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April 2021

HMRC Explore Options for Changing Tax Payments | HMRC Tax Advice | Modern Tax Administration | HMRC Tax Help Bristol
HMRC exploring options of changing tax payments 758 513 Stepping Stones Accountancy

HMRC exploring options of changing tax payments

The Government have recently announced a 10-year strategy to build a modern tax administration systems and as part of this they have begun a consultation period which lasts until 13 July 2021. This will involve a “call for evidence” approach which focuses on the benefits and challenges of the current tax payment system with a view to reducing the gap between when income/profits increase and income tax or corporation tax is paid. 

As with any new scheme there will be some issues to overcome. For example, how do you consider payments that are made under the income self-assessment heading or corporation tax for small companies, as these do not fall under the quarterly tax instalments?

How it currently stands

As it currently stands any self-employed taxpayer who has just started trading will have up to 22 months to pay their first tax bill. For an established trader, payment will typically be made twice a year and a balancing payment on any outstanding liability.

If we look at corporation tax there is also a delay between making profit and when a corporation payment is due. Payment is due in 1 instalment no later than 9 months after a company’s accounting period.

The need for change

The current situation brings with it a range of issues, having a large liability to pay at a specific time of the year can cause problems, especially when a tax bill comes out higher than what was expected. Changing this to a more regular payment based on the end of year reports could provide more accurate figures and greater control.

The issue

The HMRC are focussed on trying to improve how they receive funds, especially considering that 34% of their outstanding debts are for income tax and corporation tax.

What are the plans?

Consideration is being given to whether payments should be on either a monthly or a quarterly basis. As it stands HMRC are exploring all options.

Tax payments could be calculated in the year, developed as a result of up-to-date information and with projections on annual liability. Alternatively, tax payments could be based around the previous year’s tax liabilities. Finally, it could be based on estimations of the taxpayer’s liability for the operating year.

Of course, all ideas are on the table at the moment. The focus is to develop ideas that can be given careful consideration before a framework for moving forward can be finalised. HMRC also recognises that plans might need to be different for specific industries or taxpayer types.

If you have any questions or would like to discuss your tax liabilities please call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk.

IR35 Off-Payroll Working | Advice on Off-Payroll Working | Help with IR35 | Accountancy Help IR35
The changes to IR35 and off-payroll working 758 513 Stepping Stones Accountancy

The changes to IR35 and off-payroll working

Historically, when a business engages with a freelancer or contractor to work on a project over a long-term basis they do not appear on any payroll, instead they receive payment once an invoice is submitted. This freelancer or contractor though will often only be working exclusively for the one company.

Due to the recent changes with the off-payroll working rules (also known as the IR35 rules), there is a potential that this will need to change and the contractor will have to become an employee and paid via the company PAYE system.

The following provides a little more information on the IR35 changes and what they mean to self-employed contractors and businesses.

What changes does the IR35 rules bring?

A company (considered to be a medium or large company operating in the private sector) can now determine what a contractors IR35 status is. Obviously the company needs to consider this carefully as it will have a negative impact on a contractor. The contractor will have to become considered an “off-payroll worker”, and added to the payroll system, covering all requirements for tax and national insurance.

If the company is considered to be a small private organisation then no changes are needed and the contractor is in control of their own assessments and employment status.

Contractors need to remember:

  • There is a stronger chance that you will now be considered as employed, impacting tax and national insurance contributions.
  • If you have the choice, you get better tax benefits when being classed as self-employed.

What is a medium/large company?

Within the new IR35 legislation, it will clearly show the criteria that dictates a medium/large company. In essence it has to meet 2 or more of the following conditions:

  • A turnover in excess of £10.2 million
  • Employing more than 50 staff
  • A balance sheet which is larger than £5.1 million

Any contractor working for this size of company will need to be made aware of these changes and the business will need to decide whether they fit in the scope of IR35 and become employed.

How do I deal with “off-payroll working”?

Obviously, with these changes there will be some significant paperwork and key steps a company will need to undertake (to commence at the start of 2021/22 tax year):

  • A company must take the lead in determining IR35 responsibilities (the HMRC CEST tool can assist with this) and they must advise all contractors of the outcome (normally by issuing a status determination statement).
  • As soon as a contractor is identified as being within the IR35 criteria they need to become an employee and be paid under the “off-payroll worker” classification. At this stage the company (or recruitment agency supplying the worker) will become responsible for deducting the income tax and national insurance contributions from the monthly payments.

If you have any questions in relation to IR35 and off-payroll working then the Stepping Stones team would be happy to help. Please call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk.

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