What does Javid’s resignation mean for UK markets and investors?

It has been reported that the sudden resignation of Chancellor of the Exchequer Sajid Javid is expected to mean looser fiscal policy, which will be good news for UK assets, but experts have warned the move increases short-term uncertainty.

In a shock to the market and the UK public, the Chancellor announced his resignation today (13 February), just under a month before he was expected to deliver the first post-Brexit Budget. Chief Secretary to the Treasury Rishi Sunak has been confirmed as his replacement.

The markets seem to have taken the news as a positive development, with sterling rising against both the US dollar and the euro on expectations that the new Chancellor will employ looser monetary policy to boost markets.

However, cautious voices have also pointed out that the Chancellor’s resignation so close to the Budget spells more uncertainty for savers and investors.

Adrian Lowcock, head of personal investing at Willis Owen, said: “The resignation of Sajid Javid today has sent shock waves throughout the financial services industry. He is the first Chancellor in modern history to not deliver a Budget.

“With only 27 days to go now until the Budget, it is unclear whether it will even go ahead with so little time for Javid’s replacement, Rishi Sunak, to prepare.

Rachael Griffin, tax and financial planning expert at Quilter, pointed out that incoming Chancellor Sunak will have to work “extraordinarily quickly to get a grip on the upcoming Budget and present it to Parliament next month”.

“It is yet to be seen whether Sunak will serve as No. 10’s puppet, given the speculation that the Prime Minister’s office is seeking to take closer control of the Treasury,” she said.

She added: “He will inherit several political hot potatoes. For instance the government has already promised to fix its disastrous pension annual allowance taper, which has led to staffing shortages in key public services, including the NHS.

“The government is also under pressure to address the issue of social care funding which has been kicked down the road multiple times and was a major Tory manifesto pledge.”

IR35: taxman warns 43,000 firms over workers’ employment status

IR35: taxman warns 43,000 firms over workers’ employment status

HM Revenue & Customs (HMRC) is issuing approximately 43,000 private sector businesses across the UK with letters warning them to consider the employment status of their contractors ahead of reforms to IR35 off-payroll working rules in April.

The taxman told New Model Adviser® it would be issuing letters to approximately 43,000 private sector businesses who engage with contractors before the planned reforms to IR35 in April, which will bring the legislation to the private sector.

In an example of what one of the letters from HMRC may look like, which you can view below, the taxman states that ‘whether a worker is employed or self-employed is not a matter of choice’ and that it is ‘important’ to get a person’s employment status ‘right’.

The letter says, ‘It is important that the employment status of every worker is fully considered and we’d like you to check that you are getting the employment status of all your subcontractors right.

‘Whether a worker is employed or self-employed is not a matter of choice. Instead, we need to take a rounded view of how the work is provided by a worker.’

If, on completing checks, an employer determines that one of their contractors should be an employee, they are required to calculate the appropriate PAYE tax and national insurance contributions due and report the details of pay and deductions for these new employees in their Full Payments Submission (FPS).

A spokesperson for HMRC said, ‘HMRC has put various measures in place to help businesses and other organisations get the status of the contractors they engage right.

‘We have dedicated teams providing education and support to all businesses, public bodies and charities affected. 

‘This includes one-to-one support for 2,000 of the UK’s biggest employers and direct communications to around 40,000 medium-sized businesses and is supported by workshops, guidance, online learning, round tables and an enhanced online tool that will help them make the right decisions.’

Direct communications

IR35 is tax legislation that is currently used to assess whether public sector contractors should be taxed as full-time employees. It was brought into the public sector in 2017, and will be applied to the private sector from April this year.

Since 2017, HMRC has cracked down on contractors who it feels are working as ‘disguised employees’, and has been issuing both companies and contractors with various letters regarding concerns of the employment status of some contractors. The letters usually give a timeframe for the employer or contractor to carry out checks or respond to HMRC.

Last week, New Model Adviser® revealed HMRCwrote to at least one TV presenter issuing determinations regarding their income tax and national insurance contributions under IR35 in 2019 despite having ‘no sufficient facts’. 

The TV presenter’s tax adviser said HMRC is taking a ‘guilty until proven innocent’ approach to contractors and employers, who are being placed under a lot of stress to provide evidence to prove they are not breaching IR35 rather than HMRC finding them guilty of doing so.

HMRC also issued approximately 1,500 GlaxoSmithKline (GSK) contractors with identical letters last year accusing them of wrongly operating outside of IR35 in the tax year 2018–2019, despite not having actually reviewed the cases, according to a Financial Times report.

Paul Lewis: Why HMRC’s latest clampdown goes way too far

I read an interesting article in Money Marketing last week which I thought might be of interest to you. 

It concerns the new loan charge tax that could be demanded from 50,000 people and which sets a worrying precedent.

“No one is more vitriolic about tax “evoiders” than me. Just the other day, I argued with a friend who was getting a four-figure sum out of the bank to pay his builder in cash because “it would be cheaper”.

So how can I – a scourge of contractors who pretend to be companies so they can pay themselves in lightly taxed dividends – be sympathetic to another group – the 50,000 now in HM Revenue & Customs’ sights who paid little or no tax by being remunerated with an interest-free loan outside the income tax scope?

People often say I fail to distinguish between tax evasion, which is illegal – for example, hiding money offshore – and tax avoidance – the use of tax laws in a creative way to pay less tax – which is, they say, legal. But that binary choice is not realistic.

I explained the word evoidance in my Money Marketing Column last April as “the grey hinterland where something thought to be legal avoidance turns out to have been outside the law all along”.  Unlike more complex tax evoidance wheezes, the loan schemes I want to talk about used the simple fact that, if I lend you money which you repay, that loan is not counted as income and so is not taxable.

Instead of paying people for the work they did, the employer or engager paid a third-party company – usually offshore – which lent that money to its clients interest-free. Those payments were considered to be non-taxable. Loans were due to be repaid in, say, 10 years but the idea was that would never be enforced.

Instead of losing 32 per cent or 42 per cent of their pay to tax and National Insurance, contractors paid a much smaller amount – 5 per cent or 10 per cent – by way of a fee to the scheme operators. Some of those who joined such a scheme tell me the charges were higher – almost as much as the tax that would have been due.

Stunning in its simplicity, the scheme was sold to people as passed by tax QCs and accountants. Indeed, even HMRC seemed to accept them for a while – at least I am told that, for many years, it did not raise any queries when people put the details on their self-assessment tax forms and in the declaration of tax avoidance schemes.

However, the taxman did raise major questions when the football club Rangers started disguising the pay of its players by putting their money – or a big chunk of it – into a trust which then lent them that cash interest-free.

The case went through the courts with one judgment agreeing with HMRC and another supporting Rangers. Finally, in July 2017, the Supreme Court ruled the scheme was artificial and the employer – Rangers Football Club – was liable for the tax that had been evoided. RFC is now in administration.

The case gave little clarity to thousands of smaller cases and HMRC would face a long and expensive battle to take numerous schemes through tribunals and the courts where winning was not guaranteed.

So even before the judgment, the government decided to cut through the Gordian knot by passing a law which allowed HMRC to recover the equivalent of the tax evoided. This is the notorious loan charge scheme in the Finance (No. 2) Act 2017.

The people affected will, in theory, have to pay all they owe on 5 April. Jolly good, some say. They thought they would avoid the tax paid by other colleagues who were employed in the normal way. Now they have to pay. However, there are very worrying aspects of this law.

First, it recovers tax HMRC says was due back to 1999. Normally, unpaid tax can be recovered for four years or six in some cases. The 20-year recovery is normally confined to deliberate and criminal acts of evasion.

Second, the law is retrospective. Treasury minister Mel Stride denies that is the case, saying on Money Box that “these schemes have always been ineffective. They have never worked. They have always been tax avoidance”.

But I cannot see how a law passed in 2017 allowing HMRC to recover money back to 1999 is anything but retrospective. If HMRC can get away with that, it can do it again in other areas, forcing people to revisit tax they thought was settled back to the last century. If these deals never worked, why does HMRC not just pursue people through the normal means? Why pass a special law?

Third, many of those affected have told me they had no choice. The employers and engagers loved these schemes which saved them employers’ NI contributions and the cost of workers’ rights so they forced them on their hapless workers.

Finally, although HMRC claimed in November that the average charge of those who have settled is £23,000, the reported size of the sums demanded from others who cannot afford to settle is so big they could bankrupt them, forcing them to sell their homes and live in poverty for the rest of their lives.

I hate tax evoidance. But this goes too far.”

Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s Money Box. You can follow him on Twitter @paullewismoney


New Scottish Tax Rates

Moves to freeze Scottish income tax rates are adding risk and volatility to the Scottish tax regime and could lead to behavioural changes among the wealthy, the Chartered Institute of Taxation (CIOT) has warned.

MSPs last week  voted to approve the Scottish government’s income tax rates for the 2019/20 tax year by 61 votes to 52.

They put a freeze on the higher rate of income tax at 41 per cent for workers earning between £43,430 and £150,000 a year.  In the rest of the UK the higher tax rate threshold will rise to £50,000 from April.

The top rate of tax was also frozen at 46 per cent for those earning above £150,000,

What this means is that the gap between Scottish income tax and that in the rest of the UK continues to widen.

For those earning between £24,944 and £43,430 an income tax rate of 21 per cent will apply while earnings between £14,549 and £24,944 will incur a 20 per cent charge, and a starter rate of 19 per cent was passed for income between £12,500 and £14,549.

Scotland’s five-band tax system means lower earners pay less in tax than those in the rest of the UK but higher earners pay more.

The Chairman of the CIOT’s Scottish technical committee, said: “Some Scottish taxpayers may find they pay less income tax in the coming year.

“This can be attributed in part to the Scottish government’s policy to increase the starter and basic rate bands of income tax, which protect lower paid employees by reducing their tax burden relative to the rest of the UK”.