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Navigating HMRC’s Latest Off-Payroll (IR35) Compliance Guidelines

If you find dealing with tax laws overwhelming, especially with all the changes happening, you’re not alone. Therefore, we’re committed to making tax matters more manageable for you. The introduction and reform of the off-payroll working rules, commonly known as IR35, have added a layer of challenges to the mix. Luckily, HMRC’s Guidelines for Compliance (GfC) aim to help you understand and implement these rules. To help you, this blog explores the essentials of these guidelines. We’ll also share some insights to ensure your business remains compliant while keeping things running smoothly.

Understanding the Scope and Purpose of IR35

IR35 can sound like a mouthful, but it’s all about ensuring workers who provide their services through intermediaries like personal service companies or partnerships pay the correct taxes and National Insurance contributions. These rules mainly affect medium and large-sized clients in the private and public sectors.

Who Should Be Concerned?

If you’re a client or employer operating these off-payroll working rules, or you hire workers through personal service companies, limited companies, or partnerships, this concerns you. It’s also relevant for agencies in the supply chain and professional bodies advising clients on these rules.

Why Comply?

Compliance is more than just following the rules. It’s about understanding the legislation to make sure your business stays on the right side of the law and runs efficiently and ethically.

Three Key Components of the Guidelines

  1. Preparing and Making Status Determinations: One of the big things with IR35 is correctly identifying and classifying workers. The guidelines stress the importance of preparing for and making accurate status determinations for off-payroll workers. This means figuring out if a worker should be considered employed or self-employed for tax purposes, based on their situation.
  1. Collaboration in the Supply Chain: Working together is important for compliance. All entities in the supply chain need to share information and understand their responsibilities, especially when it comes to identifying workers covered by the off-payroll working rules.
  1. Systems and Processes for Compliance: The guidelines offer examples of systems and processes that can help you avoid errors when determining a worker’s status. This includes understanding different scenarios and organisational structures that may fall under IR35.

Practical Steps for Compliance

  • Use these guidelines alongside existing off-payroll working guidance to get the full picture.
  • Tailor your approach to your organisation’s unique situation and scale in off-payroll working engagements.
  • By following these guidelines diligently, your organisation can significantly reduce the risk of errors and, consequently, the likelihood of incurring penalties.

Understanding Your Responsibilities

  • For Medium and Large-Sized Clients: If you’re in this category, you’re responsible for determining the employment status for tax purposes of workers who provide services through intermediaries.
  • Issuing Status Determination Statements: When a worker falls under the IR35 rules, you must clearly communicate this decision via a status determination statement, giving clear reasons for your determination.
  • Handling Taxes and Contributions: If a worker is considered employed for tax purposes under IR35, you’ll need to handle the deduction of Income Tax and employee National Insurance contributions. Also, you’ll have to pay employer National Insurance contributions and, if applicable, the Apprenticeship Levy.

New Policy Change: Opportunity to Pause Settlement

There’s some good news, as, from the 6th of April, 2024, HMRC will let organisations with open compliance checks under IR35 offset taxes already paid by workers or intermediaries against what’s owed. This applies to Income Tax and National Insurance contributions assessed since the 6th of April, 2017, for off-payroll working errors.

Implications for Your Organisation

You can consider pausing the settlement of your open compliance check until after the 6th of April, 2024, under specific conditions. This includes acknowledging an error and agreeing on the gross liability. Providing HMRC with the necessary information is important.

Proceeding with Compliance Checks

HMRC will keep doing compliance checks as usual, but you can opt to pause the settlement. However, it’s advisable to make a payment on account to avoid accruing statutory interest.

Achieving Ethical Compliance with HMRC’s Off-Payroll Rules

Navigating HMRC’s off-payroll working rules might seem daunting, but it’s all about understanding the law, having a solid plan, and doing business responsibly. By following these guidelines, your organisation not only complies with the law but also sets an example of ethical business conduct. Remember, compliance isn’t just a legal obligation; it’s a mark of a forward-thinking and responsible business.

Seek Guidance 

If you’re ready to take the first step toward seamless compliance and ethical business practices, embrace HMRC’s off-payroll working rules today. Still have questions? Reach out to us on 01603 630882 for help or advice. 

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Guidance on Claiming Research and Development (R&D) Tax Reliefs

The UK Government, with its strong inclination towards fostering innovation, offers lucrative tax incentives to businesses that engage in research and development (R&D) projects in science and technology. For businesses not already capitalising on these reliefs, understanding them can unlock significant savings, improving cash flow and encouraging further investment in innovation.

In this guide, we’ll demystify the process and provide a broad overview of the R&D tax relief scheme, helping you determine if your business is eligible and understand the claiming process.

What are R&D Tax Reliefs?

At its core, R&D tax reliefs allow companies to reduce their Corporation Tax or claim cash credits based on their R&D expenses. The UK provides two main R&D reliefs:

  • SME R&D Relief

Suitable for small and medium-sized enterprises (SMEs) with <500 staff, <100 million euros turnover, or <86 million euros balance sheet. For year ends starting on or after the 1st of April 2023, businesses can deduct an extra 86% of their qualifying costs from their yearly profit, alongside the standard 100% deduction, totalling a 186% deduction. Loss-making firms can also get a tax credit of up to 10% of the loss. 

  • RDEC (Research and Development Expenditure Credit)

For larger companies and SMEs that have been subcontracted R&D work by a large company. The credit rate is 13% for expenses from 1 April 2020-1 March 2023 and 20% from 1 April 2023 onwards.

Find more information on converting tax relief into payable tax credits here.

Are You Eligible?

The notion of R&D means more than just white-lab-coat activities. Anything from developing new processes, products, or services to modifying existing ones can qualify if they tackle scientific or technological uncertainties.

Your UK-based limited company can claim R&D tax reliefs if: 

  • It incurs R&D expenses linked to your trade or potential trade. 
  • The project aims for scientific or technological advancement.

The Project

To claim R&D tax relief, simply stating you’ve done a project isn’t enough. It must meet HMRC’s R&D definitions, and you’ll need to demonstrate how the project covers:

  1. Advances in the Field: Your project should aim for an overall sector advancement, not just something new for your business. If another company has developed something similar but it’s not public knowledge, it can still count as an ‘advance’.
  2. Scientific or Technological Uncertainty: Your project must tackle issues that aren’t easily solvable by experts in the field. Readily available or easy solutions don’t qualify.
  3. Efforts to Overcome Uncertainty: Detail your research, tests, and efforts to address challenges, highlighting both successes and setbacks and showing genuine efforts to resolve challenges.
  4. Why Experts Couldn’t Solve It: Showcase that even seasoned professionals found the issues complex. Reference others’ failed attempts and your team’s expertise.

Qualifying Costs

Not all expenses qualify for R&D tax reliefs. Here’s a quick run-through of what generally qualifies:

  • Direct Staff Costs: Salaries, wages, and some other related costs of employees involved in R&D activities.
  • Externally Provided Workers: Costs associated with hiring freelancers, staff providers, or external agencies for R&D.
  • Subcontracted R&D Expenditure: Only for SMEs, with restrictions if the work is subcontracted to connected parties.
  • Consumables: Materials and utilities consumed directly in the R&D process.
  • Software: Software used exclusively in R&D activities.

Capital expenditure, travel, rent, and rates typically don’t qualify, so it’s important to consider what does and doesn’t qualify as an eligible R&D expense.

Find out more about what you can and can’t claim here.

Making a Claim

Here’s a step-by-step guide to making an R&D tax relief claim:

  • Identify R&D Projects: Understand which of your projects sought to achieve an advance in science or technology and faced uncertainties that competent professionals couldn’t resolve easily.
  • Calculate Expenditure: Tally up all the qualifying costs associated with those projects during the tax year.
  • Documentation: Maintain a robust documentation process. From project reports to financial records, these documents can be invaluable if HMRC wishes to review your claim.
  • Submit Your Claim: R&D tax relief claims are made in your Corporation Tax Return or amended return. Make sure to complete the full R&D section, including detailed project narratives, and annex the required CT600L supplementary pages. 
  • Deadline: You have two years from the end of the accounting period in which the R&D expenditure occurred to make your claim.

Common Pitfalls and How to Avoid Them

  • Under-claiming: Many companies either overlook or are unaware of the full range of costs that can qualify. Regularly review potential R&D activities and check what’s claimable.
  • Poor Record-Keeping: A lack of evidence or poor documentation can jeopardise your claim. Implement a system to document all R&D activities, decisions, and expenditures.
  • Not Meeting the Definition: Remember, it’s not enough for a project to be innovative. It must seek scientific or technological advancement and tackle uncertainties. Ensure that your project documentation clearly articulates this.

Potential to Propel Innovation

R&D tax reliefs are not just for tech giants or pharmaceutical titans. They cater to businesses of all sizes across numerous sectors. With the potential to recover a substantial portion of your R&D expenditure, understanding and leveraging these reliefs can be transformative for your company and propel scientific and technological innovation.

Navigating the process can be tricky, but that’s where we come in. Our team is here to clear up the confusion and handle the nitty-gritty details for you. So, if you’re feeling even a little overwhelmed or have a question, please don’t hesitate to get in touch. We’re here to make the world of tax simpler for you and, as always, help you make the most of the reliefs available. 

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What do the proposed Companies House reforms mean for small businesses

The UK government has proposed a number of reforms to Companies House, the official registrar of companies in the UK. These reforms should improve the transparency and accountability of companies, making it easier for law enforcement agencies to investigate financial crime. Whilst it might mean some extra admin, it should paint a more transparent picture of a business, helping people make more informed decisions about who they do business with.

There are 3 main proposed changes:

  • Enhanced Identity Verification helps to deter criminals from using companies for illegal purposes.
  • Compulsory filing of profit and loss accounts for all small companies, making it easier for investors, customers and suppliers to assess a company’s financial health.
  • Digital filing only makes it easier for Companies House to process filings and simultaneously help reduce fraud.

Let’s look at the changes in more detail and what they can mean for small businesses.

When and why are the changes happening?

Since February 2022, the UK Government has made clear its intention to expand the role and powers of Companies House to address the increasing misuse of UK corporate identities and improve the accuracy of filed data. The changes form part of the Economic Crime and Corporate Transparency (ECCT) Bill. As the ECCT is still making its way through Parliament, the changes are still at the proposal stage, so the exact timings aren’t yet known. 

The vision of the changes for Companies House is to create a single, cost-effective, sustainable way of filing accounts, which will be secure, transparent and traceable. 

Enhanced Identity Verification

One of the most significant proposed changes is introducing an identity verification process for all company directors, People with Significant Control (PSC), and those filing on behalf of a company. This move is designed to reduce the risk of fraud and ensure accurate information is provided to Companies House.

Implications for Small Businesses: While identity verification may seem like an added layer of bureaucracy, the intention is to protect businesses. By ensuring that only legitimate individuals can register or make changes to a company’s details, small businesses are safeguarded from potentially fraudulent activities. However, it also means that small businesses need to make sure their documentation is always up-to-date and accurate.

Compulsory filing of profit and loss accounts for all small companies

Currently, small companies don’t have to file profit and loss accounts with Companies House. This change would mean that all small companies will be required to file this information annually, making it easier for investors, customers and suppliers to assess a company’s financial health.

Implications for Small Businesses: This change has pros and cons for small business owners. For some, it may mean more paperwork and potential costs. They might have to spend more on accounting help, and competitors could see how they’re doing financially. While it may make things clearer and fairer for everyone, it also means less privacy for the businesses’ earnings. 

Digital filing

Currently, companies can file their accounts with Companies House in paper form using web-based systems or software. Under the proposed reforms, all filings would need to be made digitally. That will make it easier for Companies House to process filings and help to reduce fraud. Companies House has already begun work to move to software-only accounts filing, which will see the removal of all other filing routes for accounts.

Implications for Small Businesses: The move to digital filing could save small businesses time and money. However, it’s important to ensure they have access to the technology and support they need to comply with the new requirements.

The overall impact on small businesses

These reforms are likely to significantly impact small businesses in the UK, particularly having to file profit and loss accounts which could add more administrative burden. But, on the plus side, the increased transparency may help attract investors and customers, making it easier for small businesses to raise finance.

Overall, we believe the proposed Companies House reforms will have a positive impact on small businesses in the UK. They will improve transparency, accountability and security, making it easier for small businesses to raise finance and generate growth.

What can small businesses do to prepare for the reforms?

Nothing will change until after the ECCT Bill receives royal assent, so you don’t need to do anything differently yet. But preparation is key, so, here are our tips on how small businesses can get ready for the reforms:

  • Keep good records. Keep good records of your financial transactions, making it easier to prepare the required accounts for filing. It’ll also demonstrate compliance with the new regulations.
  • Get familiar with the new requirements. Get to know the new requirements by reading the guidance published by Companies House.
  • Seek professional advice. If you need help complying with the new requirements, seek professional advice from an accountant or solicitor.

Following these tips will help you stay on track as the changes come into play. From keeping your records to advice on the changes and what they mean for you and your business, we’re always here to help.