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Architecture

Everybody who does paid work considers themselves a professional to some extent - whether it’s building homes, serving food or writing blogs so what makes “professional services” different and special? 

The official title of the standard industrial classification (SIC) grouping is for professional, scientific and technical activities which specifies the activities of these businesses a little more clearly. 

The sector includes sole traders, partnerships and limited liability companies that work in fields such as legal, accountancy, architecture, scientific research, advertising, management consultants and even veterinary services are included.

While the nature of their businesses might vary greatly, they will all have faced similar challenges to overcome in the previous 18 months. 

So how are professional services faring in the post covid economy?

While the construction, hospitality and retail industries took a lot of oxygen and headlines about how the pandemic was affecting them - professional services businesses were also fighting their own battles to stay afloat too. 

Since the first UK-wide lockdowns and enforced trading suspensions were implemented in March 2020, 1,351 professional services businesses have become insolvent (537 in 2021 alone) - which is more than 25 every week.  

To put this in context, that’s nearly as many as the hospitality (1,378) and retail (1,355) industries without any of the associated attention of publicity.

One reason why is because the nature of the businesses are so disparate, it’s hard for the sector to speak with a unified voice. 

Takeaways and fine dining restaurants have a lot of differences and cater for different clientele and markets but their interests can be effectively lobbied for by the same influential groups such as UKHospitality.  

A marketing agency and a vets surgery will have their own representation but are unable to combine their funding, focus and forces to raise as formidable defence as the retail and hospitality sectors defenders did. 

One area where professional service providers were able to compete on an equal footing with other sectors was when it came to accessing coronavirus support measures such as bounce back loans and being able to avoid making staff redundant by furloughing them instead as part of the coronavirus job retention scheme (CJRS). 

When it came to bounce back loan borrowing, the professional services sector took out the third highest number of loans - nearly 160,000 - and after the retail and construction sectors, collectively borrowed the third highest total of £4.5 billion in support finance. 

This works out at an average of £28,252 for every professional services business who was approved to access a bounce back loan. 

Our research showed that under the various repayment scenarios it’s estimated that between £675 million and £2.7 billion might remain unpaid from this amount depending on the various circumstances facing the borrowers.  


You can still close your professional services company even if it has bounce back loan arrears


Now as accountants, business coaches and PR professionals begin to make up for lost time and hope to recover the ground lost during the previous 18 months, another potential problem looms on the horizon

The end of September sees a confluence of rule changes coming together to spell trouble for unprepared professional service business owners and directors: 

Employers with staff on furlough have already begun paying a greater contribution to their wages in August and September already but the entire scheme is ending on September 30th leaving businesses with potential tough decisions to make regarding staffing, rehiring and potential redundancies.

Bounce back loan and CBILS repayments will already have begun for the majority of borrowers but those that obtained a six month delay to the repayments will see it end this month meaning that these debts will now come due. Additionally any VAT arrears incurred in 2020 are also due now.

Creditors have legally been restrained from seeking redress for owed debts since March 2020 meaning that statutory demands and winding up petitions for debts incurred during and as a result of the pandemic have been unable to be granted or enforced. 
This ends on September 30th as does the suspension on termination clauses, which guarantee supplies to businesses and stop suppliers from asking for additional security or extra payments from businesses that enter administration or other restructuring procedures. 


Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk thinks that professional service businesses such as marketing firms and architectural practices have a significant advantage that other sectors lack. 

He said: “The entrepreneurial nature of the sector - whether it’s a design studio or established partnership - means that these businesses tend to be more agile than companies in other industries. 

“This means that they can make decisions quicker and more importantly implement them to take advantage of changing circumstances that could affect them significantly. 

“The various changes coming in at the end of the month will have serious repercussions for a lot of companies that don’t realise what’s about to happen or are unable to get impartial and professional advice to make the necessary choices and changes required. 

“It’s the latter that will be best able to adapt to a potentially unfavourable outlook and protect their employees’ livelihoods as well as themselves.  


One of the sad ironies that most professional service businesses understand is that when times get tough for their clients, they tend to be seen as some of the first expenditure that should be cut while they tighten their belts. 

This often proves counterproductive because it’s the expertise and knowledge that they were hired for that would give the client a significant edge over competitors who would also look to cut back and grant them a competitive advantage at the very moment it’s most needed. 

Every business in the professional services sector will have stories about clients acting in haste and repenting at leisure - so they should be able to take their own advice and act quickly and decisively when the circumstances demand action. 

A business with bounce back loan and VAT arrears, CBILS or other borrowing might be able to sustain them today but this situation will change in less than four weeks. 

That’s why we offer a free, initial consultation to any business owner or director who wants advice on how they can best protect their business.

We will listen and learn what challenges they’re facing and be able to provide options they can deploy, some immediately, that will either buy them valuable time to act or allow them to efficiently and properly begin to close an unviable business - even one with bounce back loans or other unmanageable debts.  

building site

Stress might be one of the most misapplied words in common usage. 

Any good construction professional will be able to explain that stress is a temporary force acting on structure while strain is a permanent change - either in shape or size - directly resulting from the pressure of that stress. 

A little stress can be a good thing as it can prove that a design or structure is working as it’s meant to. It’s when it becomes a strain that more serious issues can occur. 

So has the previous 18 months caused the construction industry severe stress or has it turned into a permanent strain on the sector?


Year of Lockdowns

No UK industry was more badly affected by the pandemic than the construction industry. 

From March 2020 when the first lockdowns were instituted to the end of March 2021 more than 1,600 building firms closed down permanently. 

This is higher than both the hospitality and retail - two sectors previously thought to have fared the worst since the pandemic began. 

1,634 firms in construction went under during this period compared to 1,378 in hospitality and 1,355 in retail. 

In our Year of Lockdowns report, we broke down how the pandemic had affected every aspect of life across the country for businesses, their owners and staff. 

We found that the halting of various large and small scale building projects had badly damaged all elements of the construction industry. 

According to official Insolvency Service statistics, there have been an additional 596 construction insolvencies since March taking the total number since lockdown to 2,230 or 34 a week.

In this month alone, Darlington based Cleveland Bridge and All Foundations, one of the country’s top piling contractors, entered administration while Mansfield based Minister and AM Griffiths from Wolverhampton ceased trading altogether and went into liquidation. 

Sadly, they will be joined by other notable names this year.


Loans granted but will construction bounce back?

The various government support schemes greatly benefited construction during the past 18 months. 

The coronavirus jobs retention scheme, better known as furlough, allowed them to retain some of their most valuable staff while sites and projects shut down and borrowing such as CBILS and bounce back loans allowed them to quickly access funds to support themselves. 

Especially bounce back loans. 

The construction industry collectively accessed the most bounce back loans of any sector with nearly a quarter of a million bounce back loans granted - 238,825.

The total amount borrowed was £7 billion, second only to the retail industry, which is an average borrowing total of £29,310 per company.  

Under the most conservative official estimates, it’s expected that 15% of the total lent to the industry would remain uncollected which is a not inconsiderable £1.05 billion. 

This doesn’t just affect large contractors and builders but many sole traders and partnerships too, which make up a large proportion of the industry.


You can still close your company even if you have bounce back loan arrears - find out how


Next month sees a further bottleneck of trouble brewing for already struggling builders. 

The coronavirus job retention scheme better known as furlough is finally wound up meaning businesses will either have to decide to welcome workers back on full wages with no government support or consider redundancies. 

Bounce back loan and CBILS payment arrears will continue to be demanded along with any unpaid VAT arrears from 2020.  

Also certain creditors actions are set to resume on September 30th allowing creditors to seek statutory demands and winding up petitions for unpaid debts and a further small but critically important protection for constructors is also being removed. 

Termination clauses were suspended which stopped suppliers from ceasing their supply or asking for any additional payments or security from businesses that are undergoing a restructuring or administration process. 

From the end of next month they will be able to once again, which will place further strain on otherwise viable but struggling companies and potentially lead to more disorganised and chaotic collapses rather than professionally managed recovery strategies and business rescue plans. 

Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk spotted this specific danger last month when he said: “Construction companies that rely on the guaranteed availability of materials could quickly find themselves in difficulty if suppliers start to use these newly restored rights, right away.

“Due to the actions of a supplier, otherwise profitable businesses could find themselves trading while insolvent through no fault of their own. 

“If a builder, civil engineering practice or other vital part of the construction industry that underpins so much of the country’s infrastructure is now worried about what these changes will mean, we can help reassure them.

“There is a small window of opportunity for them to act - right now - before September 30th.

“We can help them formulate a recovery strategy for their business that will protect them into the Autumn months and beyond. 

“This includes if they have bounce back loan arrears, CBILS debt, VAT arrears or other unsustainable debts that have built up over the previous 18 months.” 


Construction businesses naturally have a genius for delegation. 

Not just using the right tool for the job but the right subcontractors, the right workers and the right people in the right places at the right time. 

We employ the same principle for businesses facing financial difficulties. 

Speak to an expert who can give you a quote and let you know exactly what they would do, when, how, why and then deliver on their promises.

The sooner a business owner or director gets in touch to arrange a free initial consultation, the earlier we can let them know what options they have and the quicker they can be implemented. 

Rules, regulations and trading conditions will change next month along with the seasons so act today so you won’t be caught out tomorrow. 

Cleveland Bridge

This includes some big names entering administration and the final liquidations of some famous brand names from the high street for good. 


Bounce back loan repayments affect sole traders and partnerships too 


Cleveland Bridge

Cleveland Bridge, builders of such iconic structures as the Sydney Harbour Bridge, the Tyne Bridge in Newcastle and the arch at the new Wembley Stadium, has gone into administration. 

The company is part of the Al Rushaid Group based in Saudi Arabia, and has been marketed for sale by administrators while staff continue to complete ongoing projects with others remaining on furlough as part of the Coronavirus Jobs Retention Scheme. 

The company employs 221 at its Darlington headquarters along with an engineering site in Newport, South Wales and a further 98 contractors. There are also many more companies in the supply chain that will be anxiously awaiting news

A spokesperson for the administrators said: “Cleveland Bridge UK has been a flagbearer for cutting edge British engineering for more than a century. 

“But no business is immune to the far reaching impact of the pandemic, which has delayed major infrastructure projects around the world and put significant financial pressure on the teams behind them. 

“CBUK is a business with a proud history and a formidable track record of engineering excellence. It also has great potential.”


Kapex Construction and Nobles

Previously profitable Newcastle contractor Kapex Construction Limited has also entered administration in July. 

According to their latest accounts filed at Companies House in March 2020, the business had assets of £4.1 million and liabilities of £3.6 million. 

There were £433,020 profits on a turnover of £11.6 million and was understood to have an order book of £40 million. This was an increase in profits from the previous year. 

Founded in 2016 as part of the Morton Group, Kapex was largely involved in residential construction contracts in the North East, working on projects including commercial building refurbishments and student accomodation. 

Work at the various sites the company was engaged with has stopped with staff being sent home while administrators look for a solution. 

Liverpool-based Nobles Construction has also gone into administration following tightening trading conditions. 

The business applied for but was turned down for a Coronavirus Business Interruption Loan (CBILS) last year which would have been used to resume trading and bring furloughed staff back into work. 

Their last project was a large housing development in Warrington with no work being completed from February 2021 as Nobles and the developer were in dispute. 


WRW Construction

WRW, one of the leading construction firms in Wales with three offices in Llanelli, Cardiff and Bristol, have entered administration after coming under “significant financial stress”. 

A statement issued by the business said: “Despite a significant order book of over £60m to be delivered within the upcoming 12 months, a supportive lender, fantastic staff and prospects, regrettably, owing to a series of events the last week, including an unfavourable adjudication outcome, the business was put under significant financial stress. 

“The directors have worked tirelessly with their advisors and funders to look for solutions for the business to remain viable. 

“Unfortunately, it has been regrettably determined that no viable options remain, and administration is the best course of action to preserve value for stakeholders and creditors. As a result of this, the directors are in the process of placing the company into administration.”

The business has financing secured against property and other assets and despite having several public and private sector clients and a strong supply chain, administrators hope to be able to secure returns for creditors.  


Titan Homes

Glasgow-based property developer Titan Homes has gone into administration after an extended period of financial difficulties. 

The flagship development they are working on is Meadow Road in Glasgow where 45 luxury apartments are being constructed which will now be taken over by a secured lender who will look for a new partner to complete the project either in partnership or as a solo project. 


Victoria’s Secret and Arcadia

The UK arm of lingerie store Victoria’s Secret has moved out of administration and gone into liquidation. 

The business entered administration in June 2020 after the Covid-19 lockdown became insurmountable. 

The administrators asked a judge at the Insolvency and Companies Court for permission as they would liquidate what assets remain and use them to pay dividends to remaining creditors. 

Another famous name in British retail - Arcadia - has also appointed liquidators to close the final remnants of the business that collapsed in November 2020. 

Their main task will be to repay creditors including HMRC which is owed a “substantial VAT liability” by several of the companies within the Arcadia group. 

A spokesperson said: “The liquidation of the Arcadia companies is a large and complex undertaking. Over the coming months the aim is to repay as much as possible of the group’s outstanding debts.”

Some of the names that will be disappearing for the final time include Burton, Dorothy Perkins and Evans. 


Gap and H&M 

American casual clothing powerhouse Gap announced it was closing all 81 of its physical stores in the UK and Ireland with 1,000 positions being lost as a result. 

The closure program is expected to be completed by the end of September 2021 but would continue as an online only business. 

H&M have also announced that while their profits have increased over a 12 month period and they would open 100 new stores, they would be closing 350 for a net loss of 250 locations. 


M&S Banks

Marks and Spencer announced that it was immediately closing all of its physical 29 bank branches with all current accounts being closed at the end of August 2021. 

The company said it hoped to redeploy workers wherever possible and confirmed that none of the travel money bureaux branches would be affected. 

A spokesperson confirmed that the closures were a result of the surge in online banking and would instead focus on credit cards, insurance, savings and loan products. 


Hema

Dutch retailer Hema announced it would close all six of its UK branches as it looks to focus more on its core markets in the Netherlands, Belgium and France. 

The company launched in the UK in 2014 planning to grow into an international brand but chief executive Saskia Egas Reparaz said that it was unfortunate that the company had to let staff go but it had never managed to build a solid position in the market.  


Liverpool School of English decimated by pandemic

The Liverpool School of English which prior to the pandemic taught 5,000 students a year from 80 countries has gone into voluntary liquidation. 

Founded in 1999, the school has provided tuition for over 50,000 students in its 20 year life. 

As international travel was brought to a halt in 2020 and remains extremely restricted in 2021, the immediate drop in applications and enrollments was catastrophic for the business. 
The school looked at offering online classes but interest was insufficient to maintain the school as a viable business. 34 positions will be lost with the closure. 

A spokesperson said: “Since March 2020, the company has been adversely affected as a result of the global response to the pandemic. These measures made the business unsustainable after so many years of success. 

“The directors have explored every single avenue to keep the business going since March 2020 but ultimately the challenges presented to them by lockdown restrictions and a decision by their insurance company not to pay out on business interruption and infectious disease claims were too great to overcome. 

“This is an example of a previously highly successful business being devastated by the global response to the pandemic and, regretfully, it certainly won’t be the last.”


JTF

JTF - a midlands based discount warehouse chain - has gone into administration with the closure of over 12 branches and warehouses and the probable loss of 500 positions. 

The 40-year-old company issued a statement expressing disappointment and stressing that the pandemic had played a significant role in the downturn with the forced closure of stores wiping out fireworks and Christmas sales which were “two of the largest seasonal items for JTF”. 

JTF Chairman Arthur Harris, who bought the chain in January 2020, said: “We believed we had secured a sale of the business but unfortunately the buyer pulled out at the last minute leaving nowhere to go.

“JTF had a fabulous team. I believed I had done everything possible to turn it around, taking the business back into profit within four months but just hadn’t factored Covid into the scenario.”

JTF continues to seek a buyer but in the meantime staff will be able to apply for redundancy.  


The majority of 2021 has passed and while it’s still the holiday season, many think things are also taking a rest but this isn’t true

As expenses continue to mount, the Coronavirus Job Retention Scheme furlough ends next month, CBILS and bounce back loan repayments continue to come due, defaults rise and the ban on creditor actions such as winding up petitions will be lifted.

The time to get advice and make decisions that could change the fortunes of your business is beginning to eke away. 

Get in touch with us today for a free initial consultation and we can help you put plans in place that will have an effect before the majority of businesses understand that time has begun to run out. 

sole trader paying bills

Not many would have assumed that over a year after taking them that a large minority, if not majority in some industries such as hospitality, bars or nightclubs, would not have been able to begin trading at all in some circumstances, let alone fully. 

We’ve covered the problems facing these businesses in earlier blogs as well as the small and closing window of opportunity for companies to implement rescue and restructuring plans ahead of creditor actions such as winding up petitions resuming and the CJRS furloughs ending at the end of September.    


Can I still be chased for bounce back loan repayment if my company is closed down?


But what about sole traders and partnerships facing the same issues?

Limited companies have established legal protections that stop creditors from pursuing individual directors and owners for debts - unless a personal guarantee was given - but sole traders and partnerships don’t have this shield. 

When applying for bounce back loans, the British Business Bank stated that sole traders and partnerships had to have been given sufficient information about the borrowing and incurred debts and repayments before any finance was given, under the provisions of the Consumer Credit Act. 

If this wasn’t adhered to by the lender underwriting the agreement and providing the funds then they would lose their ability to collect repayments on the loan - although they would be expected to challenge this.  The onus would be on the borrower to prove they hadn’t been adequately informed either at the time or during the course of the agreement. 

The Consumer Credit Act doesn’t apply to the bounce back loan scheme in its entirety although not all of its protections were removed, meaning the information requirement remained and that the collection of the loans were still regulated meaning that lenders would still have to comply with the relevant regulations should borrowers encounter financial difficulties. 

Additionally, lenders were not permitted to ask for or seek any personal guarantees for access to the bounce back loan scheme. 

Sole traders and members of a partnership are often used to risking their personal assets when borrowing so would be reassured that under the terms of the bounce back loan scheme, no recovery action can be taken by lenders over either a principal private residence or a primary personal vehicle - their home or car. 

This doesn’t mean that they cannot be pursued for outstanding bounce back loan debts or unpaid installments. Their other personal assets may still be at risk of recovery action from the end of September.

One other important caveat partnerships or sole traders who borrowed under the scheme should be aware of - they should not have been in financial trouble when they obtained the finance. 

From September 2020, an additional undertaking was inserted into the bounce back loan borrowing conditions making this requirement clear. 

The definition of a “business in difficulty” is that partnerships should not have accumulated losses greater than half of their capital in their most recent annual accounts - although this does not apply to firms three years old or less. 

For sole traders the requirement was that they should not have been in an active insolvency procedure while they sought the funding. 

The biggest problem for sole traders to overcome if they can’t repay their bounce back loans, is that legally, there’s no difference between personal and business assets.  This means that any business debt is personally owed and therefore recoverable from personal assets. 

Creditors can and will use high court enforcement officers or bailiffs to obtain whatever they can to sell and regain some of their funds. 

These too are currently limited (although not if the company was considered insolvent before the Coronavirus lockdowns started in March 2020) but are scheduled to return within ten weeks.

If a sole trader is in financial difficulty and can’t make bounce back loan repayments or other debts then they have insolvency options but not as many as a limited company or even a partnership so it’s even more important that they get professional advice at the earliest opportunity. 

Chris Horner, Insolvency director with Businessrescueexpert.co.uk said: “One of the main advantages of running a business as a sole trader or in a partnership is less administration and more agility than a limited company can supply.

“A drawback is that if they meet financial headwinds, then they don’t have the range of protection enjoyed by companies - they have more personal exposure. 

“But this doesn’t necessarily mean the worst. If they take action early enough to satisfy creditors including bounce back loan lenders then they can still continue to trade, if viable, and repay their debts while they do it.

“Alternatively, they can take advantage of specific insolvency protection for sole traders or individuals called an Individual Voluntary Arrangement (IVA)

“It operates in a similar way to how a CVA or company voluntary arrangement operates for a limited company allowing them to pay off debt in a series of manageable monthly payments while a proportion of the remaining debt is written off.

“No matter what issues partnerships or sole traders might be facing - if they get professional advice quickly enough, they will have options to change course.”

The bounce back loan scheme might have been a new initiative but the problems if a partnership or sole trader can’t repay it is not. 

Even though the scheme was government backed to encourage lenders to be more generous than they might otherwise have been to prospective borrowers, we’re seeing increasing evidence that recovery action is more aggressive and sustained than you may expect. 

This is because the government is increasingly demanding evidence from lenders that they have made genuine efforts to recover any debts before they can even begin to apply to have their funds reimbursed.  

Given this, if you think you might not be able to repay your bounce back loan or any other borrowing in full, or if you’ve missed payments already - you should get in touch with us as soon as you can

We offer a free consultation for sole traders or partners where they can outline what issues their business is facing and we can listen and let them know, often to their surprise, that they can take action to save it. 

The quicker they act, the more options they will have to choose from and more time to implement them effectively. 

The clock is ticking down for creditors actions to be allowed again so why waste any more time?

IR35

The off-payroll working rules or IR35 were first reviewed in 2019 and were due to be implemented last year but were postponed for 12 months due to the Covid-19 pandemic. 

Previously freelance workers who operated through their own personal service companies (PSC) determined their own employment and tax status but now responsibility for this decision has shifted to the company engaging their services instead. 

Genuine freelance workers could now face higher tax payments and companies could face bigger bills from having to employ more staff directly with the higher associated costs.

We’ve previously written that the aim of the IR35 rule changes are to ensure that workers who would normally be classed as direct employees of a company, essentially doing the same job or the equivalent of other employees pay the same income tax and NICs as their co-workers.

A contractor working under their own PSC then would usually be paying less than an employee directly hired by the business to do the same job. 

In a report to the House of Lords from the Economic Affairs Finance Bill sub-committee last year, they highlighted that some companies, especially in the oil sector, had imposed blanket status determinations on workers with some deciding not to use freelance contractors at all to ensure IR35 compliance.  

The report also surmised that some workers could find themselves with the worst of both worlds - they would have none of the rights of an employee and none of the tax benefits of being self employed. 

Andy Chamberlain, Director of Policy at IPSE, the Association of Independent Professionals and the self employed criticised the timing and the overall complexity of the changes.

He said: “The crucial problem with IR35 is still its complexity. In fact, it is so complex that HMRC have lost the majority of tribunals on its own legislation. 

“Now the changes to IR35 are shifting this complexity from contractors themselves onto their clients. The result is clear: chaos.

“Many clients are pushing all their contractors inside IR35 - against the rules of the legislation. Many more are only engaging contractors through umbrella companies, while others are scrapping their contractor workforces altogether - just when, as the economy opens up, they will need them most.”

IPSE research found that 50% of freelance workers were planning to stop contracting in the UK altogether unless they found contracts unaffected by IR35. 

Of these - 24% planned to seek contract work abroad, 12% said they would stop work altogether, 11% said they would bring forward plans to retire while 17% would seek a full time employed role instead. 

The implementation of IR35 comes at a particularly difficult time for the freelance and self employed sector. According to the latest ONS employment figures, one in eight freelance workers - 660,000 - had left the sector in the last year. 

These latest changes could see what is already a torrent turn into a flood. 


Depending on their individual circumstances, contractors will have different options to choose from when it comes to tidying up their affairs. 

A freelancer who’s personal service company has made a profit and can repay their debts within a 12-month period would be eligible to close their PSC through a Members Voluntary Liquidation (MVL). 

An MVL offers several advantages than other methods to effectively close down your company. 

It’s generally quicker, more straightforward, can be beneficial for certain taxes and generally less expensive than other methods. 

Any business that would be unable to pay off debts within a year or has no clear path to repayment should consider a Creditors Voluntary Liquidation (CVL) instead.

This is a formal process overseen by a licensed insolvency practitioner who would take over negotiations with creditors and look to settle all outstanding loans and debts including Bounce Back Loans along with any HMRC debt.


Being self employed or freelance is a balancing act at the best of times. 

In exchange for the flexibility and tax advantages, you forego the certainty of a regular wage and the rights and security of being an employee. 

Most of the time the scales will tip in your favour but the IR35 changes compound an already complicated and changing environment.

You might be forgiven for thinking that now you’re being asked to incorporate a juggling routine into your balancing act! 

If you’re a contractor with a personal services company or are generally concerned about what the changes could mean for your career and future livelihood then you should get in touch with us today. 

We offer a free initial consultation with an expert advisor who can clarify any concerns about your status and will be able to advise you on any outstanding HMRC issues you or your company has.

IR35
 
 
 
 
 
 
 
 
 
In this piece, we’ll look more closely at what HMRC is looking for when they’re trying to prove if a worker is a genuine contractor or a disguised employee
 
Firstly, they can look at a contractor’s tax arrangements at any time and they can look back up to six years of returns to retrospectively claim back higher future income tax and NIC payments accordingly. 
 
Pay up, it’s cold outside...
 
The HMRC are looking for evidence that will prove if a contract or working arrangement is “within IR35”. 
 
If they’re deemed to be inside IR35 then they’ll be eligible for income tax and NICs. Game Over. 
 
The only derogation here is if the company that hired the worker is in the public or private sector. 
 
If they’re in the public sector then it will be up to the company (or agency if they’ve hired the worker through one) to deduct and pay the appropriate dues.
 
This will be the same for private sector companies from April 2020 as the law changes to bring parity to both sectors. 
 
Until then it’s up to the worker (or their personal services company (PSC) that’s contracted to do the work) to determine whether or not their contract is inside IR35.  If so, then they’ll have to pay all the eligible income tax and NICs to HMRC
 
“It’s a yes from me” - Judges Criteria
 
HMRC use many individual data points and pieces of evidence to determine what a workers IR35 status is but there are three main areas that taken together, tend to provide a more definitive guide to status:
 
 

 
 
They would ask - if the client organisation offers the hired contractor work - are they freely able to reject it or are they obliged to accept?
 
They’re looking for “no mutuality of obligation” for the contractor. This means that they must be free to work on a project-to-project basis, be able to change employees or terminate a project part way through if necessary. 
 
If they can’t prove they have any of these freedoms then they would likely be found to be in IR35. 
 
 

 
 
HMRC will carefully examine what, if any, direction, control and supervision is directed over the contractor by their client.
 
They’ll look at how much say they have in how, what, when and where they fulfill the contract and their day-to-day assignments.
 
Being able to work on a project-by-project basis is another key indicator as to IR35 status, so there shouldn’t be any supervisory or directoral elements in any contract clauses dictating how, when and how they work or if there are any exclusionary or exclusivity clauses. 
 
If there are then this could be a good indicator of being inside IR35.
 
 

 
 
Possibly the most critical and powerful determiner in the HMRC’s arsenal. 
 
Does the worker or contractor have to carry out the work personally or can they provide a substitute or proxy to work in their place?  
 
If somebody is hired specifically for their own skillset, experience and suitability for a project then it may be difficult to prove genuine employment independence under inquiry. 
 
If they are unable to substitute for themselves then this would indicate employee equivalent status in most cases and a compelling IR35 judgement. 
 
There are other contributing factors that HMRC take into consideration including: 
 

 
There are also other small but subtle indicators to IR35 status such as whether the contractor has a company email address, do they have a job title that indicates a permanent part of the business structure or their own desk or office within a primary workplace. 
 
HMRC have an online test that can be taken to help provisionally determine status. 
 
It can be taken anonymously and won’t store any information given although the results can be printed out and maintained for record keeping, although it doesn’t provide a binding certificate of independence. 
 
Why both£r?
 
HMRC stated that in the first year following the reforms alone they raised an additional £550m in income tax and NICs and estimated that non-compliance with IR35 legislation in the private sector sees up to £1.2bn lost to the exchequer by 2022/23.  
 
They say they are acting now to secure future funding. 
 
There have been several high profile examples of contractors winning cases brought by HMRC but there are never any guarantees in the legal system of winning a case.
 
If you’re a contractor and your asking yourself questions about your status, how to prove it if asked or if you think there could be any confusion then contact us today
 
After a free initial consultation with one of our expert advisors we’ll be able to clarify any concerns you might have about your status and advise you on any outstanding HMRC issues you or your company might have now or that might pop up when you least suspect it. 
 

IR35
 
 
 
 
 
 
 
 
History
In the 1999 budget, the then Chancellor Gordon Brown announced measures to counter large scale tax avoidance through the use of Personal Service Companies (PSC). 
 
A PSC is not strictly defined in law but the government definition is “someone who works through their own limited company” as opposed to someone who’s self-employed and pays Class 2 and 4 NICs.
 
The Intermediaries Legislation, as IR35 is properly known, was announced on the same day as the budget statement in an innocuously sounding pre-budget press release called Inland Revenue (now HMRC) no.35 “Countering Avoidance in the Provision of Personal Services”. 
 
So the IR in IR35 stands for Inland Revenue and 35 is the press release number. Still with us? Good. 
 
It came into force in the UK in April 2000 and was backdated to begin its commencement from the start of the financial year which was 6 April 2000, which amongst other things makes it an Aries. 
 
It’s since been consolidated into various other acts of Parliament including the Income Tax (Earnings and Pensions) Act 2003; The Statutory Instrument Social Security Contributions (Intermediaries) Regulations 2000, SI 2000/727 and The Finance Act 2017
 
The latter act implemented changes in the process that determined the amount of Income Tax and National Insurance Contributions to be deducted from a worker.
 
Why where they set up?
 
What began as a fairly niche financial activity finally got the government’s attention in the 90s as more and more companies and contractors started using the PSC loophole. 
 
The main purpose of IR35 was to stop workers from setting up limited companies that they could be paid through, saving on income tax by being paid as an independent contractor while effectively being an employee. 
 
They could do this through taking all of their yearly wages in a single month so they only had to pay one set of NICs rather than paying a regular contribution monthly like most employees. 
 
It was widely known as the “Friday to Monday” scenario. 
 
A worker could technically leave their job on Friday as an employee and return the following Monday doing exactly the same work for the same company but they’re now an independent contractor paid via their personal service company and receiving a dividend as opposed to regular wages.  
 
This lead to an increase of directors paying themselves dividend payments instead of wages, so enjoying a tax rate lower than income tax. 
 
The IR35 press release cited that this arrangement was an anomaly that would be corrected in the budget. 
 
It also announced that HMRC would begin to investigate the contractual arrangements between a worker’s PSC and their client company in order to determine if the worker was actually a “disguised employee” - the term they use to identify PSCs that are actually vehicles for disguised remuneration. 
 
If they positively established that this relationship was disguised then any fee paid to the PSC would be eligible to be taxed as a salary and at a higher rate.
 
A lot of single-employee limited companies or PSCs operate through specialist external recruitment/supply agencies. These agencies have contractual agreements with client organisations to supply individuals to work on various projects. The agency then finds an appropriate PSC or single employee company to supply their services. 
 
The responsibility for determining whether or not a contract is “within IR35” and therefore eligible for income tax and NICs and deducting the appropriate rates depends on whether the hiring client is in the public or private sector. 
 
If they’re in the public sector then the responsibility lies with the client or agency who pays the PSC. If they’re deemed to be inside IR35 then they will also have to pay any and all dues to HMRC.
 
At the moment the private sector has a different approach, at least until April 2020 when the law changes to make it more coherent with the public sector. 
 
Until then it’s the responsibility of the PSC contracted to do the work to determine whether their contract is inside IR35. If this is the case, they’ll have to pay all eligible income tax and NICs to HMRC.  
 
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In the next article we’ll look at the actual advantages and disadvantages of IR35 and what criteria HMRC look for when they try to establish the status of a contractor. 

disincorporation
 
 
 
 
 
 
 
All great in theory but what happens if the reality of running a limited company outweighs the fantasy? What if you want to go the other way and go from a limited company back to a partnership or sole trader again? 
 
Maybe keeping up with all the additional legal rules, requirements and obligations are just too much of a hassle. Perhaps the tax benefits of being a limited company doesn’t outweigh the extra stress not to mention the additional costs and constraints that they operate under.  
 
You might not be having as much fun as you did and want to go back to those simpler, happier times. On the other hand, maybe your business isn’t doing as well as it was or as you hoped and cutting back is a way to either ensure its survival or you’re preparing the way for an orderly insolvency down the line. 
 
Whatever your motivation, Disincorporation - the method to change the legal status of a company back to a partnership or sole trader - is the way to do it. 
 
Some of the main factors to consider when disincorporation include:
 

 
Dissolution v MVL
 
There are lots of other complicated rules and clauses changing a business’ status including possible liability for Income Tax or Capital Gains Tax on the transfer of assets by the company and on shareholders if they dispose of assets at a future date. 
 
If you have funds within the company to distribute to shareholders it becomes time to consider whether dissolution or a Member’s Voluntary Liquidation (MVL) would be the best method. 
 
Under the current rules (the Corporation Tax Act 2010, s 1030A to be precise), there is a £25,000 cap on distributions made by the company.  This means that if, on dissolution, the company distributes over that amount, even by £1, the whole of the amount is taxed as income whereas any amount under that figure would be taxed as capital and entrepreneur’s relief may be claimed which is currently set at 10%
 
It should be noted that this does not relate to the amount of distribution per shareholder, but the total amount distributed to all shareholders. If there is in excess of £25,000 to distribute, from the company reserves, it is still possible to distribute the funds as capital, however the company must first enter a Members Voluntary Liquidation. You should also ensure you do not fall foul of common scenarios which may prevent you from claiming entrepreneurs relief. 
 
Contact us if you think this level of change could help your business and be an answer to some of your problems. 
 
Our expert advisors will set up a free initial consultation where we can discuss your situation and come up with the most sensible and efficient course of action together. 

Got Sole
 
 
 
 
 
 
As well as the long working days and lack of statutory sick and holiday pay, there’s the incessant pressure of being the boss. 
 
Instead of working in a job with responsibility only for your own performance, now you’re  responsible for everything, all the time. Adding up all the hours the average solo entrepreneur puts in every seven days usually means that they’re likely working for less than the national minimum wage. 
 
It can be a precarious livelihood. Research from the Institute of Fiscal Studies, confirms that one in five sole traders will be insolvent within their first year of trading and nearly two thirds - 60% - will fold within five years. 
 
This can be for a variety of reasons. Some small traders will cease trading and go back to being employed in a larger organisation. Others may be so successful that they take on more staff and change their legal status accordingly to a limited company. 
 
The study was conducted between 2014 and 2015 and during this period 650,000 sole trader organisations started up with 580,000 closing down leading to a net growth of 70,000. 
 
Some other interesting facts to emerge from the research include that the sole trader category accounted for the largest employment growth of any sector in the past 15 years rising from 1.4m to 4.1m. Also that since 2007, a third of the growth was from entrepreneurs who were born outside of the UK proving the climate for beginning a new enterprise in this country is generally beneficial. 
 
Jonathan Cribb, senior research economist at the IFS and the report’s author, said: “The growth in self-employment is an important and substantial change in the labour market. We show for the first time how misleading it is to discuss the self-employed as a fixed group - there’s a huge churn in the self-employed population, with hundreds of thousands of people trying a business venture and failing quickly each year.”
 
It will always be a popular choice with many people wanting to break out for themselves or try something new. Being self employed offers both agency and flexibility and for the time being can offer some significant tax advantages to the savvy sole trader. 
 
However, this could also be disappearing soon, to be swapped with a potential hammer blow to some contractors who work on larger projects while remaining self-employed. 
 
Any sole trader who works within the private sector will have to pay more as the government revealed when it published the details of the draft Finance Bill due to become law in April 2020. 
 
The legislation, to extend IR35 regulations into the private sector is designed to level the playing field between employees and freelancers. The central idea being that two people working side by side in similar roles for the same employer pay the same employment taxes. 
 
The rules have been in place for public sector organisations contracting workers through their own personal service companies (PSC’s) since 2017, and are now being readied for adoption in the private sector.
 
Approx. 170,000 self-employed contractors primarily working in the IT and management consultancy industries who perform the same role as a regular employee will have to pay more as the hiring companies now have to determine their status for the first time. 
 
The new “off payroll working” rules are an attempt to crack down on disguised remuneration schemes including the notorious loan charge. The changes also affect medium and large organisations outside of the public sector that engage with individuals through PSC’s as well as recruitment agencies and other intermediaries who supply staff through PSC’s. 
 
Predictably the IT industry especially is up in arms at the idea. Chris Bryce, CEO of the Association of Independent Professionals and the Self-Employed (IPSE) warns that the changes will place additional burdens on organisations that depend on flexible, highly skilled and specialised workers. 
 
He said: “With such short notice, the Treasury has left businesses to choose between access to the skills they desperately need and trying to rush implementation of rules even HMRC itself doesn’t understand.”
 
If you’re a sole trader who wants to try something different and needs to close your company with a minimum of fuss, or if you are fighting to keep afloat - we can help. 
 
Contact us to speak to one of our expert advisors and arrange a free initial consultation. We can examine your unique situation in detail and decide with you what the most effective course of action would be for you and your business. 
 

bereavement
 
 
 
 
 
 
Some companies have a succession plan in place and ready to go so there is a minimum of fuss during the transition and the business can continue to survive and thrive afterwards without the founder.
 
For many smaller businesses, especially partnerships and sole traders, this seismic shock could prove insurmountable.
 
While some companies can continue as going concerns, loved ones, relatives or employees might not want to continue the business, especially if it was a labour of love for the departed.  They may already have other careers or interests that would be incompatible with the hard work of running a business. They might want to sell it to somebody with the talent and interest to continue the business or realise that it might be better for its story to end with the owners.
 
Alternatively, if shareholders have differing views about the direction of the company then a legal succession battle could damage the business permanently as the energy and vision of the parties are directed at this struggle rather then the day to day running of the business.
 
Nobody likes to think about the inevitable but death is the one constant for everybody - the only variable in the equation is when.
 
All businesses should have a succession plan, not only to ensure an orderly transition but one that can be implemented following any unforeseen calamities. At the very least these must include essential components such as digital legacies including login details, passwords, access to email correspondence and cloud storage as well as financial essentials such as access to bank accounts and up-to-date information on assets, liabilities, debtors, creditors, payment schedules and more.
 
Moving on
 
After duly considering all the available evidence and factors, if the best option is to close the company then a Members’ Voluntary Liquidation (MVL) process is the most efficient.
 
Processes like administration and liquidation are widely associated with business failure but this isn’t the case at all. Many otherwise successful and solvent companies have closed using an MVL for a variety of reasons. Not just unexpected bereavements but retirements or family businesses when nobody was available or able to pick up the reins.
 
The process is relatively simple. An insolvency practitioner reviews the assets and liabilities of the company to make sure that all creditors including future and contingent liabilities, can be paid within the first year of a liquidation.  They will then certify a declaration of solvency that will allow the liquidation of the company to go ahead.
 
Alternatively if the company is struggling and becomes insolvent then administration can be a solution. It will freeze all creditors demands and allow time for all pertinent financial information to be gathered together and examined thoroughly.
 
An administrator is appointed to run the company on a day-to-day basis while they do the important and necessary job of preparing the company for the process.  Ultimately the company could still come to be liquidated or dissolved, it could also be sold to a new owner wholesale as part of as a pre-pack administration.
 
This is where an insolvency practitioner prepares the business and its assets to be sold as a going concern and that the marketing for sale and sale terms are set out ahead of entering the formal insolvency procedure.
 
We’re always happy to talk to people about the future of their business. Especially if the future is unclear or the decision about the business’s future has been made and you don’t know the best way to proceed.
 
If you’re an employee in a company that is facing these issues then there is also support for you and your colleagues from the National Insurance Fund.
 
Contact one of our expert advisers today to set up a consultation where we can discuss the best options for the business and for you.

Business Rescue Expert is part of Robson Scott Associates Limited, a limited company registered in England and Wales No. 05331812, a leading independent insolvency practice, specialising in business rescue advice. The company holds professional indemnity insurance and complies with the EU Services Directive. Christopher Horner (IP no 16150) is licenced by the Insolvency Practitioners Association

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