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Contracting Expert David Hughes of Rodliffe Accountants responds….

Corporation tax

When declaring dividends from a business they are done as a declaration of profit and will therefore suffer Corporation Tax before being declared. This is charged (for small companies with profit below £300,000) at 21% and will reduce next year to 20%.

Personal tax

Once the dividend has been declared the following taxes are then due under Self Assessment –

For total income below the higher rate tax ceiling (£43,875) you would pay a 10% tax charge, but receive a 10% tax credit, therefore no further tax is payable.

For income between the higher rate tax band and the new 50% band (£43,876 – 149,999) you would pay a gross tax of 32.5% – the 10% tax credit = 22.5%. This does however equate to 25% overall additional taxation.

For income above the 50% barrier (£150,000) tax is charged at 42.5% gross – 10% tax credit which equates to a real cost of 36.11%

Conclusion

As a business there are ways to try and control these costs, but professional advice should be sought to ensure that your full circumstances have been considered.
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The report sampled companies in London and the south-east, and revealed that there was a substantially bigger demand for IT contractors in the first quarter of 2010 than for permanent staff. According to the data collected, demand for “permies” grew by four per cent in the first three months of the year, whereas demand for contractors surged by ten per cent. And that’s not all: during the same period, contract workers also benefited from increased pay, which rose by three per cent. That’s not something to be scoffed at in these wintry economic conditions.

It seems that the rise in demand for IT contractors was driven mainly by the electronics and financial services sectors, both of which have managed to increase their productivity in the aftermath of the economic crash. The e-skills report coincides with news that IT colossus Hewlett Packard is about to set up an IT service hub at its centre in Renfrewshire. This project, partially funded by a government grant of £7 million, should see the creation of around 700 IT jobs in the very near future. So, for today at least, be happy – it’s not all doom and gloom out there.
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The OTS won’t reveal its findings until at least the Chancellor’s next budget in 2011 – which means that every freelance contractor in the UK shouldn’t become complacent about the rigours of proving self-employed status. IR35 may be on its last legs but they’ve got enough life in them to run on to budget day and they won’t just be amputated even then. Until then, it’s best to assume that the legislation is very much in place – and being actively enforced by HMRC.

Until the OTS has devised an improved method of codifying these disparate work patterns, IR35 will be alive and well. The best advice is to consult an experienced contractor accountant – specifically, a qualified accountant who has tried and tested experience in handling the affairs of contractors – to make sure not only that you have an “IR35-friendly/compliant” contract but that your working practises are clearly in line with the contract’s terms.


After the review some suggest that HMRC will levy NIC on dividends for Contractors and this may well be along the same lines as self employed individuals.

But for now IR35 lives with us....]]> http://www.rodliffeaccounting.com/blog/index.php?entry=entry100817-135924
Tax planning - for individuals / companies covering all aspects of tax and planning

Broker planning - for those who trade their own money on markets such as Stock / Oil etc..

More news to follow once these go live

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Our leaders are all focussed on smiling and getting the 'I am a nice guy vote'. I do hope that someone at the 3rd debate actually asks them why they feel the need to 'super' tax anyone who has invested their life to become successful.

Entrepreneurs in my opinion like the possibility of growing businesses and making decisions that benefit others. I have to say that the taxes placed on business and now high net worth individivuals makes me wonder if any of this will help us retain or push these people away from our shores.

However until I launch the UK Economics Party, run by people who are prepared to be accountible, I guess we will have to suffer the Red/Blue/Orange and Green people who get paid a lot to smile!

All smiles and no substance should have been the closing line from Sky last night]]> http://www.rodliffeaccounting.com/blog/index.php?entry=entry100423-080901
In her 2005 tax return Ms Williams had claimed the following expenses against her BBC employment earnings:

Professional hairdo and colouring £975
Professional clothing for studio £3,231
Laundry of professional clothes £325

Although Sian Williams claimed that these were all legitimate employment expenses, as an alternative she claimed that the £3,231 spent on clothing should qualify for capital allowances. I think the wholly and exclusively rules have been overlooked here by someone!!

It was argued that Ms Williams job was akin to that of an actor in that she had to “appear” and to be “seen” on screen and should she wear the same clothes frequently whilst appearing on television she would lose her job. She said that she would be prepared to read the news naked but the BBC required her to be clothed when carrying out such a task. The clothes, it was claimed, were purchased solely for employment purposes although they could have been worn outside of work. The Tribunal considered it irrelevant that the clothing was not worn when off-duty and did not accept it a realistic possibility that she could perform her duties in the buff even if the BBC permitted such. As for the clothing being eligible for capital allowances, the Tribunal also denied such a claim as the items of clothing were not special in feature.

With regard to the cost of hairdos, even if she had to wear her hair in a particular style, hairdressing services were still something she needed as a human being and therefore not an allowable expense.

Ms Williams protested that HMRC had refused to provide information on what clothing expense claims that had been allowed for other TV presenters but the tribunal were only interested in determining the appeal in accordance with the law not by comparison to other taxpayers.

Why Sian Williams was ever persuaded to pursue this appeal is somewhat bewildering as there has been case law dating back several decades that sets our clear principles for claims for clothing. In particular, in the 1983 case of Mallalieu v Drummond, a barrister claimed for the cost of her dark Courtroom dress against her professional income. She argued that she was required to wear this in Court and would not otherwise wear such clothing in everyday life. As the wearing of clothing in Court provided warmth and normal decency, this argument proved unsuccessful.

Maybe all newsreaders will come out in protest and start to read the news in the nude
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HMRC spotted that there had to be income for the sub-contractor to have had CIS tax deducted from it and wrote to him, opening an enquiry into the matter. It was established that the actual repayment claimed should have been £1,000. HMRC viewed the inflated repayment claim as being a ‘careless mistake’ and subsequently levied a 70% penalty on the difference between the claims of £2,000, i.e. £1,400!

The new penalty regime for inaccuracies in tax returns or other documents applies where two conditions are satisfied, namely:

1. The inaccurate document either amounts or leads to:
• An understatement of the person’s liability, or
• A false or inflated statement of a loss by the person, or
• A false or inflated claim to repayment of tax.

2. The inaccuracy was careless or deliberate.

If the conditions are satisfied then a range of penalties can be applied to the potential lost revenue, based on the behaviour of the taxpayer:

Behaviour Unprompted Disclosure Disclosure

Reasonable care No penalty No penalty
Careless 0 - 30% 15 - 30%
Deliberate 20 - 70% 35 - 70%
Deliberate and concealed 30 - 100% 50 - 100%

HMRC can suspend a penalty where conditions can be imposed which will help a person avoid penalties for careless inaccuracies in the future, which would seem appropriate here, but so far HMRC have refused to take into account that the gentleman was unrepresented.

Although the application of the new penalties is in their infancy, this penalty is disproportionate and one only hopes that HMRC will bow to commonsense.
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For years these schemes have been sailing close to the wind as they use HMRC dispensations and apply them to all clients.

Maybe this year we will see the end of these schemes so that quality clients can choose quality Accountants.]]> http://www.rodliffeaccounting.com/blog/index.php?entry=entry100115-100354
In the summer of last year HMRC’s feeble IR35 tax yield during the period 6th April 2002 – 5th April 2008 was exposed and one might have been forgiven for believing that the Revenue had given up the ghost. There does however appear to be no plans to re-think or scrap IR35 even if a Conservative government is elected this year. So what is happening with IR35?

The answer may be twofold. The most recent and important status cases within the last 15 months have involved the construction industry. For the last few years, following the implementation of new CIS rules from 2007, HMRC’s status resources have been chiefly deployed in the construction industry as they view it as a soft target to extract decent tax yields. Further evidence of this attitude was demonstrated by the publication of HMRC’s consultation document, in July 2009, entitled ‘False self-employment in construction: taxation of workers’. There has therefore been less manpower to throw at IR35 cases.

From 1st April 2009, HMRC inherited new and wider ranging powers of inspection and for much of last year tax officials were getting up to speed with these and it was only in the last quarter of 2009 that Qdos started to notice the increasing use of these powers. It is fully expected that 2010 will see a greater increase in inspections at the premises of taxpayers and these are likely to include a fair number of personal service companies where IR35 has been flagged as a potential issue.

Whilst IR35 may have been hibernating for the last few years it could well be about to awaken and contractors must not be complacent. Keep watch and be vigilant.
]]> http://www.rodliffeaccounting.com/blog/index.php?entry=entry091208-203834 come as a boost to the government ahead of next year’s election, thought The Times. The UK is suffering its longest recession on record and is the only G20 nation not to have emerged from recession in the third quarter.
Indeed, Britain’s dominant service sector grew for the sixth consecutive month, according to data collated by the CIPS/Markit Purchasing Managers’ Index (PMI) - services account for around three-quarters of the country’s total economic output. Any figure above 50 indicates rising activity and the PMI reading for November was 56.6, albeit down slightly from the previous month. Looking ahead, the services sector could gain more traction with companies’ optimism about the business outlook climbing to 73.4, up from 71.4 in October. Analysts said that the data was consistent with economic growth
of about 0.5% in the final quarter of the year, which would mark the end of the recession.

Other data released last week was mixed. The Government’s expectation that the country will spend its way to economic recovery took a bit of a knock when it emerged that consumers had paid off more of their debts at a record rate in October.

Official figures showed that net consumer credit decreased by £579m as households cut back on new loans. The figures also showed that, despite the Bank of England’s £200bn programme of quantitative easing, the availability of new credit to businesses tightened too. There was better news on the home front though, with the number of new mortgages agreed edging up to its highest level since March 2008. Car sales too are racing ahead, thanks to the government’s £400m car-scrappage scheme – new car registrations surged by more than 57% last month as buyers rushed to take advantage of the ‘cash for
bangers’ scheme which is due to finish in February and also avoid the VAT rise due next month.

Whilst the scheme will have boosted manufacturer’s production it will not be enough to reverse the overall downward trend of the last 12 years – The Financial Times reported that according to ONS data, manufacturing now contributes just 12.4% of GDP compared to
20% in 1997.]]>