Tax 2019 and all that!
An inevitable consequence of living under a totalitarian tyranny, or, at the very least, the overwhelming force of “political correctness” is that the country is assailed by spiralling legislation from the Crown (the great majority of it, of course, instigated by our unelected masters in the Comintern/EU) in order to dictate and regulate one’s every action (and thought?).
To such an extent and with such egregious success is this achieved that the principle that “ignorance of the law is no defence in crime is so fundamental that to construe the word “knowingly” in a criminal statute as requiring not merely knowledge of the facts material to the offender’s guilt, but also knowledge of the relevant law, would be revolutionary and, to my mind, wholly unacceptable” as stated by Lord Bridge (in Grant v Berg,  1 W.L.R. 638), no longer holds, broken by the sheer weight of the criminal law in all aspects of life.
And in the field of tax, whereas two fairly slender volumes embodied the entire law only twenty or so years ago, now the eight, and nine or is it ten (?) volumes cover an entire shelf, the new statutes apparently drafted by those for whom English seems not to be their natural tongue: hence copious litigation.
However, we are fortunate in this country with the integrity and competence displayed at any rate by two institutions, namely the Judiciary, and HMRC. As to the latter, don’t believe those who castigate it: in my experience its employees are helpful and understanding, albeit they have a keen nose for those who in their attempt to pay over what they owe are but half-hearted. With regard to the Judiciary, with a few exceptions it has over the centuries been of the highest order, but I’m not quite sure of the competency of judges in civil courts whose previous experience has been limited to family law in some cases as legal executives: the mantra of diversity slaughtering the need for competence?
Now that I’ve got that out my system, a quick word about the changes to the taxation of personal service companies (“PSCs) and IR 35 rules, and then termination payments, which in view of the fragile state of the world economy let alone the political outlook of the UK and much of continental Europe may be all too relevant for many.
IR 35, introduced in April 2000 as part of the Finance Act and taking its name from the original press release published by HMRC was designed to prevent avoidance of tax and national insurance contributions through the use of PSCs. IR 35 does not prevent you from selling your services through a PSC but, rather, removes any consequent tax advantage. That advantage arose in the main by releasing the net taxable profits from the company by way of dividend thereby avoiding any national insurance contributions. Under IR 35 most of the income is taxed as if it were the salary of the person doing the work.
IR 35 applies if, had the individual sold his/her services directly rather than through a company he/she would have been classed by HMRC as employed rather than self-employed. In determining this, HMRC will consider factors such as control over hours worked, financial risk. The leading case on this is Ready Mixed Concrete (South East) Limited v Minister of Pension (1968). Recent cases to look at are see MDCM (TC6444) Jensal Sofware (TC6501) and Christa Ackroyd Media Ltd. (TC6334)
HMRC quote statistics that about 10% of PSCs that should apply IR 35 legislation actually do so. Anecdotally I have come across many in the City who blatantly ignore it!
From 6th April 2017 the way that IR 35 status was classified changed for public sector workers. Rather than deciding yourself whether or not your contract falls inside IR 35, the decision will be made by the public sector body who must inform any third party that pays you.
And from April 2020 the government proposes to extend the public sector working rules to larger operators (those with over 50 employees?) in the private sector. Those end clients caught by these rules will be required to review the nature of their engagement with the PSC and determine whether this is caught by the IR 35 rules in ITEPA. If it is, the end client is responsible for operating PAYE and deducting income tax and class 1 National Insurance contributions from the payments made. HMRC’s tool CEST (Check employment status for tax) tool (tinyurl.com.HMRC-74889) can help to decide whether payments are caught by ITEPA 2003 pt 2 ch 8 – and reduce the possibility of an HMRC challenge. In light of proposed changes it may be sensible to become directly employed (or if the end client insists on your continuing as a PSC can you negotiate increased fees?).
I should be sceptical about artificial tax avoidance measures likely to be tried, such as paying the worker outside the UK.
Turning to termination payments, bear in mind the new rules which came in from April 2018 treating all payments in lieu of notice (PILONs) on whatever basis they were paid (i.e. whether contractual or not) as taxable earnings subject to income tax, PAYE and NICs. Termination awards are split between amounts to be treated as taxable ‘post-employment notice pay” (PENP) and those amounts which can benefit from the £30,000 exemption. From April of this year employer’s NICs will be brought into line with the income tax positon, so only the first £30,000 will be exempt; full exemption from employee’s NICs will be retained.
BREXIT: What UK expatriates need to know about the Withdrawal Agreement The UK officially left the EU on 31 January 2020. The Brexit transition period