Do you use self-employed workers?   The Tax Man is taking an interest again.

Changes to Family Friendly Regulations   Enhanced leave for some workers.

Statutory entitlement to Bank Holidays   Well not quite.

All Change for Pensions   (but not until 2012)

Do you use self-employed workers?

The tax-man is clamping down on “Disguised Employment”

Do you dream of being your own boss?

Yes sometimes. Worrying about where the next job’s going to come from, creditors going bankrupt, struggling to get the bills paid, feeling ill but can’t afford to go sick. More like a nightmare I’d say. But think of all the advantages. If you’re self-employed everyone knows you save a fortune on tax and NI. Sounds great doesn’t it?

You can understand why thousands of people choose to be self-employed.

Most of them are genuine. Like my plumber. They work for different clients, use their own tools, do the work when they can fit it in, and get paid by the job.

But there are some self-employed people who work for the same employer all the time. They have regular hours and regular pay.

And they should worry because the tax-man is on their trail!

But whoever pays them can also be at risk.

The rule is that it’s the employer’s responsibility to operate PAYE for employees. And just because you sign a contract to say that someone is self-employed, doesn’t make it true. It’s a bit like going to the zoo. You go into the animal house and look in the enclosure marked “giraffe”. You see an animal. It looks like an elephant, it walks like an elephant and it smells like an elephant. It’s an elephant.

The tax-man treats self-employed contracts in the same way. If it looks like an employee, acts like an employee and smells like an employee, it must be an employee whatever it says on the contract. Actually, the tax-man asks a number of questions like:

• Does the worker have to do the work himself or can he arrange for someone else to do it?
• Does he work for other clients as well as you?
• Is the worker under anyone’s control at work?
• Does he work regular hours?
• Is he paid to do a job or by the hour?

So what happens if the tax-man discovers an “employee” disguised as self-employed? Well the tax-man uses his amazing powers of deductive reasoning. He says that if there is an employee there must be an employer. And that employer is going to get a bill for unpaid tax and NI. And not just for this year but possibly six years.

Self-employed people often set up personal service companies to avoid liability for PAYE. The tax-man countered this move with IR35 which said that any such arrangement would be ignored for tax purposes if it was just a way of disguising employment as self-employment. IR35 has not been the success the tax-man hoped because it has been difficult to enforce. A big problem was that the tax-man could only recover lost revenue from the Service Company, which usually had no assets.

From April 2007 the rules will be tightened up again. Service Companies will be forced to operate PAYE unless they are for genuinely self-employed contractors (who look like, act like and smell like self-employed contractors). And this time, the tax-man will have powers to recover unpaid tax from third parties who benefited from the arrangement. We all know who that could be, don’t we?

Changes to Family Friendly Regulations

Under the Work and Families Act 2006, which came in October 2006, those who adopt or give birth after April 2007 will be entitled to enhanced leave.

The main things that will change are:

• That the 26 weeks qualifying period for additional maternity leave will be removed. This means that all employees who are eligible will get additional leave automatically.
• If the employee has at least 9 months and 2 weeks service when her baby is due, she is also entitled to maternity pay for 39 weeks. The first 6 weeks are paid at 90% of normal earnings. Lower-Rate Statutory Maternity Pay is paid for the remaining 33 weeks. 
• Previously if an employee wanted to return to work early from additional leave she had to give 28 days notice. This has been extended to 8 weeks.
• Managers will have the right to make reasonable contact with an employee on maternity leave in order to plan and ease her return to work.
• Where it is seen as beneficial to both parties, the woman on maternity leave can come to work and be paid for up to 10 “Keeping in Touch” days without losing her right to receive SMP. 

In the case of adoption all of the above apply except for:

• the removal of the 26 weeks qualifying period for additional leave and 
• Statutory adoption pay is paid for the whole 39 weeks* at the lower rate.

Changes to flexible working regulations from April 2007

Employees with service of 26 weeks or more may also request flexible working if the are caring for and adult who is a spouse, civil partner or a relative.
 

Statutory entitlement to Bank Holidays

The government has announced an increase in the statutory holiday entitlement. From 1st October 2007 people who work 5 days per week will be entitled to 24 days holiday and this will increase to 28 days on 1st October 2008.

The additional 8 days are of course the same as the number of bank and public holidays each year. So anyone who already gets paid bank holidays will not be affected by these changes.

Does this mean that workers will have the right to take bank holidays off with pay? No it doesn’t mean that at all. But in future, someone who works on bank holidays will be entitled to an additional days holiday at another time.

Under present law the statutory 4 weeks holiday must be taken in the current holiday year and cannot be carried over. Under the new rules the additional days may be carried over, but only if both parties agree.

The government is consulting now over the details of these changes. One complication will be working out entitlements during the interim period, for people whose holiday year doesn’t start on October 1st. This should not be a concern for our clients as we will work this out for you.

If you would like help then give us a call on 01473 890037

All Change for Pensions

Most employers know that it is a legal requirement to provide employees with access to a Stakeholder Pension Scheme. (On pain of a potential £50,000 fine for non-compliance).

Stakeholder Pensions were introduced by the government in April 2001, as a low-cost way of saving for retirement. The government thought it was a brilliant way of encouraging lower-paid workers to save.

Well the scheme hasn’t worked out that way at all. Because stakeholder pensions are voluntary for the employee, and the employer doesn’t have to contribute at all, very few “lower-paid” workers took it up. (However higher-rate taxpayers were quick to see the advantages of a low-cost flexible and tax-efficient scheme.)

Well the government took stock, commissioned another report (The Turner Report) and have announced plans for another initiative.

So the king is dead, long live the king. We can now look forward to the National Pensions Savings Scheme. And this is going to be really different isn’t it? This time the employer will be forced to make a contribution.

But don’t panic about revising the budget because it won’t happen until 2012. And even then, the employer’s contribution of 3% will be phased-in over 3 years so the scheme will not be fully operational until 2015.

Funny how we’re always being told we’re not taking our pensions seriously enough. Then the government takes eight years to put in a better scheme.

Anyway this time it will be compulsory won’t it? Well not exactly. But employees who don’t wish to make a contribution will face the onerous prospect of ….well saying they don’t want to join. And we all know that people are unlikely to do that, unless they are ….well, short of money.

But the employees who dutifully keep quiet and allow themselves to be enrolled in the scheme in 2012 will have 4% of their wages deducted at source. And they won’t object because benefits will be showered on to them by the grateful employer and government alike. From the employer it will be a massive 3% (from 2015 onwards) and the government will add a bonus of 1% too.

So there you have it. (Well by 2015 if you’re an employee you’ll have 8% of your wages going into your pension. And if you’re an employer you won’t have 3%, which you used to have)

The information in this newsletter is of a general nature and is not a substitute for professional advice. You are recommended to obtain specific professional advice before you take any action.

For further information, advice or assistance on any of the matters raised in this newsletter please contact Picasso HR on 01473 890037.

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