Crystal Umbrella

Managing director of accountancy and tax advice firm Brookson, Martin Hesketh, has given his reaction to Tuesday’s Budget.

Mr Hesketh stated: “The challenge facing George Osborne in the coalition’s first Budget announcement has been, to say the least, extensive. It was no surprise, with over £100 billion to re-coup, unemployment levels still on the increase and the post-recession economy more fragile than ever, the Chancellor positioned the Budget, in his opening statement, as an unavoidable one.”

With regards to the self-employed, the chancellor did commit to supporting UK enterprise, however cautiously. Corporation tax was reduced for small businesses and a commitment to review IR35 has already been given. Mr Hesketh does point out, though, that the extensive public sector cuts will have an effect on contractors currently working on public sector contracts and those looking for future work.

IR35 was not specifically mentioned in the Budget but Mr Hesketh believes that the review of the contentious tax rule will be placed within the overall review of Corporation Tax. Hesketh believes this is likely to take place over five years. The government is likely to consult with such professional bodies as PCG and APSCo to name but a few although clearer details on the review process will be made public in the autumn.

One of the most startling announcements in the Budget was the VAT rise from 17.5% to 20%. This will come into effect on 4th January 2011. The Chancellor is expecting this tax hike to recover £8.1 billion of the overall savings planned for this tax year. Capital Gains Tax is also increasing to 28% for high earners.

Mr Hesketh concludes: “The Chancellor made much in his speech of making sure that Britain was seen as being ‘open for business’ and supporting those that are working hard to grow or set-up new businesses within the UK, both of which will contribute towards getting the UK’s economy back on track. The flexible workforce will play a critical part in the recovery of the UK economy and on face value, the new coalition Government appears to be making the right noises in terms of wanting to genuinely understand the self-employed professional market, which I believe the industry should see as optimistic.”

Freelance World has conducted research into high street accountancy knowledge of contractor legislation and the results are worrying.

The survey was based on twelve individual accountancy firms. The majority of them were offering contractors a ‘targeted solution’ without the knowledge that this is forbidden under the MSC legislation.

The IR35 tax rule has been in existence since 1998. Contractors are subject to IR35 which taxes freelance workers as employees. Freelance World declared that the firm they surveyed had a “lack of detailed knowledge” and “worryingly vague knowledge” regarding compliance.” One firm in particular said that contractors “didn’t need to worry about it” while another said the rule had “died a death”.

Managing director of Freelance World, Alasdair McGill, commented: “What these firms should be telling their prospective clients is that IR35 work should be handled by an employment law specialist…, not telling them that it is nothing to worry about.”

He continued, “Accountants should not be issuing advice on IR35 unless they have real experience of employment status and are confident about defending their clients in front of the tax tribunals.”

Mr McGill drove home the message of how crucial the right tax advice is for contractors. Failure to comply with the relevant tax legislation could result in future credit problems due to HMRC blacklisting.

A representative from HMRC admitted that advice given to freelancers “sometimes presents a too simplistic picture of whether the Intermediaries legislation applies or not”.

Freelance World concluded, “It is quite clear that many high street accountancy firms simply do not have the expertise to advise contractors on key legislation, compliance and management of their specific requirements.”

High Street accountancy firms have been investigated by Freelance World, a contractor services company based in Aberdeen. Freelance World carried out their ‘mystery shopper’ survey which found that many high street accountancy firms have little or no knowledge of legislation pertaining to contractors such as IR35 and Managed Company legislation. They also noted that many of the firms they approached had a “worryingly vague attitude to the need for compliance within the legislation”.

Managing Director of Freelance World, Alasdair McGill said, “We have been genuinely alarmed at the poor advice being given by some firms to prospective clients. It is like going to a GP for treatment when you really need to see a specialist consultant. It is quite clear that many high street accountancy firm simply do not have the expertise to advise contractors on key legislation, compliance and management of their specific requirements.”

He continued, “One accountant offered an off-the-shelf incorporation service – a practice that is prohibited by the Managed Service Companies legislation of 2007. Another told a researcher that they ‘didn’t need to worry about IR35′”

Worryingly, one firm that was approached by the researchers said that IR35 “had died a death”. The repercussions for a contractor accepting that advice could be large HMRC fines and possibly even long term credit problems due to non-compliance. Contractors are therefore advised to only use specialist accountants.

High Street accountancy firms have been investigated by Freelance World, a contractor services company based in Aberdeen. Freelance World carried out their ‘mystery shopper’ survey which found that many high street accountancy firms have little or no knowledge of legislation pertaining to contractors such as IR35 and Managed Company legislation. They also noted that many of the firms they approached had a “worryingly vague attitude to the need for compliance within the legislation”.

Managing Director of Freelance World, Alasdair McGill said, “We have been genuinely alarmed at the poor advice being given by some firms to prospective clients. It is like going to a GP for treatment when you really need to see a specialist consultant. It is quite clear that many high street accountancy firm simply do not have the expertise to advise contractors on key legislation, compliance and management of their specific requirements.”

He continued, “One accountant offered an off-the-shelf incorporation service – a practice that is prohibited by the Managed Service Companies legislation of 2007. Another told a researcher that they ‘didn’t need to worry about IR35′”

Worryingly, one firm that was approached by the researchers said that IR35 “had died a death”. The repercussions for a contractor accepting that advice could be large HMRC fines and possibly even long term credit problems due to non-compliance. Contractors are therefore advised to only use specialist accountants.