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IR35 – a look back and a look forward

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Dave Chaplin is CEO of IR35 compliance solution IR35 Shield and author of IR35 & Off-Payroll Explained

 

2020 and 2021 were quite the years for the whole market! The pandemic struck, and, in the aftermath, the contracting sector was left reeling as contractors and hiring firms grappled with the incoming Off-payroll legislation, delayed for a year, then introduced in April 2021. With the first anniversary passing, Dave Chaplin, CEO of compliance firm IR35 Shield reflects on what has happened and what the future might hold for contractors and those firms that hire them.

A delay to the legislation alongside a raging pandemic saw some firms ill-prepared by April 6th 2021. Many had little option but to adopt a knee-jerk response, blanket banning all contractors working through their own limited companies because, for them, it was the least worst option, despite it being an act of self-harm.

Contractors left projects in droves, and firms struggled to hire the talent they needed. More competent and prepared firms who took a more considered approach gained an advantage over those who cowed to the pressure. Today, the blanket banning firms struggle to attract the contractors they need at a price they are prepared to pay.

Market changes

The original plans for Off-payroll were to replace the unworkable Intermediaries Legislation, initially enacted in 2000, which policymakers admitted was largely unenforceable.

Those with tribunal experience know that the three most important words needed to protect clients are evidence, evidence and evidence. The requirement to discharge the burden of proof at a tribunal by shoring up a defence with evidence is essential.

Gathering and collating the necessary evidence is crucial because, not surprisingly, judges are hard to convince without any evidence! Remember, HMRC has the power to form an opinion that tax is owed, leaving the onus on the taxpayer to discharge their burden of proof. And to do that requires compelling corroborated evidence.

The soft landing that wasn’t

The government promised the contracting market a so-called soft landing, which meant very little other than a promise by HMRC not to issue penalties to firms who acted negligently. But, the fear-mongering pop-up IR35 experts have arrived again, trying to leverage the nothingness of this political lip-service by making questionable arguments about reasonable care to try and flog their billable hours.

There are two trigger points for reasonable care. One is in the Off-payroll legislation related to conclusions in Status Determination Statements. The other is the lack of reasonable care or “carelessness” outlined in the Taxes Management Act of 1970. Conflating the two to sell consultancy is dishonest when firms most likely do not have an issue.

Whether someone has been careless or not exercised reasonable care is asking whether someone has been negligent. And to answer that, you need to understand who the person is, what they know, what is in their mind at the time, and whether they did or didn’t perhaps do what they should have known to have done. HMRC’s guidance on penalties for carelessness is a percentage between 0 and 30% on top of the extra tax due. Only if errors have been deliberate and concealed do they hit 100% – which isn’t a reasonable care issue. HMRC has also never won a carelessness argument on an IR35 matter in tax tribunal for the 22 years since the legislation began. The burden of proof is on HMRC, and given the subjective nature of IR35, it isn’t easy to see how they ever will.

If HMRC turns up many years later and asks the right questions to ascertain whether a firm (or person) has been careless or not, guess what you might need to have to show that you haven’t been? Yes, evidence again. And, more importantly, of the right kind.

The topic of reasonable care is not straightforward. Neither is Off-payroll. And neither is understanding the rules of evidence. And this is why expertise by professionals with proven tribunal experience commands a premium.

Tax Offsets

One major flaw in the Off-payroll legislation was revealed by the Government’s National Audit Office (NAO) and confirmed by the Head of HMRC at the Public Accounts Committee on February 21st 2022.

Despite multiple representations being made to HMRC for almost two years, they did not seek to put into law a statutory instrument to cater for tax offsets when unwinding an “outside IR35” position if HMRC successfully overturned the status decision.

We all surprisingly discovered that the client pays the total amount of tax, and the contractor gets a refund for any corporation tax and income tax on dividends they have already paid. These facts have dumbfounded tax experts.

This finding has consequences in the IR35 insurance industry because it means any insurance policy bought by a contractor which purports to protect other parties in the supply chain does not work. They don’t work because there is no “insurable interest.”

According to the Association of British Insurers, insurance law means “you can only buy insurance for something or someone in which you have an insurable interest.”

Are umbrellas working?

With an increasing number of contractors pushed into working through umbrella firms, the spotlight has shone on them to reveal that some have been duping contractors out of their entitlements – rackets on withholding holiday pay and other skimming scams have come to the fore. These scams must stop, and an umbrella that operates a business model around retaining any monies other than the margin they charge may need to recalibrate.

HMRC has called for evidence on the umbrella sector, and regulation will come.

The shape of the IR35 market to come

So, what does the future hold for IR35? Many firms are, at last, engaging with the new legislation. They must, if they want to gain access to the talent they need.

Whilst many freelancers have left contracting, for those resilient enough who have stuck with it, opportunities are opening up where the new legislation doesn’t apply, such as working with small consultancies or working remotely for overseas clients.

Small niche consultancies are likely to grow and steal market share from recruiters. Some recruiters are trying to set up consultancy arms, but HMRC is alive to this, and their compliance checks ask questions about ‘fully contracted-out service providers.

The dust is settling. HMRC will get what they wanted (i.e. more money), and contractors will ultimately survive, so firms can look forward to hiring with confidence again.

Banking

Wealth Managers and the Future of Trust: Insights from CFA Institute’s 2022 Investor Trust Study

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Author: Rhodri Preece, CFA, Senior Head of Research, CFA Institute

 

Corporate responsibility is more important than ever. Today, many investors expect more than just profit from their financial decisions; they want easy access to financial products and to be able to express personal values through their investments. Crucial to meeting these new investor expectations is trust in the financial services providers that enable investors to build wealth and realise personal goals. Trust is the bedrock of client relationships and investor confidence.

The 2022 CFA Institute Investor Trust Study – the fifth in a biennial series – found that trust levels in financial services among retail and institutional investors have reached an all-time high. Reflecting the views of 3,588 retail investors and 976 institutional investors across 15 markets globally, the report is a barometer of sentiment and an encouraging indicator of the trust gains in financial services.

Wealth managers may want to know how this trust can be cultivated, and how they can enhance it within their own organisations. I outline three key trends that will shape the future of client trust.

 

THE RISE OF ESG

ESG metrics have risen to prominence in recent years, as investors increasingly look at environmental, social and governance factors when assessing risks and opportunities. These metrics have an impact on investor confidence and their propensity to invest; we find that among retail investors, 31% expect ESG investing to result in higher risk-adjusted returns, while 44% are primarily motivated to invest in ESG strategies because they want to express personal values or invest in companies that have a positive impact on society or the environment.

The Trust Study shows us that ESG is stimulating confidence more broadly. Of those surveyed, 78% of institutional investors said the growth of ESG strategies had improved their trust in financial services. 100% of this group expressed an interest in ESG investing strategies, as did 77% of retail investors.

There are also different priorities within ESG strategies, and our study found a clear divide between which issues were top of mind for retail investors compared to institutional investors. Retail investors were more focused on investments that tackled climate change and clean energy use, while institutional investors placed a greater focus on data protection and privacy, and sustainable supply chain management.

What is clear is that the rise of ESG investing is building trust and creating opportunities for new products.

TECHNOLOGY MULTIPLIES TRUST

Technology has the power to democratise finance. In financial services, technological developments have lowered costs and increased access to markets, thereby levelling the playing field. Allowing easy monitoring of investments, digital platforms and apps are empowering more people than ever to engage in investing. For wealth managers, these digital advancements mean an opportunity for improved connection and communication with investors, a strategy that also enhances trust.

The study shows us that the benefits of technology are being felt, with 50% of retail investors and 87% of institutional investors expressing that increased use of technology increases trust in their financial advisers and asset managers, respectively. Technology is also leading to enhanced transparency, with the majority of retail and institutional investors believing that their adviser or investment firms are very transparent.

It’s worth acknowledging here that a taste for technology-based investing varies across age groups. More than 70% of millennials expressed a preference for technology tools to help navigate their investment strategy over a human advisor. Of the over-65s surveyed, however, just 30% expressed the same choice.

 

THE PULL OF PERSONALISATION

How does an investor’s personal connection to their investments manifest? There are two primary ways. The first is to have an adviser who understands you personally, the second is to have investments that achieve your personal objectives and resonate with what you value.

Among retail investors surveyed for the study, 78% expressed a desire for personalised products or services to help them meet their investing needs. Of these, 68% said they’d pay higher fees for this service.

So, what does personalisation actually look like? The study identifies the top three products of interest among retail investors. They are: direct indexing (investment indexes that are tailored to specific needs); impact funds (those that allow investors to pursue strategies designed to achieve specific real-world outcomes); and personalised research (customised for each investor).

When it comes to this last product, it’s worth noting that choosing advisors with shared values is also becoming more significant. Three-quarters of respondents to the survey said having an adviser that shares one’s values is at least somewhat important to them. Another way a personal connection with clients can be established is through a strong brand, and the proportion of retail investors favouring a brand they can trust over individuals they can count on continues to grow; it reached 55% in the 2022 survey, up from 51% in 2020 and 33% in 2016.

 

TRUST IN THE FUTURE

As the pressure on corporations to demonstrate their trustworthiness increases, investors will also look to financial services to bolster trust. Wealth managers that embrace ESG issues and preferences, enhanced technology tools, and personalisation, can demonstrate their value and build durable client relationships over market cycles.

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Business

How to Build Your Credit Up Safely

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by Taylor McKnight, Author for Compare Credit

 

What Is Credit?
Credit is money owed by a person that allows them to pay off debts at a lower interest rate. Most banks use your credit score to determine how much they should lend you. Any business loan or mortgage requires that you have a good credit history. However, if someone has poor credit(www.comparecredit.com/credit-cards/credit-range/poor/), they may struggle to pay back these loans, resulting in higher interest payments, making it more difficult than ever to repay the debt. Lenders are aware of this issue and keep a close eye on your credit rating to ensure that no negative information gets reported. This could prevent you from getting another loan in the future. It is important to note that having a bad credit score does not mean you have had a bankruptcy or other kinds of defaults. Many people often face this problem because of unpaid bills or late payment fees. However, this does not mean that you cannot repair your credit – it simply means that all parties involved must work together to solve the problem.

How to build your credit safely
Building your credit score is a major concern for most people, especially if they plan to purchase something as big as a home or car. A good credit score will help one get better rates in the future and make it easier to finance their next venture. Here are some things you should know to improve your credit to be used for the best possible purposes.

1. Keep paying down your balances every month: One of the biggest mistakes that could hurt your credit score is not paying your balance down each month. People who don’t pay their credit card down within the agreed-upon time typically have high-interest rates and expensive monthly costs.

2. Pay your bills on time: The same goes for making payments on a bill. Not paying it within the specified timeframe will result in negative information being added to your report, further lowering your credit score. Ensure that your bank statements are accurate and that all accounts are up to date.

3. Become an authorized user: Some companies will allow customers to become authorized users after meeting certain requirements. Take a look at the terms and conditions before applying for this option. These programs usually give access to one particular service, such as checking or ATM transactions, but are helpful when you need additional coverage.

4. Set up automatic credit card payments: There are several ways to set up auto payment options on your credit cards, including sending them directly to your checking account via email or the phone. In addition, you may want to consider enrolling in online banking services that automatically make payments from your checking account into your credit card accounts.

Other tips when it comes to credit
1. Learn how to manage debt responsibly. This is true for both personal and business debts. Many people tend to spend more than they earn, especially during rapid growth and expansion. If you find yourself facing difficult circumstances, you can seek assistance by talking to friends and family members, getting professional advice, or using online budgeting tools.

2. Don’t skip any repayments. This rule applies specifically to late payments. You need to continue making regular payments, even if you’re behind by a few days or weeks. Once you miss a payment, you’ll start accumulating late payments that negatively impact your score.

3. Try consolidating your loans. Consolidation involves combining multiple small loans from various sources into one large loan, thereby lowering the total interest cost of the loan and reducing the risk associated with it.

4. Be wise with your credit report. One huge mistake most people make is neglecting to pay their bills on time or paying only the minimum due balance each month. As a result, bad information remains on their reports, impacting their scores. All outstanding balances must be paid off completely. Otherwise, negative items that remain on your report can keep you from achieving the best borrowing potential.

5. Get your questions answered. If you have any questions regarding your credit, ask for answers now rather than waiting until you’re experiencing trouble. With a little research, you should be able to learn enough to begin repairing your damaged credit report.

What to look out for that can harm your credit
1. Not checking your credit report: Most people use their credit cards frequently but fail to check their credit reports periodically. Checking at least every 12 months can give you valuable insight into whether or not there are errors on your credit.

2. Paying your bills late: Late payments can lead to hard inquiries affecting your score, which means it appears that you’ve applied for more credit elsewhere. Make sure you never miss a bill.

3 You Close Old or Inactive Credit Cards: If your close old cards, they may show up on your credit report for some time. Closing accounts can impact your score by causing “hard inquiries” that appear on your credit report. Before closing them, look for inactive or closed card accounts on your credit report.

4. You Have Negative Records: Many people think they’re protected because they haven’t had past credit problems. However, many factors may cause a “bad” rating to linger. A single application for a credit product with a low limit may count towards a negative review.

5. There Are Errors on Your Report: Mistakes such as missing debt or inflated balances can damage your credit report. Find out how much money you owe and what types of products you purchased, then try to dispute those entries on your credit report. Ensure you correct any information that needs to be corrected. Failing to do so could hurt your chances of getting approved for future credit.

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