Public Sector IR35 changes
IR35 is generally a nightmare for most contractors! However, this will be compounded with the proposed legislation changes taking effect from the 6th of April 2017.
The new legislation will especially affect contractors working within the public sector quite dramatically by placing the onus on the client rather than the contractor. If your client decides that IR35 does apply, or that they don’t want to bear the risk, the contractors business will be taxed at source through Real Time Information (RTI).
The downfall here is that you are being taxed the same as an employee, however, you do not obtain the same rights as your employment status would not change, therefore would not receive rights or benefit such as pension contributions, holiday pay, and unfair dismissal rights.
Never fear, though, this does not mean that there is no hope, we are here to help keep you stay on the right track and keep you fully compliant.
HMRC have provided a helpful tool that everyone can use to help determine whether you will need to be processed through PAYE or not.
By using the status checker (www.tax.service.gov.uk/check-employment-status-for-tax/setup), it will put you and your client’s mind and rest as it fully HMRC approved. All reports can be printed or saved for your records for the future and the record of the check is not kept on record by HMRC for those of you worrying about that.
Just because one contract may be within IR35 doesn’t mean they all will and each person such seek professional advice to find what is the best solution for you as it is an individual situation and role specific.
Legislation changes constantly and this will probably be no exception, though we will have to wait for final legislation to be published in order to confirm any future alterations.
To safeguard yourself is never a bad idea so we strongly recommend that if you wish to continue a public-sector client even after it has been determined to fall within IR35, you should request a completely new contract with the correct wording for your engagement and avoid simply extending any current contracts.
How can I avoid being caught out now by these new tax rules?
If you are a contractor working with public sector clients, and invoicing on 30-day payment terms, you should send your invoices before 6th March 2017 or run the risk of falling foul of the new tax rules.
Is the soon-to-be-launched IR35 digital tool (the ESS) any good?
The tool is essentially a series of questions, which when completed gives a determination of whether an engagement is inside or outside IR35.
Thousands of engagements will need to be assessed so that contractors, clients and agencies can go to work knowing how to treat payment for that work made in April after the new rules kick in.
What does the future hold?
There is still much we don’t yet know how the new legislation will work in practice. The real extent of the difficulties it will cause will not become apparent until the middle of 2017.
However, we are aware that these rules are already driving contractors out of the public sector and removing the specialist skills and expertise that they supply, and we continue to put our case to government and civil service officials at the very highest levels.
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Our 7 Questions
1 ) When did you realise you wanted to go into business for yourself?
I started off when I was working in a small accounting and European payroll company, wanting to break away from the standard ways of business where the customer was never a focus, and the money is the only concern. I began an accountancy practice that specializes in working with Contractors and other small limited companies to offer a one stop shop for all accounting needs. We have worked hard to systemize the company process to effectively give the best possible service to all our clients equally. We have built partnerships allowing us to provide any service that has come our way and will always use our client feedback to help focus on where to build and improve.
2 )Were you confident you would succeed or were you nervous of failing?
I think everyone when they first start out will have those butterflies in the stomach with the unknown, however I have a logical outlook on most things and a think it the best approach to have. After thinking of what service we wanted to provide to our current and potential clients and doing some investigation work, it seems putting little baby steps in place rather than a hurdle will help you keep focused on you goals and help to build on what you already have achieved. You will get out what you put in. If you focus and put in the work required you will ultimately get the right results, and with a customer service focus we can pass this success on to your clients.
3 ) Did you seek advice from your family or friends? Did anyone close to you suggest it was a bad idea to go into business for yourself or did you receive a lot of support?
I ran my thought process through a couple of people as I find when your mind is full of a lot of information it is hard to know if you are still being rational, so I find it helpful to talk through my thought process and it will help locate any potential issues or anything you may have missed.
4 ) What was the biggest obstacle you had to face and overcome in order to start your business?
Not knowing where to begin with the venture was a big obstacle. Trying to understand where to begin in terms of systems, processes, sales, marketing etc. is not easy and a constant journey any business will go through as technology progresses, however by considering each separately and going to informative seminars you can pin point what is most vital to you.
Obviously at the beginning you will be thinking all of it is relevant, however as you take the time to think in terms of the time to implement, the costs and impact it will have on your business you can focus and re-organize your priorities.
5 ) Do you remember your first customer and can you recall how you felt when you delivered what they were prepared to pay you for?
When you are in a customer focus industry it is extremely satisfying when your clients show gratitude for the support you have provided to them.
Accountants do built bonds with their clients as there is a lifetime bond of trust between the client and accountant.
I take a very informal approach to my service so that everyone feels welcome and comfortable but still receiving a professional service rather than very formal approach, like when people are left waiting awkwardly at the doctors waiting room. My clients have commented on this from the start saying that is one of the things they like about us most. “The accountant the doesn’t feel like getting your teeth pooled”.
6 ) What would be the ONE thing you would do differently and where do you see your business in five years time?
I would have considered getting people to help me with setting up things like systems etc. Whether you need a business partner, staff or a service company you need help to get your company how you want it and you can’t do everything by yourself. Well you can, but it will drag you back by not seeking the help you need. Also, having different points of perspective is never a bad thing if you remain open-minded, as you are more likely to come up with solutions that generally works for most people rather than just you.
In five years, I would like to see myself in a steadily growing business working with my staff and clients as a community supporting each other and working together to get the best solutions for the best individual life goals.
At the end of the day that is why we are all here whether you are looking to be the most tax efficient through a limited company, pension solution or investments the end goal is the get supported to assist you in getting to their happy life/work balance.
7 ) What would be your advice to any startup or to anyone thinking of going into business for themselves?
Before setting up do a bit of research on other companies offering similar services to get an idea of things you may need to anticipate that you were not aware of.
Utilize all resources available to you to help with training yourself on how to get the best from your business and your colleagues.
Make small goals within one big goal so that the smaller goals seem more attainable to you, like taking a stroll up a slopping hill compared to running up the mountain. I know I wouldn’t have the stamina for that.
We would like to thank Jackie Elkington for submitting this article for our readers.
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