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If you work as a contractor, either through your own limited company or as a sole trader, you won’t have missed the term IR35, and probably will have had to deal with it...

If you work as a contractor, either through your own limited company or as a sole trader, you won’t have missed the term IR35, and probably will have had to deal with it. And, as the “Gig Economy” grows in size, with many of us working on short-term contracts, it will affect more people in the future.

Even if you have already been dealing with IR35, recent changes to it may affect you, and the way HMRC tries to apply the rules can be inconsistent and open to some interpretation.

The good news is that Deductic has built a tool that gives you a strong defence against challenges from HMRC about your IR35 status.

What is IR35?

IR35 is legislation that was introduced in 2000 to assess whether contractors or freelancers working “off-payroll” for other businesses are genuinely self-employed or “disguised employees” for tax purposes.

Contractors or freelancers working as employees of their own limited company (often called a “personal service company”) can enjoy tax advantages in the way they pay themselves compared to if they worked directly for the client company.

And the client company benefits from having a lower employment tax obligation in respect of that worker and potentially not having responsibility for employee benefits such as pensions, sick pay, maternity leave and redundancy rights.

If you are deemed to be “Inside IR35” HMRC will treat you as an employee and you will have to pay tax and NIC through the PAYE system. The “employer” company will also need to pay employer’s NIC.

If you are deemed “Outside IR35” you will be treated as self-employed and taxed accordingly.

Determining your Employment/Self-employment status

There is no statutory test for whether a contract is inside or outside IR35 as the decision is based on decades of case law and interpretation.

HMRC has an online tool, “CEST” (Check Employment Status for Tax). So why use Deductic’s IR35 tool? Our tool synthesises hundreds of legal cases to be more comprehensive and accurate, HMRC’s CEST tool has been challenged successfully in a number of cases, and it’s always beneficial to have a second opinion.

The main considerations for whether your contract falls inside or outside of IR35 are as follows:

  • Supervision, direction, control – this relates to how much control your client has over how you complete your work. For example, if you are obliged to work at certain times, this implies employment.

  • Substitution – Could you send somebody else to complete the work or do you need to do it yourself? If you can’t send someone else, you’re likely to be within IR35.

  • Mutuality of obligation – If there is an obligation for the client to offer a certain amount of work and an obligation for you to accept it, then this is considered “mutuality of obligation”. If there is “mutuality of obligation”, then the contract may fall within IR35.

Demonstrating that your contract is outside IR35 often comes down to your contractual arrangements and working practices such as how you are paid, whether you are available to work for other clients, whether employees of the client are under your management or control, and whether you use the client’s tools or equipment.

You should also demonstrate that you are set up as a business with insurance, a website and other employees, to strengthen the case.

Who is Responsible for Determining IR35 Status?

Until recently, public sector companies had to decide on the IR35 status of their contractors, whilst in the private sector the responsibility lay with the worker.

However, from April 2021 any medium or large business client has the responsibility to determine the worker’s IR35 status. For small companies the responsibility remains with the worker.

A small company is defined as one that meets two of the following conditions:

  • Annual turnover less than £10.2 million

  • Balance sheet total less than £5.1 million

  • Less than 50 employees.

If HMRC determines that the IR35 status has been incorrect, whoever had responsibility for determining it will be subject to penalties and any outstanding tax and NICs.

Add to this the potential wasted time dealing with an HMRC investigation, and possible damage to the relationship with your client, it is vital to ensure you have the evidence to prove you are outside IR35.

Deductic’s automated tool helps to determine and prove your IR35 Status

Our online tool provides an accurate test and evidence of compliance with IR35, including a second opinion, updates based on recent case law, and is automated and easy to use. For employers or agents, we offer an annual subscription and the automation to significantly reduce your IR35 compliance burden. Check it out on our platform now!

We are excited to announce our expanded range of services - more tax services embedded with top quality advice provided via the Deductic platform at accessible prices...

As we said at our launch in January 2022, Deductic is here to change “all things tax” for good. We started with an automated tax return submission service embedding top quality tax advice into our algorithms that focus on maximising your tax refunds at a very good price.

We are excited to announce our expanded range of services - more tax services embedded with top quality advice provided via the Deductic platform at accessible prices:

  • Choice is important and we now provide both fully automated tax return filing (what we call self-service) and filing with expert help. You can now choose to have a qualified tax expert assist you to complete your tax return using the Deductic platform. Just click “Start Filing” and book an appointment with an expert who will guide you while you ask them all those tough questions about your tax return!

  • If you have a more complex tax situation, you may require an expert opinion on your tax residency situation. Using our automated advisory platform, we can determine your UK tax residency for a given tax year in just 5 minutes. This can be useful for understanding whether you are subject to tax on worldwide or UK income and gains, telling financial institutions what your tax residency is, or understanding which tax treaties you can benefit from.

  • Determination of your employment or self-employment status with respect to IR35 can be complex. To recap quickly, IR35 is the tax law that requires you or your potential client or employer to determine whether you should be considered self-employed or an employee for tax purposes. You can obtain a professional certification of your employment or self-employment status using the Deductic platform, which is a professional opinion that can be relied on by you in relation to IR35. This service is available to individuals, companies and agencies wishing to verify the employment status of individuals with respect to IR35.

  • Unless you are someone like a politician, determination of your domicile status can be beneficial for understanding if you can claim the remittance basis, in understanding your inheritance tax position, and more widely it is especially useful in family law matters. We will be launching an automated advice service that dissects how your domicile status has evolved over your life to certify your domicile status for a given year.

  • HMRC continues to move forward with the implementation of Making Tax Digital (MTD) and VAT Returns must be completed online under MTD. You can now choose to submit your Making Tax Digital (MTD) VAT returns using the Deductic platform, which is quick, easy, and intuitive.

We continue to develop Deductic as a platform with top quality tax advice for everyone through automation and technology to help you manage your tax affairs in the quickest and most rewarding way.

The new tax year is upon us - get started with Deductic today so that we can help you get the tax advice and results you deserve!

We all want to be financially independent when we retire, if not before, and building a portfolio of investments, as well as a healthy pension fund is how most of us will achieve this. There are some generous tax allowances...

We all want to be financially independent when we retire, if not before, and building a portfolio of investments, as well as a healthy pension fund is how most of us will achieve this.

There are some generous tax allowances that apply to investments and, with enough time and planning, these can be optimised so that significant “income” can be achieved before any tax is payable.

Here are the main allowances you should be looking to maximise:

  • Personal Allowance for Income

    For the 2021/22 tax year, everyone can have income of £12,570 before they pay any income tax. This type of income can be earned from self-employment or employment or be from a pension or rental income. At the very least you should aim to be achieving this amount of income from such sources.

  • Capital Gains Allowance

    You are allowed to realise gains on the value of assets each year of (currently) £12,300, before any Capital Gains Tax (CGT) is payable.

    Gains are “realised” when an asset is disposed of or sold at a profit over and above the purchase price. Assets that should be considered could be shares, funds such as OEICs, cryptocurrencies and any reasonably liquid investment.

    If you can build up a decent sized portfolio of investments, and carefully sell enough assets each year to maximise the annual allowance this can be a very tax efficient way to supplement income.

  • Annual Dividend Exemption

    You are allowed to earn an amount each year from dividends, the profit share paid out from shares or funds that invest in shares, and be exempt from any further tax on them. For 2021/22 the exemption is £2,000.

    It makes sense to accumulate a big enough portfolio of dividend paying investments to at least utilise the annual exemption.

  • Personal Savings Allowance

    You are allowed to earn an amount from interest each year free of tax. The amount is currently £1,000 per year for a basic rate taxpayer, reducing to £500 for a higher rate taxpayer and nil for an additional rate taxpayer.

    The types of investments that earn interest include savings accounts, peer-to-peer loans, fixed interest assets such as gilts and corporate bonds and investment trusts or funds that hold mainly these fixed interest assets.

    With interest rates at their current low levels, a substantial amount can be held in these investments before the annual allowance is exceeded.

  • Tax Free Cash from Pensions

    Depending on the type of pension you hold an amount can be drawn, as a one-off, that is tax free. For personal pensions this is 25% of the fund. If you have a sizeable fund you can draw “segments” of it each year to use the 25% allowance from each “segment”. This is known as Pension Drawdown and can provide a tax-efficient way of drawing your pension for several years.

  • Annual ISA Allowance

    Each individual can invest an annual amount into Individual Savings Accounts (ISAs). For 2021/22 this amount is £20,000. By maximising your ISA allowances each year, a very substantial ISA portfolio can be accumulated once you reach retirement.

    And the great benefit of ISAs is that the income or gains from them are completely free of tax. So, whatever income you draw from ISAs in the future will be tax-free and in addition to all the other exemptions mentioned above.

If you’re planning your retirement portfolio, start considering how you can maximise the tax exemptions early, which can come to around £27,000 of tax-free income in total and not including income from ISAs – check out our platform at Deductic to make sure you’re using them all!

The success and popularity of services, such as Airbnb, and the growth in the “staycation” resulting from Covid-19, has opened up great business opportunities for people with a second home...

The success and popularity of services, such as Airbnb, and the growth in the “staycation” resulting from Covid-19, has opened up great business opportunities for people with a second home.

And if you plan to or already let a property out then there are a range of advantages if it can be treated as a Furnished Holiday Letting (FHL) rather than a long-term rental.

What is A Furnished Holiday Letting?

To qualify as a FHL, a property must meet a number of criteria, which we’ll summarise below. But essentially it is a fully furnished property, either in the UK or European Economic Area, that is available for short-term lets with the aim of making a profit..

Essentially an FHL is treated by HMRC as a trading business, as opposed to a long-term rental, which is treated more as an investment.

As such, an FHL enjoys a number of favourable tax reliefs and exemptions.

How to Set Up an FHL

  • If you own, or intend to buy a property and run it as an FHL, you need to register the business with HMRC.
  • The most basic rule is that it must be furnished sufficiently to be useable as a self-catering property.
  • The first year is treated as a “probationary period” by HMRC to test whether it will qualify as an FHL going forward. During this time it must be available for let for at least 210 days, and actually be let for at least 105 days. If one renter occupies it for more than 31 days, then such periods of occupation mustn’t exceed 155 days in the first year.
  • After the first probationary year there is a good deal of flexibility if you can’t meet the occupation criteria. For example, there is a “grace period” of up to 2 years where the criteria isn’t met, as long as the previous year met the occupancy minimums. During that time it will keep its FHL status as long as the occupancy is sufficient after that.
  • If you own multiple FHLs the occupation rates can be averaged across them

The Tax Benefits of FHL

  • Most costs, such as mortgage interest, insurance, maintenance, professional fees (e.g. letting agents), cleaning and laundry, and advertising, can be treated as tax deductible and will reduce the profit for tax purposes. In particular, FHLs can deduct mortgage interest whilst normal residential property leasing businesses cannot anymore.
  • Capital expenditure, such as for improvements to the property can qualify for Capital Allowances (unlike residential property leasing businesses), which also reduce the taxable profit.
  • Unlike normal property leasing businesses, the profits from the FHL business are treated as earned income and you can pay pension contributions from these to reduce your income tax further.
  • On the sale of the property it will normally be treated as a business asset and will attract favourable Capital Gains Tax rules (including potentially business asset disposal relief or rollover relief) compared to an asset such as a long-term rental property.
  • You should note that any periods when you or your family occupy the property on favourable or rent-free terms will reduce the amount of tax deductible expenses you can claim, so care needs to be taken if this is the case.
  • In some cases the property can qualify for Business Property Relief on death of the owner, which would mean it is exempt from Inheritance Tax.

Given the above, it may be interesting to consider how you may setup different types of property businesses depending on your financial profile and goals. When using Deductic to file your tax return, we especially cater to landlords to help them maximise their tax deductions on their property businesses.

The UK has some of the most enviable tax incentives for investors, with a range of tax reliefs available for investors in start-up businesses, social enterprises and private, unlisted companies. These allow us to claim...

The UK has some of the most enviable tax incentives for investors, with a range of tax reliefs available for investors in start-up businesses, social enterprises and private, unlisted companies. These allow us to claim income tax relief against the amount invested in certain qualifying investments.

Additionally, there is a range of tax exemptions and allowances all designed to encourage us to invest money for our own future financial independence.

By the careful use of the various allowances, you can accumulate a very sizeable portfolio of, effectively, tax-free investments.

Below is a brief summary of the main tax efficient investments available:

  • Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trust (VCT)

    These schemes allow individuals to invest in unlisted trading companies and receive relief against their income tax in the year of investment. The relief is 30% against EIS and VCT, and 50% against SEIS.

    EIS and SEIS are investments directly into small unlisted trading companies, although the investment can be in a managed fund of companies, to spread the risk. SEIS companies are companies with less than 25 employees and assets of less than £200,000.

    VCTs on the other hand are managed funds of unlisted trading companies and the VCT shares can be bought and sold at any time (although they must be held for 5 years to qualify for full tax relief).

    So, an investment of £10,000 in an EIS or VCT only costs us £7,000. That represents a significant “return” on our money, even before the investment makes any gain in value or dividends. If the investment didn’t work out, you may also be able to claim loss relief on the investment amount, potentially taking the cost of the investment of £10,000 down to £3,000 to £5,000 (depending on if you are a basic, higher, or additional rate taxpayer).

    In addition, there is no tax payable on gains made at disposal or any dividends received if they are held for the “qualifying period” which varies for each (e.g. 3 years for SEIS and EIS).

    In all cases the investments can be spread across a range of investments to provide diversification.

  • Community Investment Tax Relief (CITR) and Social Investment Tax Relief (SITR)

    These schemes allow tax relief of 25%, spread over 5 years for investment in social enterprises. They can be in the form of loans to social or community organisations, through a suitable institution.

  • Individual Savings Account (ISA) – For the 21/22 tax year individuals can invest up to £20,000 in ISAs, which can be in cash or stocks and shares (including funds such as OEICs). By investing the maximum in ISAs each year, a substantial portfolio can be built. And the benefit is that all the returns are tax-free.

  • Annual CGT Exemption – An individual can realise up to £12,300 of gains on shares each year without paying Capital Gains Tax (CGT). By careful management of a portfolio and timing when gains are realised, this can be maximised to reduce tax over time.

  • Investor’s Relief – Shares in qualifying unlisted companies with real businesses (i.e. that are considered “trading”) can be sold after 3 years with only 10% tax payable on gains.

We believe it’s important to use as many tax reliefs and exemptions as possible to help build your capital wealth, as long as the investments are suited to your long-term aims. Deductic can help you claim these reliefs so click on “Start Filing” to get claiming!

It’s very common for a start-up business to make losses in the first year or so. But did you know you can offset these losses against profits in another business...

It’s very common for a start-up business to make losses in the first year or so. But did you know you can offset these losses against profits in another business or earned income from a current or former employer?

Many new business owners came from an employed position, or even continue to be employed while they establish the business. In that situation, it is possible to offset the losses in the business against tax paid in the employed position. This can be for the current tax year or carried back to the previous one. Either way it will result in a tax reduction or refund.

HMRC won’t make these calculations for you as part of Self-Assessment so you generally need to make a request in writing. However, our platform at Deductic allows you to make this calculation and claim this relief.

There are also special rules for new businesses that allow losses in the first four years to be carried back three years rather than just one year.

And if you run more than one business, losses in one can be set against profits in another. Again, the effect is a reduction in tax and potentially a refund!

As a sole trader it’s easier to offset losses against other employment or business income than if your business is incorporated. So it often makes sense to start a new business as a sole trader. There’s always the option to convert your business to a limited company at a later date. At that point you can claim Incorporation Relief, which allows you to carry the losses from the unincorporated business into the new company.

There are fairly strict rules about what is meant by a business, such as it must be set-up for the purpose of making profit and, generally, should be taking more than ten hours per week to run. This is to stop people from claiming an expensive hobby is a business or trying to offset a few bad share trades against tax.

It’s also possible to carry losses forward to be offset against a future year’s profit, but this has to be for the same trade.

Starting a business can be extremely rewarding, but losses are quite normal in the early days, before the business is fully established. Make sure you use the reliefs available to reduce the impact of any losses!

As a sole trader operating a business, you might be surprised at some of the expenses you could claim as tax deductible. But having a clear idea of what is allowed and taking simple steps to ensure HMRC...

As a sole trader operating a business, you might be surprised at some of the expenses you could claim as tax deductible. But having a clear idea of what is allowed and taking simple steps to ensure HMRC will accept your expenses as legitimate business costs is vital.

Getting it right will reduce the tax you pay and, ultimately, leave more of your hard-earned income in your own pocket.

As a sole trader you will need to complete a Self-Assessment tax return. This can be completed on a simple “Cash” basis or “Accruals” basis. The basis you choose will affect how and when a lot of allowable expenses are relieved against tax. And we would recommend you seek advice on this before completing your return.

So here are a few of the main costs you may legitimately claim relief on:

  • Employing a Spouse or other Family Member– Many sole-traders receive some assistance from a spouse that could easily justify a wage. Examples of this might be general admin, answering the phone and correspondence or credit control. And if the spouse has no other source of income it could make sense to pay them a wage.

    If you keep the wage below the levels for income tax and NIC then there is no need to carry out a PAYE return either.

    It is however important to do it properly. You need to actually pay them the salary, and document it. And they do need to carry out enough duties to justify the level of pay.

    The benefit of this is that the amount you pay them reduces your profits and therefore the tax you will pay.

  • IT Costs– This covers the cost of hardware such as computers, software and websites. The rules about how these costs are taxed seem quite complicated, but generally for sole traders the costs will be allowed against income tax.

    If, for example, a website is deemed to be a saleable asset, then technically the cost would be a capital expense rather than a trading cost. However, there is an Annual Investment Allowance (AIA) which, since January 2019, has been £1 million. Up to this amount of investment in “plant and machinery” is allowable each year against income tax.

  • Use of Home for Business– If you work from home, even for only a small proportion of the working week, you can claim a proportion of the household costs, such as mortgage interest, rent, insurance and utility bills, against tax. The proportion allowed will depend on how many hours per week you work from home. There is a simplified method based on hours or a more complicated one which may be beneficial in some cases.

    The cost of some repairs and renovations may also be claimed. It is, however, important to understand how this might affect the Capital Gains Tax (CGT) situation if you sell the main residence. Generally, there is no CGT on the profit on the sale of your main residence under Principal Private Residence (PPR) Relief. But care needs to be taken to not have part of the house deemed to be solely for business purposes, which could reduce the benefit of PPR Relief.

  • Bad Debt Provision– Unfortunately, bad debts are a part of most businesses. But, once a customer is clearly unlikely to pay, the debt they owe can be written off against tax.

The scope of expenses that are allowable for sole traders is wide and varies from business to business. Deductic has been developed with the top tax advice embedded in the AI and specifically to help you claim all the deductions that are available to you, and which a human accountant may overlook. Check out how good our AI platform is!

It’s surprising how many employed people fail to claim tax relief for expenses they incur to carry out their job. Maybe it’s because we are all so...

It’s surprising how many employed people fail to claim tax relief for expenses they incur to carry out their job. Maybe it’s because we are all so accustomed to paying tax that a seemingly small refund seems insignificant.

Or perhaps it just seems like too much hassle to be worthwhile claiming tax deductions.

But if somebody knocked on your door and offered you, say, £200 of money that was rightfully yours, you’d take it gratefully, wouldn’t you?

Or if you got overcharged £60 in a restaurant, you’d say something, right?

Well, this is the same thing. Not claiming tax relief is saying goodbye to money that is rightfully yours!

Here are a few examples of the main expenses for which employees may be able to claim a tax deduction or refund:

  • Working From Home - Covid-19 has clearly caused a huge upsurge in homeworking. And, as long as you can meet some simple criteria, you can claim a relief for the additional household costs of working from home. You can claim a simple “flat-rate” allowance of £6 per week or £26 per month, as an allowable expense. So, if you pay tax at 20% this would be worth £62 per year. And double that if you pay at 40%.

    And if you’re able to provide evidence of higher extra bills you could claim even more.

    If you claim early in the tax year you’ll get deductions through a change in tax code. And if you haven’t claimed for previous tax years you could get a refund.

  • Travel and Subsistence – If you incur expenses to travel in relation to carrying out your job you could claim tax relief against those costs. That could include public transport costs, use of your own vehicle, parking, and meals. It doesn’t however include travelling to and from your job.

  • Replacing or Maintaining Clothing or Tools – If you require protective clothing for your job, such as safety boots, goggles, or gloves, the cost of these could be claimed against tax. The same goes for any tools that you use such as scissors if you’re a hairdresser or your own tools if you are a mechanic.

    The rules are strict as to what is allowable, so normal clothing such as suits aren’t allowable.

  • Professional Membership Fees and Indemnity Insurance – If you’re a member of a profession that requires membership or insurance, then the cost of this should be allowable against tax, as long as the professional body is recognised by HMRC.

Relief can’t be claimed for expenses if your employer reimburses you in full.

The good news is that Deductic has made it quite straightforward to claim these tax deductions (and more!) that you might be entitled to. Check it out by clicking “Start Filing”.

Deductic is here to change “all things tax” for good. Our singular focus is on maximising your tax refunds by embedding top quality tax advice into our algorithms and automated platform...

Deductic is here to change “all things tax” for good. Our singular focus is on maximising your tax refunds by embedding top quality tax advice into our algorithms and automated platform so it is accessible to everyone at a very good price.

Tens of billions of pounds of tax deductions and reliefs go unclaimed each year in the UK and the hurdles to getting your refunds are varied…think tools, expensive tax advice, lots of accountants but how to choose the right one,…

We started Deductic as a platform to democratise access to top quality (and expensive!) tax advice for everyone through automation and technology to help you do your tax return in the quickest and most rewarding way.

Created by a team of top qualified tax advisers and software engineers, we are the only UK start-up with a fully automated platform addressing the range of situations for everyone to file their UK personal tax return. We can do the range of tax schedules and complexities such as highlighting potential tax deductions and reliefs, advising on your tax residency status, calculating foreign tax credits and capital allowances, and being able to file remittance basis claims online (instead of paper form with HMRC). We are also recognised by HMRC as a commercial software supplier for UK personal tax.

Our first release is to help you get the tax refunds that you deserve with a simpler, automated way to file your UK personal tax return. Our pricing is straightforward and accessible: £40 for your UK tax return.

We are really excited to have you join us on our journey, get you all using our platform and telling us what you need so that we can help you get the tax advice and results you deserve.

Deductic helps you to maximise your UK tax deductions and sort your taxes. Get started with us today!