Many independent workers offer their personal services through their own companies for a variety of reasons. They don’t want to be tied into one company as an employee, and using their own limited company allows them to have more control over the tax they pay. The end customer often prefers this arrangement, as they are not treated as the worker’s employer, so don’t have to be bothered with the various employment regulations.

So everyone is happy except the Tax Inspector who collects less tax and NI. The Inspector can question the relationship between the client and the worker, and if he decides that it is really one of employee and employer, in spite of all the various contracts, agency and service company in place, the extra tax due will fall on the worker’s own company. This is collected through either the Personal Service Company rules (known as IR35) or the Managed Service Company regulations (MSC).

If this set-up is familiar to you, but you are feeling smug because you have an ‘IR35 proof’ contract, you may need to think again. The recent tax case Dragonfly Consulting Ltd demonstrated how the contract between the agency and the end client can knock for six any clever contract drawn up between the worker’s company and the agency. HMRC have proved that the entire stream of contracts needs to be considered and compared to what actually happens on the ground.

The key legal point to prove is whether the worker is independent. If the worker can substitute another person to complete the tasks for the client, he is considered to be independent and IR35 will not normally apply. The agency may agree to include a substitution clause in the contract with the worker’s company, but if this clause is not reflected in the contract with the end client it is ineffective. Even if a substitution clause does exist in the agency/client contract it will be ignored if the client tells HMRC or the tax tribunal that it would never actually accept a substitute for the worker.

To ensure your working arrangement with your client will stand up to challenge by HMRC you need to see all the contracts in the chain, and be sure your client would agree to accepting a substitute if asked to.

Don’t Forget

14 October:

• Due date for income tax for the CT61 period to 30 September 2008

19 October:

• If paying by cheque, pay PAYE, NICs, student loan deductions and
  deductions from payments to subcontractors for the month up to the
  5th of this month
• Construction Industry Scheme: Monthly return due for period to 5th of
  month
• Tax and class 1B national insurance contributions due on PAYE
  settlements for 2007/08 to be paid by today
• Quarter 2 payment due where paid by cheque

22 October:

• If paying electronically, pay PAYE, NICs, student loan deductions and
  deductions from payments to subcontractors for the month up to the
  5th of this month
• Quarter 2 payment due where paying electronically

31 October:

• Deadline for submission of the 2008 paper Tax Return (provided issued
  by 31 July 2008) if you wish HMRC to calculate the tax or, if you are an
  employee, you wish to have a 2007/08 balancing payment of less than
  £2,000 collected through your 2009/10 PAYE code
• Filing deadline for Corporation Tax Return Form CT600 for period ended
  31 October 2007 to be submitted to HMRC
• Filing deadline at Companies House (Northern Ireland: Companies
  Registry) of accounts for private companies with a year ended 31
  December 2007
• Due date for September VAT returns
• Capital goods scheme VAT adjustment (April VAT year end)

Website of the Week

Work Wise UK

Work Wise UK is a not-for-profit initiative which aims to make the UK one
of the most progressive economies in the world by encouraging
the widespread adoption of smarter working practices.

As from 1 October, rented business premises will require an Energy Performance Certificate (EPC), detailing the building’s energy efficiency.

The aim of the new EU regulation is to provide tenants with an idea of the likely energy and fuel costs of the premises.

Landlords need to pay for the certificates, which show the efficiency of the office or factory when the lighting, and heating and ventilation systems are switched on, and which evaluate the effects of any insulation and double-glazing and the performance of boilers and appliances.

The Department for Communities and Local Government said that the certificates cost in the region of £250 for small premises and up to £2,000 for large buildings.

Landlords who do not produce an EPC could face a fine.

An EPC must be provided free of charge by landlords when written information about the building is provided in response to a request for information from the prospective tenant; when a viewing is conducted; and, if neither of those occur, before the landlord enters into a contract to let their property.

The rules and regulations enforced by local authorities can have an even greater effect on businesses than tax and national employment law, a new poll has found.

The survey of a thousand businesses, carried out by MORI on behalf of the newly launched Local Better Regulation Office (LBRO), revealed concerns about the way that local regulations are managed and implemented.

There were worries about consistency of advice, consultation and understanding of business needs.

According to the survey, 71 per cent of respondents said they considered that regulations imposed by local councils are as big a burden as taxes and employment law, if not a bigger burden.

Of those firms that trade across three or more council boundaries, one in three said that they had received inconsistent compliance advice from different local authorities.

Some 90 per cent of businesses reported that they had never been consulted by local authorities about the enforcement of trading laws covering key areas like consumer protection and health and safety.

One in 10 firms voiced the view that local regulators who contacted them did not know enough about their companies.

On the up side, however, 65 per cent of businesses claimed that they were generally satisfied with the regulatory services provided by local councils.

The LBRO has been set up to help local authorities improve their regulatory services. The task of the LBRO is to reduce the administrative regulatory burden on businesses and to improve protection for consumers, workers and the environment.

The new body will advise ministers on better local regulation and will be able to issue statutory guidance to local authorities on enforcing trading standards, environmental health, licensing and fire safety regulations.

Commenting on the survey, Clive Grace, the LBRO’s chair, said: “It is the most comprehensive picture yet of the impact of local regulation on business. It reveals how important local regulation is to UK plc and underlines the need to ensure that regulatory services work not just to protect consumers, workers and the environment, but also to support businesses in complying with regulations.”

Mr Grace added: “There is a clear message here from business that robust and reliable advice from local authorities is important, and that the regulated are looking for the regulators to provide more support. We are an organisation that acts upon evidence and the survey gives us an invaluable insight as we start our formal role to lead the drive for better local regulation.”

Matthew Fell, the CBI’s director of company affairs, said: “Businesses face regulatory burdens from all directions, but locally enforced regulations can be just as challenging as the big ticket issues such as employment and tax. Businesses recognise the value of effective, consistent regulatory advice. The newly established Local Better Regulation Office has a key role to play in ensuring local authorities step up to the challenge of better regulation.”

Kieran O’Keeffe, a senior policy adviser at the British Chambers of Commerce, commented: “This survey highlights the scale of the challenge that the Local Better Regulation Office faces. Businesses want to stay on the right side of the law, but to do this they need consistent and expert advice from local authorities. We hope that the LBRO will be able to work with local authorities and businesses to ensure a better regulatory environment for our members.”

The results of a new poll of small firms have been sent to the Bank of England in the hope it prompts an immediate cut in interest rates.

The snap survey, carried out by the Federation of Small Businesses (FSB), found that the credit crunch and the economic slowdown are having a profound effect on the small business sector.

Of the respondents, more than four in five reported that their costs had increased in the last year.

Some 46 per cent said that they had suffered a decrease in trade.

On the question of business finance, such as loans and overdrafts, 40 per cent had experienced increases in the cost of borrowing from the clearing banks.

Over half (51 per cent) have had to deal with customers extending the length of time it takes to pay invoices, reflecting concerns, the FSB said, that large companies are improving their cash flow on the back of their smaller suppliers.

John Wright, the FSB’s national chairman, commented: “These startling figures show that the credit crunch is trickling through to the small business sector. In these tough times it is proving increasingly harder for small businesses to rely on their savings and that is why it is so important for banks to be more willing to lend money and for larger firms to settle invoices on time.”

Mr Wright added: “Small business survival is integral to the wellbeing of the British economy. That is why a cut in interest rates by the Bank of England is crucial. The Bank must set aside worries about inflation and look to giving the economy a vital boost.”

Don’t Forget

5 October:

• Individuals/trustees must notify HMRC of new sources of income/
  chargeability in 2007/08 if a Tax Return has not been received

7 October:

• Due date for August VAT returns (electronic payments)

14 October:

• Due date for income tax for the CT61 period to 30 September 2008

19 October:

• If paying by cheque, pay PAYE, NICs, student loan deductions and
  deductions from payments to subcontractors for the month up to the
  5th of this month
• Construction Industry Scheme: Monthly return due for period to 5th of
  month
• Tax and class 1B national insurance contributions due on PAYE
  settlements for 2007/08 to be paid by today
• Quarter 2 payment due where paid by cheque

22 October:

• If paying electronically, pay PAYE, NICs, student loan deductions and
  deductions from payments to subcontractors for the month up to the
  5th of this month
• Quarter 2 payment due where paying electronically

The British Retail Consortium (BRC) has called on commercial landlords to embrace modern payment methods and to agree to accepting rents a month, rather than a quarter, in advance.

The BRC has long been campaigning to persuade the owners of business and retail premises to base leases on monthly advance terms.

Traditional quarterly payments hark back hundreds of years to a time when horseback was the fastest method of transferring payments and, therefore, have no place in the modern age, the retail organisation has argued.

The issue of quarterly payments has been cast into even sharper relief by the current tough trading conditions, the BRC said, which have turned advance quarterly payments into an additional strain on already over-stretched cashflows for many businesses.

News that pension fund manager Hermes, a big commercial landlord, has agreed to substitute monthly for quarterly terms on existing leases was welcomed by the BRC as important progress.

The BRC’s two-year campaign has seen monthly terms becoming the norm on new and re-signed leases, but Hermes is the first major landlord to agree to renegotiate existing leases.

Stephen Robertson, the BRC’s director general, said: “As many retailers are confronted with next quarter’s huge up-front rents bill, Hermes’ announcement is a significant step forward for our campaign.

“A number of retailers have gone into administration this year. Others are clearly struggling. Most are battling a range of rising costs in order to keep shop prices and overall inflation down.”

Mr Robertson added: “The dam has burst. Hermes’ move shows there is no principled or practical reason why landlords cannot offer this flexibility. I urge all landlords to follow Hermes’ example. By agreeing to a fairer rents regime, landlords will be contributing to the retail prosperity on which they themselves depend.”

Small businesses could suffer as banks, reacting to the credit crunch, scale back credit facilities and put up overdraft charges.

The Forum of Private Business (FPB) has said that reports of restricted lending from the high street banks could hit small firms at precisely the time they need funding the most.

The FPB pointed to research carried out by Cambridge University which showed that, although the number of small firms seeking finance in 2007 increased only slightly from 2004, when the previous survey took place, the level of funding required soared from an average of £82,000 to £470,000. A figure, the FPB added, that is likely to have increased markedly over the past year.

The small business group also highlighted concerns over the merger of Lloyds TSB and HBOS, a move that could see a diminishment of the services available to small enterprises.

Noel Guilford, the FPB’s chairman, said: “It appears that, just as the funding requirements of small businesses are increasing because of the economic downturn, banks are cutting back on both the level of facilities they provide and the services they offer.

“Accessing finance in order to maintain a healthy cash flow is always a key issue for small firms – now it has become a matter necessary for survival as much as growth.”

Mr Guilford added: “The FPB is urging banks to recognise the difficulties small businesses are facing, and firms to take steps to protect themselves, such as seeking alternatives to traditional funding streams.”

The FPB identified reduced borrowing capacity, a cut back in account servicing, branch closures and the calling in of loans as the main banking worries confronting small businesses.

Ramped up bank charges and tighter lending facilities may mean that small firms will struggle to access finance, which is why the FPB said it is advising businesses to make the most of the cash they have at their disposal.

Mike Benson, the FPB’s tax adviser, commented: “Finance will come to be the key issue over the next 12 months. As well as normal business loans, many small businesses have relied on remortgages and even credit cards for funding.”

It is expected that the upper limit on the amount of savings that will be safeguarded in the event of a bank or building society failing will rise from the current £35,000 to £50,000.

With the world’s banking system in increasing turmoil, the Prime Minister, Gordon Brown, said that the government would do “whatever is necessary” to protect people’s savings.

The Financial Services Authority is set to begin negotiations with the banks to raise the threshold at which deposits are guaranteed to £50,000.

It is thought that the present £35,000 ceiling covers 96 per cent of all deposits, while the proposed £50,000 limit would exclude just 2 per cent of savings accounts.

However, the UK government declined to follow the Irish government in guaranteeing the safety of all deposits in its major banks.

The Irish pledge is believed to be in breach of EU competition laws.

Mr Brown said: “Wherever there has been a problem, Northern Rock guaranteed the deposits of those people who were saving with Northern Rock, Bradford and Bingley safeguarded the deposits by moving them to Abbey National, Halifax Bank of Scotland moved them to Lloyds TSB.

“Wherever there has been a problem we have intervened and dealt with it. Let’s remember, the Irish are dealing with taxpayers’ money here. We have got to get what’s right and also what’s reasonable and of course we look at every intervention that is necessary to take but I think people can see from our actions so far that depositors have been protected. No UK depositor has lost money.”

Many small businesses could be losing out on millions of pounds of rate relief because local authorities are failing to follow government guidance.

Under the Small Business Rate Relief Scheme (SBRRS), eligible businesses in England can claim as much as 50 per cent off their rates bills provided their property has a rateable value of less than £5,000.

As the rateable value of the premises rises so the level of relief declines correspondingly on a scale of 1 per cent for every £100 of rateable value over £5,000 and up to £10,000. When the rateable value reaches £10,000, the relief is 0 per cent. Similar schemes also operate in Scotland and Wales.

The relief, which applies to one property only, is not automatic, and businesses must apply to their local authorities to claim the saving.

However, concerns have arisen that large numbers of businesses are losing out on the scheme because some local authorities have imposed outdated deadlines on submitting claims.

Two years ago, the Department for Communities and Local Government (DCLG) abolished the ruling that claims had to be submitted within six months of the end of the tax year. That would have meant making an application by 30 September this year to claim for 2007/08.

Instead, the DCLG introduced a rule that allowed applications to be made once every rates valuation period.

That gives businesses until 30 September 2010 to claim rate relief covering the years since 2007/08, a spokesperson for the DCLG has said.

The DCLG said that it has issued guidance and information letters to councils making it clear that the submission rules have changed.

Despite this, several local authorities have retained the old submission dates, indicating that any business which did not meet the 30 September deadline cannot claim the relief.

Somewhere in the region of 870,000 businesses qualify for the relief, but the Local Government Association recently estimated that only half are claiming their tax breaks.