MONTHLY FOCUS: INTRODUCING R35

MONTHLY FOCUS: INTRODUCING R35 The rules known as IR35 are complicated in practice. In this Monthy Focus, we introduce the rules and explain the contractual factors HMRC will look at when considering whether they apply to a particular engagement. Page Content:- IR35, what is it and how does it affect tax and NI? Employment status Contracts and arrangements   1. IR35, what is it and how does it affect tax and NI? What is IR35? IR35 is not an official set of tax rules. It was the reference given to information documents released as part of the 1999 Budget statement, marking the beginning of a long consultation. It suggested a solution to prevent the loss of tax and NI contributions where individuals, who would otherwise be subject to PAYE on their income, provided their services through companies they owned. The main sector where the government saw this as a problem was the IT industry. This perception still lingers. Naturally, IR35 met with a great deal of opposition (this remains true today) not least from the businesses that the would-be employees worked for, particularly banks, insurance companies and big businesses. If the government got its way, they were concerned that it might lead to the granting of employment rights to the persons now working for them through their own companies, not to mention employers’ NI contributions. In the end, the legislation which came out of the IR35 consultation in 2000 placed the burden of PAYE tax and NI on the workers (or to be more accurate their companies) and not their clients. Whether the IR35 rules apply to work an individual’s company contracts for turns on whether or not they would be classed as an employee if they worked for the client directly. Find the Help You Need, with Accounting Services. What are the “off-payroll” rules? The off-payroll rules were introduced in two stages. The first took effect in April 2017 and was limited to contracts for work with public bodies. The second stage, applying from April 2021, extended the 2017 rules to work done for private sector clients. However, these rules do not apply if the engaging client is a small company, business or other organisation. The meaning of “small” changed in April 2025, and is looked at in detail later. The main effect of the off-payroll rules is to put the onus on the business etc. receiving or paying for the services of individuals via an intermediary. Where the off-payroll rules don’t apply, the responsibility for deciding if IR35 applies remains with the individual doing the work or their intermediary, e.g. their company or partnership. In essence, the off-payroll rules are a mechanism for deciding who is responsible for determining a worker’s employment status, and, where it’s the recipient of the services (the client), how the process is administered, e.g. the calculation and deduction of PAYE tax and NI. What’s the effect of IR35 on tax and NI? As a business owner, especially a director shareholder, the effect of IR35 on income can be significant and it’s therefore not to be taken lightly. For example, if IR35 were applied to £40,000 of a company’s income, assuming the director had no other income, it would cost around £7,500 in PAYE tax, NI contributions, plus approximately £3,500 employers’ NI for the company (the company wouldn’t have a corporation tax bill). That’s a total of £11,000. This compares to a total cost of around £8,800 tax and zero NI if the same amount of income were taken as dividends. The extra costs must be accounted for out of the money the business charges the client. Working through a company or other intermediary whose income is caught by IR35 is doubly bad news. Not only will the individual suffer PAYE tax, employees’ and employers’ NI, but they won’t usually get the advantages usually associated with employees, namely employment rights such as statutory payments, e.g. sick pay and paid holidays. There are also some limitations on job-related expenses that can be claimed, specifically travel costs.   Get in Touch Want a financial consultation with no obligation? Call Dunhams Chartered Accountants now on 0161 872 8671 Or email paul.o’brien@dunhams.co.uk or andrew.edwards@dunhams.co.uk 2. Employment status Who and what does IR35 apply to? IR35 applies to work done by individuals through intermediaries, e.g. companies and partnerships (but mainly the former). It applies where the services of an individual are made through an intermediary in which the worker has an interest, for example they own 5% or more of the shares in a company which has a contract to carry out work for a client. HMRC often refers to these as personal service companies (PSCs). IR35 doesn’t automatically apply to all the work done through the company etc. Each contract for work must be tested to see if IR35 applies. The question that must be asked is really one of employment status, Would the individual be employed by the client if the PSC (or other intermediary) wasn’t placed between them? Because each contract with each different client must be tested it means IR35 might apply to some of the company’s income but not all of it. Note. IR35 doesn’t apply if someone works directly for a client and not through a company or partnership. The same arguments are involved, i.e. whether the work is or isn’t on an employed basis, but the responsibility for determining this rests with the person the individual is working for. What are the three key conditions when considering employment status? Employment status is often not easy to establish. There are indicators which point to employment status, while equally there are those which point to self-employment. In a dispute with HMRC over status it generally puts emphasis on the former. Individuals should do the opposite if they want to avoid IR35 applying. The key employment status indicators used when considering IR35 originate from Ready-Mixed Concrete (South East) Ltd v Ministry of Pensions and National Insurance 1968. There are three conditions, all of which have to apply for an employment to exist. Where

Scammers already targeting pensioners over winter fuel payments

Scammers already targeting pensioners over winter fuel payments Phishing attacks are already being sent to pensioners purporting to be from the Department for Work and Pensions (DWP). What’s going on and how can you avoid becoming a victim? Last week we reported on the government’s announcement on winter fuel payments for 2025/26. According to a report by the ICAEW, it appears that scammers began targeting pensioners almost immediately. Find more help with our Personal tax services The winter fuel payment will be paid to state pension recipients and is worth £200 per household, or £300 if you’re over 80. In an attempt to defraud state pensioners, criminals are sending a text message that claims to be from the DWP. Get more assistance with Financial Planning. The recipient is asked to click on a link by a specified date to apply for an energy support grant. It comes with a warning that they will lose out if they do not apply in time. As the government has confirmed that the winter fuel payments will be made automatically, any attempt to get you to apply for it should be ignored. No application process exists, and no action needs to be taken.   back to the menu top If you would like any assistance with any of these points. Please Call Us on 0161 872 8671 Get in Touch Want a financial consultation with no obligation? Call Dunhams Chartered Accountants now on 0161 872 8671 Or email paul.o’brien@dunhams.co.uk or andrew.edwards@dunhams.co.uk

Winter fuel payments to be clawed back via tax system

Winter fuel payments to be clawed back via tax system A government U-turn on the winter fuel payment was announced this week, with a new means-tested threshold. How will this work in practice? Get the Help you Need. see our Personal Tax Services. Recent weeks have been rife with speculation that the government would announce a climbdown for the current year, and this has now happened. Under the new system, all pensioners will initially receive the winter fuel payment. For those with incomes above the new threshold of £35,000, this will then be clawed back via PAYE or self-assessment (as applicable). The government has confirmed that this threshold will apply to each individual, not to each household. The threshold includes all sources of taxable income, so pensions (including the state pension) will be included, but qualifying ISA interest won’t be. It will be possible to opt out of receiving the payment, e.g. where you know your income will exceed the threshold. Crucially, the government has confirmed that nobody will need to register with HMRC as a result of the changes.   back to the menu top If you would like any assistance with any of these points. Please Call Us on 0161 872 8671 Get in Touch Want a financial consultation with no obligation? Call Dunhams Chartered Accountants now on 0161 872 8671 Or email paul.o’brien@dunhams.co.uk or andrew.edwards@dunhams.co.uk

The benefits of AI training

The benefits of AI training Corndel’s 2025 Workplace Training Report has revealed that only 39% of employees have received AI training from their employers. What are the benefits of training your staff in the use of AI in the workplace? For more Help Managing your Business see our Accounting Services. It’s likely that many of your employees are already using generative AI tools to help them with their work-related tasks. You may well have set out your approach to the use of AI in the workplace in a generative AI policy, and if you haven’t done this already, you should do so. However, you should also go one step further and provide staff with AI training. Investing in AI training can enable you to: reiterate the provisions of your policy equip employees with the skills to understand and use AI tools effectively to improve their roles – as AI tools can automate repetitive tasks and streamline workflows, training staff to use them effectively, and on how to get the best outputs, can significantly increase their productivity guide employees on how to handle data input in a safe and secure manner and educate them about the risks associated with AI-generated content, such as bias or inaccurate outputs, ensuring that they use AI tools responsibly demonstrate that you are committed to upskilling employees and fostering AI literacy across your business. The Corndel survey also revealed that only 14% of employees considered their AI training to be highly effective, so you might want to look at what you can do to ensure your training hits the mark. For example, consider providing tailored, practical, small group training in the specific AI tools used in your business. Do also involve your IT team in this. You should make the training accessible to everyone, and you may decide to make it mandatory as all employees can benefit from understanding how AI impacts their role. Finally, refresh your training regularly as AI is constantly developing.   back to the menu top If you would like any assistance with any of these points. Please Call Us on 0161 872 8671 Get in Touch Want a financial consultation with no obligation? Call Dunhams Chartered Accountants now on 0161 872 8671 Or email paul.o’brien@dunhams.co.uk or andrew.edwards@dunhams.co.uk

Is it a fix? HMRC’s updated employment status tool

Is it a fix? HMRC’s updated employment status tool HMRC has revamped its “check employment status for tax” tool (CEST) and amended its guidance. What’s new and is it any better than the previous version at deciding on a worker’s employment status? Why is status important? For many years HMRC has targeted workers who provide their services in person via intermediaries, such as personal service companies (PSCs). HMRC’s perception is that many are disguising an employment income to escape PAYE tax and NI. The rules (known as IR35 ) affect either the PSC or, through the off-payroll rules, the PSC’s customer as a deemed employer. Example. Bob is a director shareholder of Bcom Ltd. BigCo plc engages Bcom Ltd on a full-time contract to runs its IT back office. HMRC will want to know whether, without Bcom, Bob would have been an employee of BigCom, no matter what any contract between them says. Get the help your Business Needs with Our Accounting Services. How to decide Where an intermediary supplies the services of a worker a determination needs to be made whether after taking the intermediary out of the equation they would be an employee of the company. There can be a high cost in terms of time and money if HMRC doesn’t agree with you. The check employment status for tax (CEST) tool is supposed to help by providing clarity. The tool itself The tool asks a series of questions about the contractual relationship between the worker and the client. The preamble now refers to the CEST “determination”, wrongly inferring that the CEST result is final – it really isn’t. In fact, despite the update the logic behind the tool hasn’t changed at all, which means a user before the upgrade will still receive the same outcome if they rerun it again. Given that 20% of the time the CEST tool still “cannot determine” the position it’s hardly much of an improvement. Notwithstanding that, HMRC says it will be bound by the result given by the CEST tool if you’ve answered its questions accurately. If you have the result you wanted from the pre-updated CEST tool, there’s no need to check it again but it might be worthwhile if the converse is true. What’s new? Crucially, the CEST tool now asks if a contract for work is or will be in place, and if you answer “no”, it won’t continue. This change concerns the obligation of an employer to provide work in return for a wage, known as the mutuality of obligation, which has been at the centre of recent court rulings. Other than that the changes to the CEST tool are largely cosmetic. New guidance What’s more interesting is the updated guidance. It has been significantly changed and more examples added relating to: when the right to substitute the person doing the work or engaging a helper who’s not essential to the work, has no affect on employment status; and the impact of financial risk on the person doing the work (or the intermediary, e.g. their PSC). Examples are costs incurred by the intermediary or worker that cannot be recovered from the customer and, responsibility to rectify substandard work.   back to the menu top If you would like any assistance with any of these points. Please Call Us on 0161 872 8671 Get in Touch Want a financial consultation with no obligation? Call Dunhams Chartered Accountants now on 0161 872 8671 Or email paul.o’brien@dunhams.co.uk or andrew.edwards@dunhams.co.uk

New PAYE procedure being overlooked

New PAYE procedure being overlooked If you pay foreign employees or those who work abroad, you might need to take steps immediately because of new tax rules. What’s the full story? Accountancy and tax organisations are warning employers that they are at risk of falling foul of HMRC if they don’t follow the new tax residency rules that took effect in April 2025. The changed rules are a side effect to the overhaul of the UK taxation of non-UK individuals, known as the “foreign income and gains” (FIG) regime. The rules also affect UK individuals paid by UK employees for work they do abroad. Get more from Our Accounting Services. Tax only UK earnings. If one of your employees works both in and outside of the UK, before April 2025 you could have asked HMRC for permission to only apply PAYE to salary relating to their UK work. This was called “s.690 relief” . This relief came to an end with the introduction of FIG. New process. Since April 2025 employers should not assume that employees who qualified for s.690 relief will do so under the FIG regime. Because of this there’s a new mandatory process for employers to follow if they want to limit PAYE to operate the new version of s.690 relief. Find the Financial Planning you Need. The good news is that the new process is all online and can be completed by you or your accountant in very little time and it has immediate effect. This means that you don’t need to wait for HMRC’s permission before limiting PAYE to UK-generated earnings. The new process must be followed for employees for whom you have previously received permission from HMRC under the old rules. The new procedure only relates to PAYE tax. It doesn’t affect your or your employees’ NI contributions if they are foreign nationals. There are separate rules for these   back to the menu top If you would like any assistance with any of these points. Please Call Us on 0161 872 8671 Get in Touch Want a financial consultation with no obligation? Call Dunhams Chartered Accountants now on 0161 872 8671 Or email paul.o’brien@dunhams.co.uk or andrew.edwards@dunhams.co.uk

What’s a trivial benefit worth to employers?

What’s a trivial benefit worth to employers? The tax and NI exemption for trivial benefits is much misunderstood, but nonetheless very useful to employers. When can you use it, what are its advantages and are there any pitfalls to watch out for? What’s a trivial benefit? As the name implies, a trivial benefit in kind is something that costs employers little which they provide to their employees as a perk of their job. It’s the cost to the employer that is the first hurdle that must be cleared (or rather ducked under) for a benefit to count as trivial. The worth of a benefit to the employee is irrelevant. Get the help you need! see our Business Tax Services. Trivial amount A perk counts as trivial, and so is exempt from income tax and NI, if it costs an employer no more than £50 and meets other conditions. The cost to be taken into account includes not only the price of the item or service but all related costs. For example, if you send flowers to an employee who’s just had a baby and they cost £50 plus a delivery charge of £7.50, the exemption would not apply as the total cost exceeds £50. If a gift is shared by a number of employees and it’s not possible to work out the exact cost for each, you can use the average to determine if the exemption applies. For example, if as an off-the-cuff goodwill gesture you pay for ten of your employees to eat out at a local restaurant at a total cost of £420, you don’t have to check the bill to see who ordered the burger and who ate the lobster thermidor. The average cost per employee is £42 and as that’s within the £50 limit the exemption applies to the whole cost of the meal. The exemption can apply to benefits provided to directors but there’s an overall cap for them of £300 per tax year, e.g six gifts of up to £50 each for each director. Other conditions A perk is not trivial even when it costs less than £50 if it’s any of the following: part of a salary sacrifice (optional remuneration) arrangement paid in cash or a voucher that can be converted to cash part of the employee’s contractual earnings; or recognition for “particular services performed by the employee as part of their employment duties”. For example, you buy an employee a bottle of Champagne for landing a new customer. If you need Financial Planning. Not so trivial advantages The trivial benefits exemption exists not to allow employers to reward their workers tax and NI free, although that’s a side effect, but to reduce the paperwork and admin for employers and HMRC. Imagine if you bought each of your staff ice creams on several occasions over the course of a summer. For each employee the cost might be £3 per time. Without the exemption a P11D (benefits and expenses return form) would need to be prepared for each employee at the end of the tax year. That’s a stack of work for literally very little benefit. What’s more, assuming an employee doesn’t owe tax apart from that on the low value perks, HMRC won’t usually bother issuing a tax bill as the cost of administration is likely to outweigh the tax it would collect. In a tax world that’s increasingly confusing the trivial benefits exemption makes perfect sense.   back to the menu top If you would like any assistance with any of these points. Please Call Us on 0161 872 8671 Get in Touch Want a financial consultation with no obligation? Call Dunhams Chartered Accountants now on 0161 872 8671 Or email paul.o’brien@dunhams.co.uk or andrew.edwards@dunhams.co.uk

MONTHLY FOCUS: CGT RELIEF FOR SHARE DISPOSALS

MONTHLY FOCUS: CGT RELIEF FOR SHARE DISPOSALS Business asset disposal relief is available where businesses are sold, but can also apply to the disposal of company shares and, in some circumstances, assets used by the company. What are the rules? Page Content:- Shareholders Assets used by companies   Shareholders How does BADR apply to shareholders? There are principally two ways in which it can apply: in the simple situation where a shareholder sells or gives away shares (although not to s spouse or civil partner) where a company is wound up. This is where the company’s assets are passed out to their shareholders in return for their shares before the company is dissolved. Selling shares in a company. Does the gain qualify for BADR? To qualify the individual must have been an officer (essentially a director or company secretary) or employee of the company for the 24 months before the sale or transfer of shares. There’s no requirement to be paid as an officer or employee, but certainly in the latter case it would be expected. There’s also no requirement to work full time; a part-time employee can claim relief if the other conditions are met. The company must also have been the shareholder’s personal company. This has a special meaning for tax (discussed below). Since 29 October 2018, extra conditions apply. To qualify for BADR the shareholding must be at least 5% of the company’s ordinary share capital and entitle the individual to a minimum of: 5% of the distributable profits and 5% of the company’s assets available for distribution to equity holders on a winding up; and/or 5% of the proceeds if the whole of the ordinary share capital of the company were sold for its market value.   Get in Touch Want a financial consultation with no obligation? Call Dunhams Chartered Accountants now on 0161 872 8671 Or email paul.o’brien@dunhams.co.uk or andrew.edwards@dunhams.co.uk   What’s the position if the company stops trading? Usually, the 24-month period as an employee or officer of a company will be that immediately prior to the date of the sale or transfer. However, it could instead be the 24 months immediately prior to the company ceasing to be a trading company. Example 1 Jim was a director of his own company that he started in May 2023. Due to ill health he stopped working and the company ceased trading in March 2025. Jim waited until June 2025 to sell the shares in the company as he believed that this would qualify for relief. However, as the company had stopped trading the two-year period throughout which he needed to be an employee or officer of the company was ended with the date the company ceased trading, i.e. less than two years from May 2023. Thus, BADR cannot apply to the gain Jim made from the sale of his shares.  Example 2 Hannah’s company ceased trading in October 2025, after almost ten years. It takes her more than three years to sell the shares (by this time the company’s only asset was the trading premises). Any gain from the sale of the shares cannot qualify for BADR.   Where the 24-month period starts with the cessation of trade (or the company being part of a trading group), it can’t be a period that ends more than three years before the sale or transfer on which the individual is claiming relief. If the shares are in a company that’s part of a group, being an employee or an officer of any of the group companies will count as a qualifying employment. Of course, the other conditions must be met, e.g. it must be a personal company. For more help see out Accounting Services page. What counts as a personal company? A personal company is one in which the individual holds at least 5% of the ordinary shares and that this shareholding also entitles them to exercise 5% of the voting rights and, from 29 October 2018, meets one or both of the two additional tests regarding profit entitlement discussed above. Where there is only one class of share, this should be relatively simple to check. Example Linda owns 300 shares in a company that has a total of 1,000 ordinary shares. She holds 30% and as such the company is her personal company. The situation can be far more complex if there are different shares with varying rights though. Example Ken holds all 100 “A” ordinary shares in a company. Each share allows Ken to exercise one vote. There are 100 “B” ordinary shares in issue as well. Each of these allows the holder to 20 votes per share. From the total ordinary shares of 200, Ken owns 50%. However, his shares only entitle him to 100 votes out of a total of 2,100 possible votes. This is under the 5% required so his shareholding would not qualify. However, this will not stop shares qualifying where they do not meet the voting requirement, provided that the shares held in total meet the requirement. Example Elaine holds 100 “A” shares out of 1,000. She also holds 3,000 “B” shares from a total of 4,000. The “B” shares carry no right to a vote. If she sells the “B” shares her sale or transfer may still qualify even though on their own they do not meet the 5% voting test. This is because the shares she holds make the company her personal company. Which shares she then disposes of becomes irrelevant. In summary it’s not the shares that qualify individually but the company as a whole. Once the shareholder has satisfied the criteria for it to be their personal company the shares held can qualify for BADR. What are ordinary shares? Ordinary shares are any that do not pay dividends at a fixed rate and have no right to share in the company’s profits. So, a share that entitles the holder to a 20p dividend without allowing for any further share in the profits of the company, either income or capital, will not be an ordinary share. Can the shares be owned indirectly? Anti-avoidance rules say that if a shareholder owns shares via a joint venture or partnership which doesn’t have a trade of its own, BADR isn’t allowed for gains resulting from

Further relaxation of self-assessment thresholds announced

Further relaxation of self-assessment thresholds announced The government has announced changes to the threshold at which some taxpayers need to complete a tax return. What’s the full story? Self-assessment The criteria for the requirement for self-assessment varies between different types of taxpayer. Previously, self-employed traders have enjoyed a turnover threshold of £1,000 with no requirement to register. HMRC has previously announced that the gross income threshold at which sole traders need to complete a tax return will increase from £1,000 to £3,000 before the end of 2029. Until now, it was unclear whether this would apply to other taxpayers. Get the help you need, see our Services page. The government has now confirmed that it will also increase similar thresholds for taxpayer’s with the following sources of income: property income, where the profit limit will increase from £2,500 to £3,000 (the gross income limit of £10,000 will remain unchanged); and other taxable income, which will increase to £3,000 from the current £2,500. Note. The threshold only applies to the reporting of income, and some affected individuals will still have an income tax liability. HMRC intends to launch a simple online service to collect the tax and will be providing further details on this later in the year.   back to the menu top If you would like any assistance with any of these points. Please Call Us on 0161 872 8671 Get in Touch Want a financial consultation with no obligation? Call Dunhams Chartered Accountants now on 0161 872 8671 Or email paul.o’brien@dunhams.co.uk or andrew.edwards@dunhams.co.uk

One-person companies and the employment allowance

One-person companies and the employment allowance The NI employment allowance has increased from £5,000 to £10,500. The bad news is that companies with only one person who’s also a director on their payroll aren’t entitled to it. How can they qualify with just one simple low-cost step? What’s the employment allowance? The employment allowance (EA) is the amount that employers can deduct from their annual NI bill (employers’ secondary Class 1 contributions). For 2025/26 the EA was more than doubled from its previous level to £10,500. This unprecedented increase was a sop to employers to soften the blow of the increase to the employers’ NI rate (13.8% to 15%) and the lowering of the point at which employers must start paying NI on an employee’s salary to £5,000 per annum (£96 per week or £417 per month). Example. Jack owns and runs a small business through a company. It employs two staff each earning more than the £5,000 limit (or weekly/monthly equivalents) known as the secondary earnings threshold. The company’s secondary NI liability for the whole of 2025/26 is £9,350. It’s entitled to claim the EA of £9,350 thus reducing its NI bill to zero. The unused EA is ignored. If you need more help with your Business Accounts see our services pages Or call us direct on 0161 872 8671 Exclusions Employers can be excluded from entitlement to the EA for a number of reasons, but for this article we’re only interested in one of them, namely, a company that has only one employee who is also a director and they are the only person paid by that company. It doesn’t matter how many shareholders or directors a company has, the exclusion applies if they are the only person paid above the secondary earnings threshold at any time in the tax year. Dodging the exclusion Keeping in mind the exact terms of the exclusion mentioned in the Trap, there seems to be a relatively simple solution: pay another person just enough to prevent the exclusion from applying. Example. Gill is a director of Acom Ltd and the only person on its payroll. She’s paid a salary of £50,000 per year. The secondary Class 1 NI liability on this salary for 2025/26 is £6,750 ((£50,000 – £5,000) x 15%). As it stands Acom must pay the NI in full. However, it takes on a 20-year-old student working in the summer break for the minimum wage (£10 per hour). It pays her £200 per week for three weeks to tidy and organise the office paperwork. Her pay exceeds the secondary earnings threshold which means that Acom qualifies for the full EA. So, for the cost of £600 (for which the company can claim a corporation tax deduction) it saves £6,750 in NI, and gets a job that needed doing done to boot! Paying a second employee (this can even be another director of the firm), above the threshold for at least one week in a tax year qualifies the company for the EA up to the full £10,500. If it sounds too good to be true, don’t just take our word for it. HMRC says exactly the same in its guidance. This NI break might not be around forever so if your company is in a similar position as that in our second example, follow its lead and consider taking on a short-term employee, it could save thousands in NI contributions.