As I write my column, we are still a Brexitless society plagued by uncertainty. That nice Mr Hammond seems to me to be a man at the start of a journey that unfortunately doesn’t have a map because he doesn’t actually know where he is going yet. His own words were that A ‘compromise’ Brexit deal was required to avoid chaos”.
So where does that leave us businesses and self-employed? Well actually believe it or not, we are still in a growth period. We have been in continual growth for most of the last decade (facts not politics, honest) with a continued reduction of government borrowing. However, the Chancellor had mixed news regarding the economic effect of what may happen in the next month. We will either have a complete and organised “deal dividend” which will at least give us certainty and will lead to a three year spending review and some breathing space or a “short to medium term reduction in the productive capacity of the economy” in the event of “no deal”. Break through the political posturing and it means that all of the legislative stuff we have been talking about and expecting will be pushed to the Autumn Budget.
Well no politicians were harmed in the making of this column, but what Gary, I hear you ask does that mean for us. It just means that our problems may just be postponed briefly, and please remember that I am talking from a financial legislation basis.
“Once again” employment
One of the biggest challenges then will be all of the law relating to “once again” employment or non-employment. And although some of this won’t affect you directly it will all add to the melee.
On 5 April 2019, the loan charge will be imposed on up to 50,000 taxpayers who have been unable to arrange to pay tax due on loans which are now re-categorised as earned income.
Back in early 1999, the then Chancellor decided to recoup National insurance contributions lost through contractors (like IT freelancers) becoming self-employed. Many then under advisement from their accountants put their business through a single director limited company known as a personal service companies (PSC). The government then tried to apply a tax to these people as employees of the PSC because it was considered as Form of avoidance. The HMRC pushed for the obligation of paying the extra tax from the engaging party to the PSC itself and so began the game of cat and mouse that is now the “avoid IR35” game.
All sorts of solutions have been provided to combat this particular issue but the main one was an umbrella style company, (please note there are actually a few different types of umbrella company) agency style model that employs on flexible contracts but in many cases, they would be paid a tiny salary plus a low or even non interest loan with tax benefits. In truth, a very clever tax avoidance scheme that many skilled people or in my case people such as ex uniform, coming into chauffeuring or security, went into without really understanding the risk.
Zip back to recent times and that loan I talked about, that was not taxed as salary, was actually in most cases never repaid. The HMRC are saying therefore (in their opinion) it is in fact disguised remuneration. There were also by the way schemes like this being run overseas, which really isn’t cricket.
So, what is happening now? After much hooing and hawing and a few more laws the HMRC have successfully prosecuted one of these schemes. And guess what the government want their money back. Most of the people by the way have already been contacted by The HMRC and put into enquiry, but in truth even the ones I have been acting for have been in suspended animation for years. Some people also mistakenly believed that it may have all gone away.
It hasn’t. Even in 2014, The HMRC was allowed to try and collect disputed tax without having to prove in court that the tax is due. This has been challenged in the courts system but not to any success so far.
So today we have the result that all of these loans are treated as salary and taxed, ‘the loan charge’ we have read about There have been many objections from professionals such as myself and our organisations for that matter., however loan charge is now law. Although it is so controversial that the Loan Charge All Party Parliamentary Group (APPG) was formed and started to challenge HMRC. Not so much on the law but on the massive human costs involved saying that most of the participants were unknowing and would be affected by the massive historic tax. The HMRC has been seen to act not in the public interest in the eyes of many. There have even been miscalculations on the interest due, which hasn’t helped our view of how this has been dealt with.
Hope that explains the reality behind the television banner waiving, and as usual if you have been personally affected by this seek professional help from an accountant.