VAT and the Contractor
All UK businesses making taxable supplies (goods and services subject to VAT) have to register for VAT should their turnover or expected turnover exceed £81,000 in any rolling twelve month period. In the UK VAT is levied on all taxable supplies at the 0%, 5% and 20%.
There are goods and services that are exempt or outside the scope of VAT. Examples of zero rated goods include fresh food, newspapers, children’s clothing, public transport etc. Examples of goods and services subject to 5% VAT rate are domestic energy (gas/electric) and expenditure on energy efficient equipment i.e. biomass boilers, wind turbines. If the goods and services provided are not covered by the two rates outlined above and are not exempt or outside the scope, then in general a VAT rate of 20% is applied. Examples of exempt supplies are insurance, financial charges, land services including the extraction of minerals at the site.
What is a benefit in kind?
If an employee is provided with anything other than pay then it may count as a benefit in kind. An employee will be taxed on the deemed benefit in kind and the company will suffer Class 1A National Insurance on the deemed benefit in kind. This will have implications for directors/shareholders who adhere to a tax efficient remuneration strategy.
Misconceptions of IR35
There are many misconceptions about IR35 legislation and how it works in practice. There is a lot of advice on the internet and a lot of advice that is given by other people that is not always accurate! Here are 5 of the most common misconceptions of the IR35 legislation.
Myth 1: IR35 applies when I have been on site for 2 years
This confusion probably stems from the 24 month rule on claiming travel expenses to and from a work place. The 24 month rule states that you are not permitted to claim travel expenses to and from the same location for more than 24 months. In HMRC’s eyes the longer you have been at one place the more likely you are to be part and parcel of the client’s firm and therefore more like an employee, but as long as you are working in a compliant manner with good working practice, you can continue working for the same client without your status being affected.