The IR35 rule was introduced in 2000 to equalise the tax position between employees and individuals who provide their services, usually using a company (often called a Personal Services Company — PSC). The IR35 legislation, which aims to ensure that contractors are paying the appropriate amount of tax, is also changing for some businesses in the private sector. Currently, most contractors are required to determine their own status as employee or contractor. From 6 April 2021 the liability to determine a contractor’s tax status will pass to clients/employers.
This change was due to be introduced in April 2020 but was delayed until April 2021 due to the Covid-19 crisis. It is expected that this change will lead to a significant number of “contractors” having to pay extra tax and National Insurance as it is estimated that only 10% correctly determine their tax status. The change is being introduced to move the responsibility from the contractor to medium and large-sector clients. Smaller clients will be exempt from this obligation and the contractor remains liable for determining their own tax status. A medium to large business is one that has two or more of the following:
- turnover of more than £10.2 million
- balance sheet totals, or is more than, £5.1 million
- has 50 or more employees.
Where a determination is made that a contractor is not caught by the IR35 rules it is essential that reasonable care is taken in the decision-making process as the decision itself must be reasonable. If care is not taken, status determination statements may not be valid and the client may be liable to pay any unpaid taxes.
In February 2021, the Government published new guidance which confirmed that companies will not have to pay penalties on any inaccuracies within the first 12 months of the new rules coming into effect, unless there is “clear evidence of deliberate non-compliance”. The aim of this is to help companies implement the new rules while also recognising the difficulties they may be under as a result of the coronavirus pandemic.
However, “deliberate defaulters” will be named and shamed to encourage them to get their “tax affairs in order”. For this reason, the Government has urged businesses not to cut corners when introducing these new rules.
The Chancellor, Rishi Sunak, announced on 25 November 2020 that the National Living Wage (NLW) will increase by 2.2% to £8.91 per hour from 1 April 2021. Going further, the Government has also decreased the age threshold from ages 25 and over to 23 and over.
National wage rates will increase, as follows:
|Rates from 1 April 2021
|Workers aged 25 and over (NLW)
|£8.72 an hour
|Workers aged 23 and over (NLW)
|£8.91 an hour
|Workers aged 21‒24
|£8.20 an hour
|Workers aged 21‒22
|£8.36 an hour
|Development rate for workers aged 18‒20
|£6.45 an hour
|£6.56 an hour
|Young workers rate for workers aged 16‒17
|£4.55 an hour
|£4.62 an hour
|Apprentices under 19, or 19+ but in the first year of the apprenticeship
|£4.15 an hour
|£4.30 an hour
By law, it is important that employers pay staff the correct national wage rates for their age groups or risk facing serious repercussions for failing to do so. The risks range from unlawful deductions from wages claims, fines from the Government, and/or being “named and shamed” as a “rogue” employer.
Self assessment taxpayers have just over a week to pay any outstanding tax liabilities in full or set up an online payment plan for the 2019 to 2020 financial year to avoid incurring penalty charges, HMRC has warned
Due to the impact of the Covid-19 pandemic, HMRC has given self assessment taxpayers more time to pay their tax or set up a payment plan without facing a 5% late payment penalty charge, as long as arrangements were in place by midnight on 1 April.
Those who have yet to settle their liabilities for the 2019 to 2020 financial year can pay their tax bill or set up a monthly payment plan online at gov.uk. They can pay online, via their bank, or by post. Alternatively, setting up a Time to Pay arrangement allows taxpayers to spread the cost of their self assessment tax bill into monthly instalments until January 2022.
The self-serve Time to Pay data is for online payment plans created between 1 October 2020 and 21 March 2021. This system allows taxpayers to set up a payment plan online to help them manage the cost of their tax bill up to £30,000. Taxpayers will be able to pay their tax bill in monthly instalments, up to January 2022. For those with bills over £30,000, individual repayment arrangements need to be negotiated with HMRC directly.
Almost 117,000 taxpayers have set up a self-serve Time to Pay arrangement online, totalling repayments of more than £437m.
Anyone worried about paying their tax and unable to set up a payment plan online should contact their accountant or HMRC for help and support on 0300 200 3822.
There is no change to the payment deadline and other obligations are not affected. This means that:
the payment deadline remains 31 January 2021 and interest will be charged on late payment. The current rate of late payment interest is 2.6%
A 5% late payment penalty will be charged if tax remains outstanding, and a payment plan has not been set up, by midnight on 1 April 2021. Further late payment penalties are charged at 6 and 12 months (August 2021 and February 2022 respectively), on tax outstanding where a payment plan has not been set up
Self assessment taxpayers who are required to make Payments on Account and know their 2020 to 2021 tax bill is going to be lower than in 2019 to 2020 – for example, due to loss of earnings because of Covid-19 – can reduce their payments. Visit gov.uk to find out more about Payments on Account and how to reduce them.
HMRC has announced that businesses that deferred VAT payments last year can now join the new online VAT Deferral New Payment Scheme to pay it in smaller monthly instalments.
To take advantage of the new payment scheme businesses will need to have deferred VAT payments between March and June 2020, under the VAT Payment Deferral Scheme. They will now be given the option to pay their deferred VAT in equal consecutive monthly instalments from March 2021.
Businesses will need to opt-in to the VAT Deferral New Payment Scheme. They can do this via the online service that opened on 23 February and closes on 21 June 2021.
Jesse Norman, Financial Secretary to the Treasury, said:
‘The Government has provided a package of support worth over £280bn during the pandemic to help protect millions of jobs and businesses.
‘This now includes the VAT Deferral New Payment Scheme, which will help provide businesses with the breathing space they may need to manage their cashflows in the weeks and months ahead.’
Businesses that took out government-backed Bounce Back loans to get through the coronavirus (COVID-19) pandemic will now have greater flexibility to repay their loans, the government has announced.
The Pay as You Grow repayment flexibilities now include the option to delay all repayments for a further six months. This means businesses can choose to make no payments on their loans until 18 months after they originally took them out.
Pay as You Grow will also enable borrowers to extend the length of their loans from six to ten years, which reduces monthly repayments by almost half.
They can also make interest-only payments for six months to tailor their repayment schedule to suit their individual circumstances.
The Pay as You Grow options will be available to more than 1.4 million businesses which took out a total of nearly £45 billion through the Bounce Back Loan Scheme (BBLS).
The Chancellor of the Exchequer, Rishi Sunak, said:
‘Businesses are continuing to feel the impact of extended disruption from COVID-19, and we’re determined to give them the backing and confidence they need to get through the pandemic.
‘That’s why we’re giving Bounce Back loan borrowers breathing space to get back on their feet, through greater flexibility and time to repay their loans on their terms.’
HMRC has announced that Self Assessment taxpayers will not be charged a 5% late payment penalty if they pay their tax or set up a payment plan by 1 April.
The payment deadline for Self Assessment is 31 January and interest is charged from 1 February on any amounts outstanding.
Normally, a 5% late payment penalty is also charged on any unpaid tax that is still outstanding on 3 March. But this year, because of the impact of the coronavirus (COVID-19) pandemic, HMRC is giving taxpayers more time to pay or set up a payment plan.
Taxpayers can pay their tax bill or set up a monthly payment plan online and are required to do this by midnight on 1 April to prevent being charged a late payment penalty. The online Time to Pay facility allows taxpayers to spread the cost of their Self Assessment tax bill into monthly instalments until January 2022.
Jim Harra, HMRC’s Chief Executive, said:
‘Anyone worried about paying their tax can set up a payment plan to spread the cost into monthly instalments. Support is available at GOV.UK to help anyone struggling to meet their obligations.’
Internet link: HMRC press release
Chancellor Rishi Sunak set out a Budget to protect businesses through the pandemic, fix the public finances and begin building the future economy.
The Chancellor once again pledged to do ‘whatever it takes’ during the COVID-19 pandemic and confirmed that the furlough scheme would be extended until September 2021 to support jobs through the crisis.
Mr Sunak also confirmed that the Self-Employment Income Support Scheme (SEISS) has also been extended, with two further grants this year. Claimable by the self-employed, including the newly self-employed from 6 April 2019, provided they have filed their 2019/20 tax return for by midnight on 2 March 2021,
The stamp duty nil rate band on residential properties in England up to £500,000 will continue until the end of June. It will taper to £250,000 until the end of September, and then return to the usual level of £125,000 from 1 October 2021.
To support businesses as they re-open following lockdown, £5 billion will be made available in restart grants. Non-essential retail businesses re-opening first will be eligible for up to £6,000 but the leisure and hospitality sectors, which have been worse affected and will re-open later, will be eligible for up to £18,000.
However, the rate of corporation tax will increase to 25% in April 2023 for companies with profits over £250,000, whilst retaining a Small Profits Rate of 19% for companies with profits of £50,000 or less.
The Chancellor also introduced a super-deduction for companies investing in qualifying new plant and machinery. Under this measure a company will be allowed to claim 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances.
He also confirmed the location of the eight Freeports in England. Freeports are special economic zones with favourable tariffs and lower taxes to make it easier and cheaper to do business.
Internet link: GOV.UK speeches