employment status in case of a dispute. The document is taken seriously in courts since they show the true nature of work arrangement, and not just an agreement between employer and contractor.

    Get the Contract Reviewed
    The Check for Employment Status Tax (CEST) tool is ineffective in determining status in certain situations. An investigation by Contractor Contractor found that about half of the assessments using CEST were wrong.

    So, it’s important that you hire a professional firm for IR35 status review.

    A professional IR35 specialist firm will provide objective advice regarding the work arrangement. The professional review also stands valid in the court.

    Collect Evidence
    Qdos Contractor has also advised self-employed contractors to compile evidence that show that their work arrangement is not similar to an employment.

    The evidence for being self-employed include having an own website, office stationery and equipment, and multiple clients. Any material evidence will be taken seriously in case of a dispute regarding IR35 status.

    After April 2020, independent contractors in the private sector engaged with medium and large UK companies will not be able to make IR35 employment status decisions. Considering the above steps will ensure that they don’t face grave financial difficulties due to a wrong IR35 assessment.
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  • Employers Need to Inform Workers of Their Annual Leave Entitlement Nov 25, 2018

    A decision recently made by the European Court of Justice (ECJ) has implications on the UK workers right of carrying over the statutory holiday.

    The ECJ had ruled that workers have the right to statutory holiday pay at the end of a carryover period or when their employment has been terminated in case the employer has not ‘specifically and transparently’ given the chance to the employee to take the leave.

    What this means is that workers should be told formally through a company policy that they are entitled to take certain days of leave in a year, and that they will lose this right if they don’t avail the leave. In case of a dispute, the employer will have to prove that it has taken due diligence in informing the employee about the leave entitlement. The employee will lose the entitlement in case the worker does not take the leave despite knowing about the consequence.

    The ECJ had stated that any law that is contrary to the decision needs to be revised or disapplied in favour of both private and public-sector workers. The Working Time Regulations 1998 regarding the carryover of four weeks’ EU derived statutory holiday will now need to be as per the proviso that the employer had taken due diligence in informing the worker about the leave entitlement.

    How ECJ Decision Affects UK Employers
    Since UK will not part from the EU until April 2019, all EU laws apply to the UK. Accordingly, employers need to create a holiday policy informing employees about the potential loss of holiday leave entitlement in case they don’t avail it during a particular period.

    Employers should take care to especially inform part-time workers about the right to annual leave based on a specific number of hours worked.

    While not necessary, employers also should consider issuing reminders within a reasonable time before the end of the year encouraging employees to take the leave. Not taking any action in this regard may make the employer liable to make holiday payments to employees who have not availed the right.

    However, if the worker did not avail leave despite knowing about the consequences, the employer will not be liable to make holiday payment.

    Any practice that may prevent a worker from taking annual leave may make the employer liable for holiday payments. This could result in grave financial difficulties, particularly for smaller businesses.
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  • HMRC Accused of Concealing Results of Public Sector IR35 Reform Nov 22, 2018

    HM Revenue and Customs (HMRC) has been severely criticised for its aggressive approach regarding the off-payroll working rules.

    The IR35 reform that has been introduced in the public sector in April 2017 has been singled out by professional contracting agencies and taxation bodies for unfair assessment of self-employed individuals.

    Recently the Independent Health Professionals (IHPA) has accused the taxation body of deceiving the public as well as the Government in claiming that IR35 rules have not resulted in the engagement of contractors in disguised remuneration schemes with umbrella companies.

    Details of IHPA’s Allegation against HMRC
    The association for health professional has provided written evidence against HMRC to the inquiry of 2018 draft Finance Bill carried out by the Finance Bill Sub-Committee.

    The evidence includes a copy of an email dated May 2018 sent by HMRC’s Mark Frampton to a senior official of NHS Improvement. The email addressed to Martin Innes was obtained by a request to the NHS provider through Freedom of Information (FOI) request.

    In the email, Frampton had acknowledged that the IR35 rules have resulted in increasing number of contractors engaging in schemes to avoid paying taxes. The IHPA has accused the taxation body of withholding this acknowledgement from the public.

    Frampton had stated in the email that the HMRC had heard that some medical staff were sold tax avoidance schemes such as ‘contractor loan’ and other complex schemes. The acknowledgement by a senior official has raised questions about the integrity of the taxation body that has so far denied the failings of IR35 reform rules.

    The allegation by IHPA represents a major blow to HMRC that just last month had been criticised for actively encouraging blanket IR35 assessment of temporary staff.

    The email demonstrates that HMRC is aware of the shortcomings of the off-payroll rules. Despite this, the taxation body has been boasting about the success of the reform rules.

    The taxation body did not address concerns raised during the IR35 consultation about increased engagement in tax avoidance loan schemes.

    The allegation comes around five months after the implication of NHS trusts hiring temporary workers through the Direct Engagement Scheme (DES). The use of the scheme had increased following the implementation of IR35 reform rules.

    The fact is that the off-payroll working rules implemented in the public sector have resulted in a disastrous effect. There has been a significant reduction in the workforce with records from the Office of National Statistics (NOS) prepared by Worklab showing a decline of nearly 21,000 medical professional this year as compared to 2017. The statistics portend the expected negative effects of the IR35 rules when extended to the private sector in April 2020.
  • NAO Report on Investigation into the BBC’s Engagement with Personal Service Companies Nov 20, 2018

    The BBC has been accused of not “fully untangling” the “mess” over some presenters’ tax affairs.

    The chair of the Public Accounts Committee, Meg Hillier MP, said some freelancers had been left in “desperate circumstances”.

    Her comments come as the spending watchdog, the National Audit Office (NAO), published a report into the BBC’s arrangements with its freelance staff.

    It found 800 BBC presenters could potentially be asked to repay tax.

    Some presenters’ unpaid tax bills from HMRC run into thousands of pounds.

    And HMRC is currently investigating around 100 BBC freelance staff, the report said.

    The BBC said it “recognises there are still issues to address and remain committed to resolving them”.

    The BBC hires thousands of freelancers: in 2017-18 it hired 60,000 including actors, entertainers and off-air workers.

    Some of the freelancers it hires operate as a “personal service company”. This means the person is self-employed, rather than being employed onto the BBC’s payroll. It is legal and is common across the media industry.

    Before April 2017, any freelancer working for the BBC as a PSC had to inform HMRC of their employment status for tax purposes – such as self-employed or employed – ensuring they would pay the correct amount of tax.

    But after April 2017, a change in the law meant it was up to public bodies like the BBC to become responsible for determining the employment status of PSCs it hired.

    In 2017, the BBC started using a new HMRC tool to assess the employment status of its freelancers. This started giving different results. Before, the majority of on-air freelancers were classed as self-employed but with the new tool they were classed as employed.

    In March this year, a group of 170 presenters wrote an open letter expressing dissatisfaction with how the BBC handled the changes.

    Questions were also raised during a parliamentary select committee in April this year about how the BBC used PSCs.

    According to the NAO (National audit Office), the BBC has taken steps to help the affected individuals.

    It said the BBC previously announced its plan to set up an independent mediation process for presenters who were hired through PSCs and who now believe the BBC bears some responsibility for the HMRC’s demands.

    But the report said issues relating to the BBC’s relationship with its freelancers remain “unresolved and may have financial implications for the corporation”.

    It said that between April and September 2017, the BBC paid £8.3 million of tax (in advance) to HMRC to avoid any penalty charges for not paying tax that was potentially due. It has not fully recouped the money yet.

    Meg Hillier MP, who chairs the Committee of Public Accounts – the group of MPs in charge of scrutinising public spending – said more needed to be done to ensure certainty for freelancers working for the BBC .

    “The Public Accounts Committee raised concerns about the BBC’s use of personal service companies six years ago,” she said.

    “It is worrying that, six years on, the mess of clarifying the employment status for tax purposes of people the BBC hires through PSCs has not been fully untangled.

    “With around 100 investigations into PSCs still outstanding, the BBC and HMRC must work together to ensure certainty for freelancers working for the BBC.

    “Particularly for those freelancers who have been left in desperate circumstances.”

    A HMRC spokesman said: “Presenters are now increasingly paying the right tax and most do.

    “Where presenters have not paid the right amount of tax it is right that we enforce the law so people are treated equally and fairly.”

    The BBC has approached HMRC to discuss the possibility of an alternative approach to resolving cases.

    A BBC spokesman said: “As the NAO recognises, personal service companies are a legitimate way of contracting for services used by many across the media industry.

    “However, determining whether an individual is employed for tax purposes is complex and in managing this we have always sought to balance the interests of our workforce and the licence fee payer.

    “We recognise there are still issues to address and remain committed to resolving them. We are currently in discussions with our presenters and are actively engaged with HMRC to explore the options for resolution.”
  • IR35 Forum Minutes Reveal the Reason for Delay in Private Sector Nov 19, 2018

    The much dreaded IR35 extension in the private sector had been announced by the Government during Budget 2018. However, much to the relief of the private sector businesses and contractors the extension had been delayed by a year until April 2020.

    The reason for the delay can be surmised from the recently released minutes of an IR35 forum meeting held on 30th August. During the meeting, the problems surrounding the off-payroll working rules were discussed.

    From the minutes, it’s clear that the forum meeting outcome had influenced the Government’s decision to extend the reform.

    In the ‘Summary of Responses’ document, HM Revenue & Customs (HMRC) had stated that it would explain the Mutuality of Obligation (MOO). According to HMRC, there are two possible outcomes to address the issues surrounding MOO.

    One is to include information about MOO on the CEST webpage. And the other is to publish another position paper with additional materials.

    The previous position paper from HMRC had stated that MOO is already assumed to be present when the need for Check Employment Status Tax (CEST) tool arises. However, many had criticised this assumption with the recent tribunal case outcomes highlighting the flaws of the assumption.

    Changes Unlikely Regarding HMRC Stance on MOO
    Despite the fact that HMRC has accepted issues surrounding CEST tool, its recent statements reflect that the tax agency has not budged from its stance regarding the tool.

    Recently, HMRC had commended that the tool is suitable for most of the situations. The tax body assumes that the tool is simple and easy to use with only a small number of issues.

    Before the release the CEST tool, HMRC had stressed that every case should be considered separately. The tax agency had stressed that no electronic tool would be able to judge employment status. However, now the tax body it seems had backtracked from its own statements.

    The minutes of the August 30th meeting show that a lot of cases are awaiting litigation. From the outcome of the recent tribunal cases, it can only be assumed that the tax body will face further criticisms. But despite facing a lot of criticism the tax agency has remained stoic about its view regarding MOO.

    The minute meeting outcome explains why the IR35 reform has been delayed. But the HMRC’s statements show that the problems may remain when the off-payroll working rules are finally implemented in 2020.
  • Private Sector IR35 Reform Could Hurt Low Paid Workers Nov 16, 2018

    During the Budget 2018, the UK Government had announced extension of the controversial IR35 rules to the private sector. The said rule will be implemented in April 2020 and will be applicable to medium and large sized private businesses.

    Professional bodies that represent self-employed workers and contractors have severely criticised the Government’s decision to extend off-payroll working rules to the private sector.

    Recently, a body of the Chartered Institute of Taxation — the Low Incomes Tax Reform Group (LITRG) — has also raised voices against the Government’s plan.

    How IR35 Reform Could Impact Low Paid Workers

    Many low-paid temp workers in the UK are able to find work through employment agencies only if they form their own companies. Employers contact these workers because they could avoid paying employer’s National Insurance Compensation (NIC). Moreover, they don’t have to pay the employment privileges to these workers.

    Some employers also earn additional income by offering accounting services to individuals.

    However, the new tax rules would seriously hurt the employment model that benefits both the worker and the private business. This could result in most low-paid workers facing a messy litigation as they don’t have knowledge about how to keep the company’s affairs separate from their own.

    The Head of LITRG, Victoria Todd, says that while the Government has done the right thing by exempting small businesses from IR35 reform rules, the low paid workers who offer services to medium and large companies would be seriously affected. She also says that this could result in an end of the practice of providing services through personal service companies.

    The closure of personal service companies could affect a large number of self-employed individuals. The Government will have to carefully consider the response for such an anomaly.

    According to Ms. Todd, if we are to learn from the implementation of IR35 reform in the public sector, we could see increased shady practices in the private sector to avoid taxation. Apart from workers, engagers might also be forced to take an alternate approach to avoid paying higher taxes.

    The end result will be lower taxes for the Government instead of an increase in tax revenues.

    On a side note, Ms. Todd did appreciate that the HM Revenue and Customs (HMRC) commitment to perform historical enquiries. While the intention is laudatory, she raised doubts whether the Government tax agency would keep true to its words given the attitude of its officers relating to the off-payroll working rules.
  • Private Sector IR35 Reform Could Hurt Low Paid Workers Nov 16, 2018

    During the Budget 2018, the UK Government had announced extension of the controversial IR35 rules to the private sector. The said rule will be implemented in April 2020 and will be applicable to medium and large sized private businesses.

    Professional bodies that represent self-employed workers and contractors have severely criticised the Government’s decision to extend off-payroll working rules to the private sector.

    Recently, a body of the Chartered Institute of Taxation — the Low Incomes Tax Reform Group (LITRG) — has also raised voices against the Government’s plan.

    How IR35 Reform Could Impact Low Paid Workers

    Many low-paid temp workers in the UK are able to find work through employment agencies only if they form their own companies. Employers contact these workers because they could avoid paying employer’s National Insurance Compensation (NIC). Moreover, they don’t have to pay the employment privileges to these workers.

    Some employers also earn additional income by offering accounting services to individuals.

    However, the new tax rules would seriously hurt the employment model that benefits both the worker and the private business. This could result in most low-paid workers facing a messy litigation as they don’t have knowledge about how to keep the company’s affairs separate from their own.

    The Head of LITRG, Victoria Todd, says that while the Government has done the right thing by exempting small businesses from IR35 reform rules, the low paid workers who offer services to medium and large companies would be seriously affected. She also says that this could result in an end of the practice of providing services through personal service companies.

    The closure of personal service companies could affect a large number of self-employed individuals. The Government will have to carefully consider the response for such an anomaly.

    According to Ms. Todd, if we are to learn from the implementation of IR35 reform in the public sector, we could see increased shady practices in the private sector to avoid taxation. Apart from workers, engagers might also be forced to take an alternate approach to avoid paying higher taxes.

    The end result will be lower taxes for the Government instead of an increase in tax revenues.

    On a side note, Ms. Todd did appreciate that the HM Revenue and Customs (HMRC) commitment to perform historical enquiries. While the intention is laudatory, she raised doubts whether the Government tax agency would keep true to its words given the attitude of its officers relating to the off-payroll working rules.
  • Living Wage Rate Goes Beyond the Minimum Government Wage Rate Nov 13, 2018

    A pay raise is expected for workers who are engaged with Living Wage employers in the UK. The increase in wages is more than the rise in inflation levels this year.

    The UK Living Wage has been increased to £9 per hour by the Living Wage Foundation. This represents a 25-pence increase per hour. The rate is more £1.72 more than the minimum government wage.

    The London hourly rate has also been increased from £10.20 to £10.55 — an increase of 35 pence per hour. The London rate is £2.72 more than the government minimum wage.

    The Living Wage is paid by above 4,700 employers in the UK. An estimated 180,000 workers are set for an increase in pay.

    Over 4,700 employers across the UK, including over 1,500, in London pay the Living Wage and an estimated 180,000 workers are set for a pay boost.

    A Call to Take Low Pay
    The Living Wage Foundation (LWF) has called all large employers to assist in solving the issue of low pay. It has committed to raising the pay rates above the rates set by the Government. The foundation had committed to increasing the pay to ensure staff is able to live on the pay.

    According to a study by LWF, about 480,000 additional workers could benefit if local universities, sports clubs, and authorities raise wages according to the Living Wage.

    KMPG that found that more than a fifth of employers in the UK pays less than the real Living Wage. Nearly 1.2 million jobs have been paying less than the Living Wage rates since 2012.

    Last year, about 1,200 employers had decided to pay more than the government minimum rates. This included large firms such as University of Bristol, Liverpool Football Club, Aberystwyth University, and Sheffield City Region.

    At the moment, more than 5,900 employers across the UK pay more than the government minimum wage. The list includes such large firms as Google, Aviva, and IKEA. Moreover, a large number of small business owners have committed to going beyond by minimum.

    According to the director of the Living Wage Foundation, the Living Wage tackles the issue of people being paid less than required for subsistence. Every responsible business know that the government’s minimum pay is not adequate to meet expenses. The increase in Living Wage Rates will help boost the pay of thousands of workers across the UK.
  • HMRC Announce Plans to Make Changes to CEST Tool Nov 12, 2018

    HM Revenue and Customs (HMRC) have at last accepted the flaws with its highly criticised Check Employment Status Tax (CEST) tool. This has been announced in the latest IR35 Forum minutes released the previous week.

    CEST has received a lot of criticism from professionals since it did not account for the Mutuality of Obligation (MOO). As has been proved by the outcome of various tribunal cases related to IR35, MOO is a critical factor that determines employment status. But this was ignored by the CEST tool.

    A Step in the Right Direction
    HMRC has also announced its plan to offer additional guidance related to the completion of CEST. Also, the tax authority will create a note relating to MOO. It has stated that it will consider ways to improve the employment assessment tool to promote good practice.

    The tax agency had also promised that it will work with different stakeholders in order to better address concerns raised regarding the IR35 rules.

    One of the chief shortcomings of the CEST tool was the assumption that MOO is present in all contractual obligations, which is not the case in every contract. The flawed assumption had led to many contractors being erroneously judged inside IR35.

    IR35 Forum members have repeatedly raised concerns regarding the flaws of the CEST tool. The members have pointed out that the tool does not correctly assess contractors who engage in different types of work. Moreover, the CEST tool is not suitable for the large private sector. Members have requested to make changes to the tool in light of the flaws proved in different litigations since March 2017.

    Apart from fixing the CEST tool, HMRC has also stated that it will create a redraft to explain applicability of MOO in certain situations such as when the contractor has been engaged in a series of short engagements.

    Moreover, HMRC has announced that it will address non-compliance with IR35 among umbrella and recruitment agencies. This is a serious issue that the tax agency think is deliberate instead of a result of a lack of knowledge. The tax agency had rejected the proposal to create best practice standards since it thinks that they would most likely be ignored. However, it has acknowledged that there need to be changed in the employment status tool to make it simple and straightforward that covers all eventualities.

    Although the contracting professionals have welcomed HMRC’s move towards changing flaws of CEST tool, they also criticised the tax agency’s failure to consider expert’s advice regarding off-payroll working rules.
  • Experts Warn IR35 Will Increase Business Costs Nov 9, 2018

    Criticisms continue to pour regarding the Government’s decision to go ahead with the private sector IR35 extension.

    The new rules require all medium and large size private sector UK businesses to assess the employment status of contracting professionals. According to a report by Director of Finance magazine, the reform will result in about 10 percent increase in accountancy costs for these businesses.

    While small businesses seem to be exempt from IR35 reform rules, the Government has not clarified how they will be defined. There is no concrete legal definition differentiating different business sizes in the UK.

    Experts have warned that the implementation of the IR35 rules will lead to an increase in tax avoidance schemes. Julia Kermode, the CEO of the Freelancer and Contractor Services Association (FCSA) had stated that there could be an exponential increase in such schemes once the tax rules are implemented. This has been inferred from similar activities in the public sector after the implementation of the IR35 reform in April 2017.

    Costly for Businesses and Contracting Professionals
    The CEO of Contractor Calculator, Dave Chaplin, had stated that the damage due to public sector IR35 reform is still not clear. Once the real impact of the reform come to light, he anticipates that the unintended consequences on the sector in the form of losses and lost projects will become clear.

    The tax reform rules have not been properly conceived, according to Mr. Chaplin. The reform will ultimately damage the UK economy.

    According to Mr. Chaplin, the tax reform will increase the cost of hiring flexible workers by 10 percent. The move is contrary to the pro-business claims of the Government. The extension of the tax reform will create difficulties for private businesses that can’t afford full-time workers.

    This view is shared by Lee Murphy, founder of online accountancy firm, Pandle. He had opined that the tax reforms will hit contracting professionals and also result in increased business costs.

    The Chairman of the Federation of Small Business (FSB), Mike Cherry has urged the government to carefully manage the destructive reform in the private sector.

    Meanwhile, a positive aspect of the tax reform is that contractors associated with umbrella companies will receive statutory employment benefits enjoyed by salaried counterparts. They will be in a better position as compared to contracting professionals who offer services independently or through a personal service agency (PSA).
  • HMRC Reveals $1BN Claim Against General Electric Nov 6, 2018

    Britain’s authorities have declared war on one of America’s biggest corporations in an attempt to seize $1billion they allege should have been paid in tax.

    General Electric, which operates in 180 countries and employs 295,000 staff, is being sued for the equivalent of £770million by Her Majesty’s Revenue & Customs.

    The taxman alleges that the industrial heavyweight – with interests across the energy, aviation, healthcare and financial sectors – wrongly claimed tax relief in the UK on various strands of its business over a 12-year period. GE has indicated it will fight HMRC.

    Allegations: The taxman believes that GE wrongly claimed tax relief in the UK over a 12-year period

    The row emerges at the end of a week in which Chancellor Philip Hammond unveiled Budget plans to target US tech behemoths such as Google and Facebook with a new ‘digital services tax’.

    HMRC has told GE that it intends to ‘disallow’ tax deductions claimed by GE Capital, its financial services unit, between 2004 and 2015. The case relates specifically to ‘interest deductions’ which enable companies to report lower taxable profits by subtracting the interest payments they make on loans.

    Critics argue that some firms manipulate the system by loaning money from their subsidiaries in low tax areas to those in higher tax regions with big interest rates attached.

    They suggest this allows companies to reduce their overall tax bills by booking lower profits in higher tax regions.

    Neither General Electric nor HMRC has provided further details on this case and the specific allegations remain unknown.

    The company has indicated it will ‘contest the disallowance’, which it admitted could cost the business $1 billion.

    It said: ‘We comply with all applicable tax laws and judicial doctrines of the United Kingdom and believe that the entire benefit is more likely than not to be sustained on its technical merit.’

    Richard Murphy, who runs Tax Research UK, said it was ‘surprising’ and rare that an HMRC claim would date back to 2004.

    He added: ‘A 14-year period is no small area of concern. That is a massive dispute.

    ‘The fact that the Revenue has now lodged a claim suggests it has had enough – that the dispute has been ongoing for so long that it is now putting down a marker.

    ‘That is not its preferred course of action. It is expensive and HMRC faces the risk of losing. It always prefers a negotiated settlement. It is quite clear that GE is saying it is not going to negotiate so take us to court.

    ‘The sum of money is substantial. I have little doubt that if the Revenue wins it will be using this case to prove a point to other businesses.’

    George Turner, of think-tank Tax Watch UK, said: ‘Multinational companies and private equity funds have for many years been abusing interest deductions to shift profit out of the UK and lower their tax bills – and the UK has been one of the easiest places to do this.

    ‘The GE case involves a significant amount of cash and I hope this signals that the UK Government is starting to take this issue more seriously.’

    General Electric has its headquarters in Boston, Massachusetts, and it has been operating in Britain for more than 100 years. It employs about 16,000 people within these shores.

    At the end of October, HMRC filed a legal claim in London’s High Court against seven General Electric companies – providing an insight into the firm’s complex network of subsidiaries.

    The company has previously come under fire in the US for its tax practices.

    The firm was blasted in 2011 for reporting worldwide profits of $14.2 billion while receiving a tax benefit in the US of $3.2 billion.
  • Government Defers Private Sector IR35 Reform Until 2020 Nov 3, 2018

    In the recently announced Budget 2018, the Government has decided to defer the private sector IR35 reform until 2020. This news has been welcomed by agencies representing self-employed and contracting professionals. However, they also criticised the Government for proceeding with the controversial tax reform.

    According to the Sam Hurley of the Association of Professional Staffing Companies (APSCo), the decision to extend IR35 reform will have a negative effect on not just the labour market but the economy as well.

    Mr. Hurley had stated that the trade body is concerned about the Government’s inaction to make any changes to the IR35 reform, especially regarding the inaccurate Check Employment Status for Tax (CEST) tool.

    Similar criticisms were aired by experts at Association of the Independent Professionals and the Self Employed (IPSE).

    Chris Bryce, the CEO of IPSE, had referred to the rollout of the private sector IR35 reform as a ‘smash and grab’ approach towards private sector enterprises in the country. Mr. Bryce had stated that the Chancellor had created an extended pattern of despair for contracting professionals as they will have to wait longer for the implementation of the dreaded IR35 private sector extension.

    Negative Impact on Entrepreneurialism
    Experts predict that IR35 reforms could lead to a shortage of skilled labour that will prevent businesses to access cheap labour. This would likely discourage entrepreneurs from setting up new businesses in the UK.

    The support of private sector firms is required more than ever today to navigate the economy after Brexit. According to Mr. Bryce, taxing private businesses will damage the UK economy as it will force most of flexible businesses out of existence.

    IR35 reforms are anti-business that will negatively affect competition among UK firms. Large corporations will have a clear tax advantage. They can force thousands of independent contracting professionals out of business. It will allow large companies to pick all the contracts, which will hurt the UK consumers as they will have no other options but to pay higher prices charged by larger companies.

    Independent contractors and self-employed individuals contribute about £271 billion to the economy each year, according to Mr. Bryce. The Government must support rather than go against this valuable segment of the economy. They provide greater flexibility to enterprises resulting in reduced operational costs. He has vowed that IPSE will continue to wage a fight against IR35 in the years ahead.
  • UK Budget 2018: What You Need to Know Nov 2, 2018

    Apart from the announcement of the private sector IR35 reform rollout in April 2020, the Budget 2018 has been generally favourable towards the contracting community. Experts believe that there was more positive news for the self-employed than negative ones in the recently announced Budget.

    Here is a summary of some of the major announcements in the Budget 2018 that will be beneficial for self-employed and contracting professionals when implemented.

    • Decrease in Corporate Tax — Contrary to the common perception, the Government did not backtrack from its promise to reduce corporate tax by 2 percent in April 2020. The reduction in taxes will not help private corporations including self-contracting individuals who intend to provide services through their own company.
    • Improved Broadband Access in Rural Areas — The Government has also pledged to improve the quality of broadband services in rural areas by allocating a fund of £275 million. This is good news for self-contracting professionals as the majority of them in rural areas don’t have access to broadband services.
    • Increase in Personal Allowance — Taxpayers including contracting professionals will benefit from an increase in income tax allowance to £12,500 in April 2019.
    • Increase in New Enterprise Allowance (NEA) Funding — Considering the fact that NEA has been beneficial for disabled people in the UK, the Government has announced an increase in its funding. This will help over one hundred thousand disabled persons including those who are self-employed in the UK.
    • Freeze in VAT Limit — The Government has also confirmed that the VAT limit will remain fixed at £85,000 till 2022.
    • Recommendations to Increase Pension Savings of Self-Employed — The Government has announced that a report will be published later this year that will provide recommendations to self-employed to boost their pension savings. This is a serious matter given the fact that IPSE found only 31 percent of self-employed individuals contribute to a pension scheme. The Government report will outline a series of trials that will be tested in 2019 with close collaboration with IPSE.
    Budget 2018 has certain negative points also that have been summarized below.

    • No Tax-free Training — Despite the advise from IPSE that tax-free training will motivate contracting professionals to improve their skills, the Government has decided not to make any changes in this regard. Instead, the Government stated that the National Retraining Scheme (NRS) will allow self-employed individuals to develop the required skills.
    • No Changes in Universal Credit — The Government has not made any changes in Universal Credit (UC) funding announced for employed individuals. UC does not account for the variable nature of income of contracting professionals. IPSE had advised changing the Minimum Income Floor, but nothing has been announced regarding the matter in this Budget.
    • Landlords Can’t Claim Letting Relief against Capital Gains Tax — Landlords can no longer claim letting relief of £40,000 against Capital Gains Tax when selling a property. Moreover, the exemption period for tax calculation has been reduced to nine months. This will affect the rent paid out by freelancers.
    Despite some shortcomings, the Budget 2018 has been favourable geared for both the employed and self-employed individuals. The Government has offered a decrease in corporate taxation, increased access to broadband in rural areas, increased personal tax allowance, and let the VAT limit unchanged. Moreover, the Government has rightly decided to extend the IR35 rollout to April 2020.

    One serious issue that has not been addressed in the latest Budget was the consultation regarding the off-payroll employment status. The consultation that ended this summer asked comments from experts regarding IR35 employment status assessment. It is expected that the Government will submit the response to the consultation later this year, or early next year.
  • MP’s Attacked BBC Over Their Pay Structure Oct 31, 2018

    MPs say women have earned “far less” despite doing the same job as men, and some staff have suffered “life-changing consequences”.

    The BBC has been criticised by MPs for paying female staff less and employing people on contracts that ended up having “life-changing consequences”.

    A report on pay equality by the digital, culture, media and sport committee (DCMS) found the corporation has been failing female employees.

    The broadcaster was branded a “disgrace” for allegedly coercing staff to take on work with no rights to sick pay, maternity leave, pensions or other benefits.

    The investigation by the committee was prompted by the resignation of the BBC’s China editor Carrie Gracie, who quit after finding out she was paid two-thirds less than North America editor Jon Sopel.

    MPs concluded that salaries at the BBC were set by “an opaque system of discretionary decisions by individual managers” who have “devolved powers to make their own personal choices on staff pay”.

    It stated: “The Equality Act 2010 states that men and women must be paid the same for doing the same work, like work and work of equal value.

    “Evidence suggests women within the BBC are working in comparable jobs to men but earning far less.

    “The corporation was unable to give us a good reason for why or how pay discrimination has been left unchallenged for so long.

    “The BBC must take urgent action to remove discriminatory pay practice and its legacy from the organisation.”

    The report also criticised the BBC’s own internal investigation that found there was no “evidence of gender bias” in BBC pay, and its grievance process, which was failing to address employees’ concerns.

    Woman’s Hour presenter Jane Garvey, who has been outspoken on the issue of women’s pay, said: “MPs on the committee sound as frustrated by the pace of change at the BBC as we are.

    “The grievance process is complicated, stressful and time consuming, and the new pay framework does nothing to help women compare salaries to men doing the same work.”

    A group representing women at the BBC said the report reveals a lack of “transparency” and “independent oversight”.

    BBC Women, which represents female journalists and producers, said the corporation must fulfil its “moral duties”, adding: “BBC management should lead by example, implement the recommendations made by the select committee immediately, meet its legal obligations on pay – and its moral duties as an organisation funded by the licence fee payer.”

    The report also tackled the BBC’s use of personal service contracts (PSCs), which involve people setting up their own companies and then working as contractors without the usual benefits offered to staff.

    The alleged cost-saving practice left presenters without sick pay, maternity leave and other employment benefits.

    The committee’s report carries allegations that the BBC coerced some employees to give up these benefits and work as freelancers, saving the broadcaster tens of millions in National Insurance contributions.

    Some of those who were on PSCs have now been ordered to repay tax that HMRC says should have been paid at the time.

    DCMS chairman Damian Collins said: “Many are now facing bills of hundreds of thousands of pounds in unpaid income tax and National Insurance contributions. These are life-changing consequences.

    “Where there’s evidence that people were coerced into setting up these companies so they could carry on working as presenters, the BBC should offer compensation to cover their losses.”

    A Deloitte review found no evidence of staff being forced to move to PSC arrangements.

    The BBC said in a statement: “While we still have more to do, much of this report is already out of date.

    In February, HMRC won a high-profile IR35 case against BBC presenter Christa Ackroyd, arguing that she owed £419,151 for tax years 2006/7 to 2012/13 because she claimed to be self-employed when she was not.