March 2018

tax tips & finance e-newsletter

In this issue

Spring Statement & Tax Data Card
Are you sure you or your workers are Self-Employed?
BBC Presenter loses landmark IR35 case
Pension Funds can be very effective in Estate Planning
Managing your strategic objectives

Spring Statement & Tax Data Card

The Chancellor Philip Hammond presented his first Spring Statement on Tuesday 13 March 2018. In his speech he provided an update on the economy and also launched consultations on various aspects of the tax system. Please download our summary of the Spring Statement 2018 below.

Download the Spring Statement

The Spring Statement also announced or confirmed many of the figures fundamental to our business and personal lives and the main ones are summarised in the 2018/19 Tax Data Card. We are sure that you will find it a useful point of reference throughout the coming tax year; please click the link below to download your copy.

Download the Tax Data Card

Are you sure you or your workers are Self-Employed?

Last year, the House of Commons Work and Pensions Committee published a report calling on the Government to close the loopholes that allow “bogus” self-employment practices, which burden the welfare state but reduce the tax contributions needed to sustain it.

Many of the people working for organisations such as such as Uber, Amazon, Hermes and Deliveroo are not on the payroll, have limited workers’ rights and are paid for each delivery or “gig”. The Committee recommended a default assumption of “worker” status, rather than “self-employed”. The economist Mathew Taylor was also asked to produce a report on the status of such workers and suggested that a new category of “dependent contractor” should be established.

HMRC and the Treasury have now published a consultation into a thorough review of employment status.

Consultation on Employment Status

HMRC published a consultation on employment status on 7 February as a follow up to the Taylor Review of Modern Working Practices.

Individuals and their employers have to know which employment status applies to ensure the right protections are applied – from the National Minimum Wage and holiday pay, to unfair dismissal protection and statutory redundancy pay.

Employment status also affects the taxes that an individual and their employer pay. It is therefore essential in maintaining a clear and effective tax base, with individuals and employers knowing what rates of tax and National Insurance Contributions (NICs) are applicable to everyone in their organisation.

The existing legislation defining an employee for both tax and employment rights ultimately relies on whether a contract of service exists. No further definition or clarity is provided in the legislation.

As a result, over time the courts have interpreted the legislation and developed tests to determine an individual’s employment status. These tests are contained in a number of key precedent cases, including a mixture of employment rights and tax judgments.

A possible solution is to legislate a more detailed definition of employment incorporating the irreducible minimum core tests established by case law:

  • Mutuality of obligation
  • Control over the individual
  • Personal service

BBC Presenter loses landmark IR35 case

Legislation designed to counter tax avoidance by bogus contractors via the use of personal service companies, commonly referred to as IR35, has been controversial since it came into law in the year 2000.

The main reason for this is that the interpretation of the legislation is based on the same employment status tests referred to above, which lack clarity and are open to interpretation by the courts.

However, HMRC have recently won a key case on IR35 at the First Tier Tribunal concerning the BBC presenter Christa Ackroyd.

The implication of being caught by IR35 is that income is treated as earned under an employed basis. Ms Ackroyd had been supplying her services to BBC through her personal service company Christa Ackroyd Media Services Ltd since 2006/07. The Tribunal agreed with HMRC that the hypothetical contract between the BBC and Ms Ackroyd would have been a contract of service. The existence of a seven-year contract meant that Ms Ackroyd’s work at the BBC was pursuant to a highly stable, regular and continuous arrangement. It involved a high degree of continuity rather than a succession of short term engagements. That is a pointer towards an employment contract.

Another key factor considered by the court was that her fellow presenter on “Look North” was on the BBC payroll. Ms Ackroyd’s company was appealing against demands for some £419,151 from HMRC relating to Income Tax and National Insurance Contributions (NICs) for the tax years 2006/07 to 2012/13. It will be interesting to see if there is an appeal to a higher court and whether this decision will be used by HMRC against other BBC presenters and other personal service companies.

Please contact us if you wish to discuss whether or not the employment status or IR35 rules impact on your working arrangements.

Pension Funds can be very effective in Estate Planning

As well as the increased flexibility in terms of drawdown arrangements that were introduced in April 2015 there were some important changes to what happens to the undrawn pension funds on death. These changes mean that your pension fund can be passed to survivors tax efficiently.

Where the pension scheme member dies under age 75 certain lump sum death benefits are now tax-free. In particular a drawdown or flexi-drawdown pension fund lump sum death benefit or an uncrystallised funds lump sum death benefit.

Where the member at the time of their death was age 75 or older the special lump sum death benefit charge on the fund will be 45%. However, if a nominated beneficiary wants to draw down income each year rather than take the lump sum the amounts drawn would be taxed at their marginal income tax rate. It has recently been reported that there are currently £2 billion of pension assets in drawdown where the beneficiary is aged under 55 suggesting that a significant number of individuals have taken advantage of the new rules.

Note that cash and quoted shares, including those held within an ISA, are subject to inheritance tax on death whereas pension fund assets are generally free from inheritance tax. It may therefore be more tax efficient to spend or give away cash and shares rather than draw on the pension fund.

Please contact our Trust & Estate Support Services team if you would like to discuss estate and inheritance tax planning in more detail.

Managing your strategic objectives

Now that you are starting to settle into your stride in 2018, perhaps its time to revisit your list of goals and objectives.

Before you think about adding any new objectives to your list, think about what you’re going to stop doing. We all have limited bandwidth and increasing demands on our time. Consider whether your initial list of goals for 2018 was a little bit too ambitious. Perhaps you can cut your list down by delegating a few objectives to other team members within your business. Maybe there are a few objectives from last year that you have carried over to this year. Failing to take old activities off your to-do list can prevent you from having the time to focus on achieving your new objectives.

Consider all of your work commitments

In most businesses, projects and tasks get added to your to-do list throughout the year. Now might be a good time to take a look at that list of commitments and re-evaluate what you’re doing and why you are doing it. Take a step back and look at the bigger picture. Does your current to-do list still fit within the context of the market in which your firm is operating? Maybe an ongoing project from last year is no longer relevant.

How much bandwidth do you have?

Time is a fixed asset. We cannot make more of it but we can spend it differently. Now that you have assessed your list of priorities, you should focus on how you are actually going to achieve your objectives within the time that you have available. A good way to do this is to reduce time spent in meetings. Question whether you need meetings for certain projects as well as their frequency.

Create a business case for any new objectives

During the year things will change. Inevitably new objectives will be added to your to-do list. In order to avoid becoming overwhelmed, be strategic in terms of new projects that you accept.