Outlined by the Chartered Institute of Taxation, the approach rejects the SDCs (‘Supervision, Direction or Control’) test in favour of an annual reporting obligation on end-users.
Based on each PSC contractor initially assessing whether or not IR35 applies, the end-user would then take that assessment and report to the Revenue whether or not it is in agreement.
If the end-user was to “wilfully” mislead HMRC that IR35 did not apply, when in fact it did, then any debt owed by the PSC under IR35 would “fall back” to the end-user, the CIOT said.
This approach would be better than ‘SDC’ because, under such an “inherently subjective test”, many PSCs who are “genuinely in business for themselves” would be wrongly caught.
So SDC would be contrary to an aim of the IR35 discussion document – not to widen IR35’s scope. It wouldn’t simplify administration, nor would it cut non-compliance, CIOT added.
It also believes that HMRC should accompany the new reporting obligation with a campaign to “give greater publicity to their successes in IR35 cases”, to increase awareness of the rules.
From April 6th 2016 limited company contractors will no longer receive their notional 10% tax credit on dividends. Instead they will be given a £5,000 tax free allowance on dividend income, which is in addition to the £11,000 personal allowance for the 2016/17 tax year. Any dividends that you draw out beyond this limit will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers, which will need to be paid using the self-assessment system.
Therefore, the maximum you can draw out of your company before being hit by the new rules come April 2016 is £16,000. There are however a number of other options that you can choose to make use of your retained profits such as company funded pension contributions, limited company buy-to-lets and relevant life cover. To work out how these new rates will affect you in the 2016/17 tax year, you can start by looking at these dividend tax tables.
Companies using employee benefit trusts (EBTs) and potential beneficiaries of such trusts should seek specialist tax advice as soon as possible as HM Revenue & Customs clamps down on loopholes, writes Gerry Brown, manager of Tax and Trusts at Prudential.
HMRC is offering employers – and employees – who have used EBTs and “similar arrangements,” the opportunity to resolve any outstanding tax liabilities without recourse to litigation.
Employers, trustees or beneficiaries willing to reach a final settlement with HMRC will have to pay any unpaid tax charges as well as interest on the sum.
This is problematical, because the precise tax treatment of EBTs has not always been clear in spite of HMRC now offering to sweep up all tax issues in one go.
Sponsoring companies and beneficiaries should seek specialist tax advice as soon as possible because it could be that a company underpaid corporation tax, or an employee received a benefit that triggered a tax charge but did not report it. What HMRC would like to do is take an EBT, look at the various tax aspects and determine where there is a liability – in respect of the employing company, current and former employees. The HMRC ambition is to reach a settlement with all parties without having to resort to expensive litigation