Over the years, HMRC (Inland Revenue) has had compliance for contractors and freelancers on the top of their agenda.
Paysure work alongside all guidelines set out and we ensure that you and us are fully compliant. There are certain legislations that you should be fully aware of as they affect you and your working practise as a contractor/freelancer. If you do not adhere to HMRC legislation you could be fined and back Taxed accordingly.
Supervision, Direction and Control
A new legislation which has been introduced by the government comes in to play on April 6th and this is all about Supervision, Direction and Control (SDC). It is down to paysure (the employer) to decide if you are caught by SDC and we will send you a questionnaire which will decipher if you are inside the scope. This will then decide if you are able to offset any business mileage on a weekly basis or ad hoc expenses at the end of the year.
If the contractor was to fall outside of SDC they would be able to continue to claim for their mileage expenses on a weekly basis, however any other travel, food and drink or ad-hoc expenses such as equipment, parking and accommodation can only be claimed at the end of the tax year via a P87 form. If the contractor was to fall inside of SDC, unfortunately they wouldn’t be able to claim any expenses on a weekly basis and only ad-hoc expenses can be offset at the end of the tax year, they would no longer be able to claim for any travel or food and drink expenses.
If caught by Supervision, Direction and Control (Inside SDC)
- No Travel and Subsistence expenses can be offset against Tax/NIC each week come April
- Still able to claim ad-hoc expenses, such as Accommodation at the end of the tax year via a P87 form, we can complete or provide information for the P87. Receipts required
- Employed by Paysure
- Rate of pay remains
- Same level of service
If not caught by Supervision, Direction and Control (Outside SDC)
- Can continue to claim Mileage expenses weekly against Tax/NIC
- Able to claim all other expenses at the end of the tax year via a P87 form, which we can complete or provide information for
- Employed by Paysure
You would have probably heard the term IR35 and even now there are different ways that this is interpreted. Paysure understands IR35 and exactly what it is. IR35 was first mentioned in a budget press release by the Inland Revenue in September 1999, but actually came into effect as of April 2000. IR35 is simply an abbreviation as it was document number 35 and the IR stands for Inland Revenue. IR35 was introduced to stop contractors and freelancers who were not paying the appropriate level of Taxes and NI contributions (NIC’s). They particularly scrutinised those contractors or freelancers who were using Personal Service Companies (PSC’s) or Composite Companies. These were advantageous to the contractor as a large proportion of the pay was paid via Dividends or Shares which attract very little Tax. IR35 was introduced to stop this.
Does this affect you?
IR35 affects all contractors and freelancers, however dependent on whether you are deemed ‘Inside’ or ‘Outside’ IR35 is probably a more important question as this determines your choice on how to be paid.
IR56 – This was introduced to help contractors and freelancers decide whether they fell ‘Inside’ or ‘Outside’ of IR35. If you are deemed to be ‘Inside’ IR35 you are considered to be ‘Employed’ and therefore unable to be a Director of your own company and take a Dividend. If you are deemed to be ‘Outside’ you are deemed to be ‘Self-Employed’ and therefore are able to take Dividends.
So am I in or out?
If you answer ‘Yes’ to the following questions you will probably be deemed ‘Inside’ and therefore ‘Employed’
- Can you be told at any time by a line Manager what to do and how to do it?
- Do you use the company’s equipment?
- Is there a contract for fixed hours in terms of when and how long you work for?
- Are there other tasks you can be sent to do?
- Can overtime or bonus payments be paid to you?
By answering ‘Yes’ to the following you will probably be deemed ‘Outside’ and therefore ‘Self-Employed’
- Do you risk your own money in the venture?
- Can you hire someone to do the job for you?
- Is all the equipment used in the role provided by you?
- Will you get a fixed price for completing the project regardless of how much time is spent on it?
- At your own expense in your own time, do you have to fix any mistakes?
The managed service company (MSC) legislation was bought out by HMRC to run alongside IR35. It was brought out to prevent contractors/freelancers from using Composite Companies who were paying contractors/freelancers part salary part Dividend and therefore not paying the correct levels of Tax and NI.
If there are still MSC’s trading and contractors/freelances were to use them, you could be asked to pay back Tax on all income up to seven years.
Transfer of Debt
HMRC brought into practise the Transfer of Debt legislation to recover the unpaid Tax (debt) owed by contractors and freelancers who have either used a MSC or who are not paying the correct levels of Tax. This basically means that HMRC can now not only come after you the contractors or freelancer, but can now recover the debt from the service provider or agency.
Thank you for paying me so promptly and not “Missing a heart beat” in my pay. 10/10 Paysure!—