Like many sole practitioners, I started out as a wage slave and only became self-employed about midway through my career. It was something of a happy accident really. It certainly wasn't planned that way!
I spent most of my early career in financial services and worked for various banks, finance houses and insurance companies throughout the 80s and 90s, studying part-time for the ACCA exams and finally qualifying in 1988. I had a CV as long as your arm, but all that background actually did me a lot of good, as it gave me a breadth of experience few people in the industry had.
It didn't teach me very much about being an accountant though, not a real one anyway. That only really happened when I started contracting in the late 90s and running my own company. Maybe it was the buzz of being (more or less) my own boss or maybe it was just the tax savings, but I never wanted a "permanent" job after that. In just a couple of years, I learnt more about tax returns, and more importantly tax planning, than in the whole of my career up to that point. In fact, the other contractors started asking me to do their accounts too, so I got my practising certificate in 2000 and re-branded the business as Acumen Accounting.
Back then it was just a spare time practice, as I had a full-time job running the finance function for a group of captive insurance companies. This came in handy when IR35 first reared its ugly head in 2000, as I had a separate contract with each company and, crucially, was able to draft the basic terms and conditions. This kept me on the right side of the taxman, but IR35 also encouraged me to take on more private clients and market my burgeoning practice as a real business, mainly through the website. This worked quite well, as few accountants had their own website in those early internet days, and I was able to steal a march, so much so that when I came to a cross-roads in my career a couple of years later, the way forward was obvious.
The group had decided to outsource their insurance operations, and only a small team of us remained to manage the handover. I had a choice between finding a new position or staying on 2 days a week for a while and using that interim period to dip my toe in the water and see if I wanted to go into public practice full-time. It was a no-brainer. I went for it, and I've never regretted it for a single moment ever since.
For one thing, I actually feel as though I'm doing something useful these days. My clients are really appreciative of the work I do for them and rely on my advice. So different from the old days, when I felt more like a cog in a machine, and I certainly never really felt appreciated. Back then, I seemed to spend more time sorting out staff issues or sitting in weekly meetings than doing any useful work, and I was getting bored with the repetitive cycle of head office reporting and regulatory returns.
I came to another career cross-roads in 2008 when the "old job" finally came to an end and simultaneously my largest client created his own accounts department, precipitating a big drop in turnover. I decided to focus more on the tax side of things, so set up a new brand called Acumen Tax Solutions and marketed it with a series of fact sheets, which ranked highly on the internet and drove business towards the main website.
I've always enjoyed tax more than accounts and by that time I'd added considerably to my knowledge and experience. Anyway, there's not much money in number-crunching any more. Those days are over. You have to be more of an all-rounder now and advise on all sorts of things, from IT to HR to tax, and I find the tax work a lot more fulfilling. I've even found the time to write a couple of Tax Cafe books which have helped to put me "on the map" so to speak.
It was also around that time I started posting on Accountingweb. I've always found this site to be both a brilliant resource and a great way of communicating with fellow professionals. I also get a lot of satisfaction from helping others, which is one of the things that makes me stay in public practice. It's been a lot of fun too, even when I'm crossing swords with some of the more contrary posters (of whom I am undoubtedly one). Accountingweb certainly boasts more than its fair share of us. Well, that's my story, for anyone who's interested. It would be fascinating to read other members life stories and see where they come from.
You can work solely for the NHS and still be outside IR35, this could mean giving up all revenue. Even using your plan successfully could mean souring relationships with your sole or main client.
The best solution was for locums and others unfairly affected by the blanket policies to band together and confront the NHS managers as a group demanding to be individually assessed, as was their right, or they would walk away to the private sector. Unfortunately, without a union to represent them, it is very difficult to mobilise people like this, even when they are all up in arms about it.
The HMRC CEST tool is neither legally binding nor fit for purpose and if it's not possible to create a better tool than that then the fault is in the poorly defined legislation.
The CEST has 2 saving graces. Firstly, for all its faults, it is actually quite generous if you can honestly give it the right answers. Secondly, they pledge to stand by it if you answer correctly and it rules in your favour.
So if you can get the client to agree with your answers (and that's a big IF for most contractors) you are in the clear.
The main reason most public sector bodies fail to use it is not because it's unfit for purpose. It's because a) they don't know about it, and/or b) they don't care about it, and c) there is nothing in the legislation to make them use it (or an alternative method of appraisal).
To be honest, an agency nurse shouldn't have to work through either an umbrella company or her own PSC as she is clearly an NHS employee in all but name. I believe they all have the option of working through the "bank" but the pay rates are lower so many choose the agency option instead.
No doubt this is due to the employer NI burden being dumped on the employee, but the hourly rate should still be higher than it works out for a salaried employee. It would be a whole lot simpler and cheaper for the NHS if they paid their nurses decent overtime instead of requiring them to work through agencies or the bank, simply to avoid budget constraints.
I certainly don't think all contractors are highly paid professionals. I've seen many that aren't, and I suspect these people are the real target of the IR35 reforms. A lot of them probably are disguised employees if push comes to shove, although in the NHS many locums would pass the control test given the chance.
The problem is in how the reforms were communicated and implemented. In theory all contractors should be individually assessed, either with the much criticised CEST tool or some other way, but not enough was done to stop the public sector bodies imposing blanket policies branding everyone as caught by IR35.
That was inevitable without anything in the legislation to stop it, as managers simply don't have the time, the knowledge or the inclination to sort the sheep from the goats. Also, they more or less ambushed them with these new rules, which were rushed in with undue haste.
Consequently, they have caused untold damage to the public sector by driving skilled workers away, and now they want to do the same to the private sector, all in the name of so-called fairness. I think they will find the private sector a much tougher nut to crack though.
Your clients should have either suspended all further work under their contracts until the NHS Trust agreed to treat them as outside the scope of IR35, or found jobs in the private sector.
If the Trust was the fee payer, your clients could have sued them for breach of contract due to making illegal deductions not required by the legislation (which by the way obligates them to assess each person individually, not impose blanket policies).
In practice, however, most locums and other NHS contractors were herded en-masse into umbrella companies, where you sign up to being an employee, so that option wasn't open.
Well, that's what happens when bureaucrats think they know our jobs better than us.
I don't know why people are getting so confused about the accounting treatment of so-called IR35 pay. It seems pretty straightforward to me.
Firstly, you recognise the gross figure before deductions as turnover. You credit Turnover and debit Trade Debtors.
Secondly, unless the director wishes to challenge his deemed tax status, you treat that gross figure as salary. That avoids it suffering both income tax and corporation tax. So debit Salaries and credit Director's Loan a/c.
It is important not to actually put it through the payroll though, as the director will already be getting a P60 from the fee payer. You don't want one from the PSC as well.
You should still report it in Field 58A on your payroll software (which HMRC have finally got round to adding to Basic Tools) but this should be just a flag field. It shouldn't affect the payroll numbers or appear on the director's earnings record.
Then the cash comes in, net of deductions, so you debit Bank with the net figure, credit Trade Debtors with the gross and put the balancing debit for the deductions on the Director's Loan a/c, so he ends up with the net pay figure, just as he would if it had gone through his own payroll.
Simples. Why HMRC and ICAEW are getting so confused about this I just don't know.
Of course, the HMRC Guidance note last year proposed a totally different treatment. It said you should treat the net figure as turnover and basically ignore the IR35 deductions. This is hogwash and should be completely ignored. It flies in the face of all accounting principles and has no legal status as it is not in legislation or been endorsed by the professional bodies.
I had a case like this last year which went all the way to Tribunal. Tax returns and penalty notices were sent to an old address even though they had the correct address on his PAYE records. They blamed him for not telling them his new address. At no time was he ever self-employed and he had no investment income.
I quoted the Alexander Revell decision and the judge upheld our case immediately, but it took another 6 months and reams of correspondence before they would cancel the interest, which was outside the jurisdiction of the Tribunal.
In all that time, my client was hounded by debt collectors even though it was under appeal and even after we'd won the case. Their excuse for this was that someone had died.
After all that, they offered just £300 compensation for worry and distress, although they did reimburse all my fees. It was a long hard slog, but it just goes to show that if you have a reasonable case and stand up to these people, you usually get justice in the end.
Trouble is the other lot aren't fit for anything!
If this is something that needs negotiating with Brussels as opposed to unilaterally renewing EU State Aid rules, presumably it applies to all EU countries, not just us. Don't the EU-27 have similar schemes, or is Brussels just picking on us? I'd like to know if the French or Germans are having to put their own EMI schemes on ice.
I wonder what they'll want for granting renewal. More of our fish I suppose.
You'd think that once the transitional period has ended we'll be free to junk this sort of nonsense, but I wouldn't bet on it.
What would really be useful to contractors and their advisors is information on how this case and others were picked up by HMRC in the first place. Was it a random enquiry, or a tip-off, or was there a red flag of some kind like late returns that prompted them to launch an IR35 investigation?
Of course, HMRC never say, but the client probably has a fair idea. Being a media organisation, perhaps AWeb could do some journalistic research and find out.
HMRC are upping their game but these IR35 cases are still as rare as hens teeth, and the average contractor can expect not be picked up so long as he stays under the radar.
It is just as important to avoid an enquiry in the first place as it is to cover the IR35 angles, and it would be really interesting to know how the cases that do come to their attention are chosen.
Also insert salary or wages not subject to tax or national insurance contributions because these amounts have already been taken into account under the off-payroll working rules."
I can't find much discussion about it.
This sounds like the long awaited Field 58A which HMRC told us to use in their guidance note to report earnings which have already had tax and NI deducted by the fee payer.
I was told by the HMRC technical buffs that Field 58A would not be in BPT 2017/18 but would be in the 2018/19 software.
It should just be a flag field with no effect on the payroll itself, as any salary that matches fees already subject to IR35 deductions (to avoid suffering corporation tax too) should not be on the P60. Otherwise, you would get 2 P60s for what is effectively the same salary, one from the fee payer and one from the PSC. This would affect your personal tax even if it was non-taxable as it would sit within the tax bands and shunt other income over the higher rate threshold.
It's surprising that they expect dividends to go in this field too. Sounds like they're taking the opportunity to fish for more information. Unless there is something in the RTI legislation to say dividends must be reported on the payroll, I would be inclined to ignore this.