Q & A for Observer Business Matters (February 2020)
I am a painter and I set up my own limited company last year. I have been carrying out work for the same property maintenance company for several years, and before the company as a sole trader. Recently they mentioned that off-payroll working (IR35) may affect me. Will this apply to me?
IR35, also known as intermediaries legislation, is a tax law which has been issued by HMRC. This is designed to prevent independent contractors from benefiting from favourable taxation by providing services through a limited company rather than directly as an individual.
If you are a permanent employee of a business, receiving a salary and making National Insurance and tax payments at source through a PAYE scheme, then you will not have to worry about IR35. Nor if you are a temporary employee working through a staffing agency.
As a self-employed individual, you were taxed on your trading profits each year by completing a tax return and you made National Insurance Contributions alongside this. If you worked for other businesses then it was their responsibility to determine whether you should be employed through their PAYE scheme rather than you invoicing them.
Now you are a contractor trading through a limited company and working for another business. Until now the onus has been on you to ensure you pay the correct amount of tax and National Insurance. However, there are new IR35 regulations coming into force from April 2020 that mean large-sized private sector organisations will have a responsibility to determine whether contractors like yourself should in fact be employed.
Therefore, your customer may have to take you on as employee if they wish to use you. They will need to provide you with a determination informing you of their decision in the coming weeks and by 6 April 2020 at the latest.
There is an employment status test that can be found on www.gov.uk. It is important you understand your employment status and how the test works, as responsibility can fall on you to ensure you pay the correct tax. However, seeking professional advice is also important.
All cases must be judged on their own merits and the actual conditions of the work carried out will need to be taken into account, as each set of circumstances may be different.
Q & A for Observer Business Matters (January 2019)
I recently prepared my own self-assessment tax return for the year ending 5 April 2019 using my HMRC online account. However, when I looked at the HMRC calculation there was a tax liability for ‘High Income Child Benefit charge’. I have never had this before and I am now concerned that I have done something wrong.
Back in 2013, the government introduced a new tax charge to claw back Child Benefit payments from claimants whose adjusted net income, or whose partner’s adjusted net income, was over £50,000 in a tax year.
It does not matter if the child living with you is not your child. If either you or your partner’s adjusted net income is over £50,000, the higher earner will be liable to the tax charge in respect of the Child Benefit received and will need to register for Self-Assessment with H M Revenue & Customs in order to complete a tax return and calculate the tax charge, even if their only source of income is already subject to PAYE.
Adjusted net income is NOT the same as taxable income. You will need to consider what personal pension contributions (gross) and Gift Aid donations you have made in the tax year as these will need to be deducted from your income figure to arrive at the adjusted net income position. If this adjusted net income figure is then over the £50,000 limit, you are liable to the High Income Child Benefit tax charge and will have to make a repayment to H M Revenue & Customs dependent on how far over the £50,000 limit your adjusted net income is.
The tax charge is calculated on a sliding scale of a 1% charge for every £100 of income over the £50,000 limit – the more you earn the more you pay back.
For example, if you earn £55,000 your Child Benefit tax charge will be 50% of the amount of Child Benefit received. However, once your adjusted net income exceeds £60,000 you have to pay back 100% of the Child Benefit received.
Any charge is calculated with the individual’s Self-Assessment tax liability and is therefore payable to H M Revenue & Customs by the relevant filing and payment deadlines (31 January following the tax year).
Without knowing the specific details of your financial position, I cannot confirm if the charge has been calculated in error. Should the charge be applicable, you have made the right first step by being registered for self-assessment. It may just be worth looking at the income figure the calculation has been based on to confirm that is correct for calculating the tax charge. Have you included any personal pension contributions and Gift Aid donations, as these may then take you below the threshold for paying the charge?
If it is the case that your income exceeds £60,000, you need to consider whether you or your partner continue to claim Child Benefit as you will be repaying the whole amount received back to H M Revenue & Customs. Generally, it is recommended to register your entitlement to receive the benefit even if you choose to opt out of actually receiving it, as this will count towards your National Insurance record for calculating your state pension as well as registering the child to receive a National Insurance number.