Dow Jones Hits All Time High

The Dow Jones reached an all time high, closing at $14,254 on Tuesday 5 March 2013. The index continues to rise and currently stands at $14,296 on 7 March 2013. The equity markets have clearly been provided with a boost following the substantial amounts of money printed by the major central banks last year.

The markets are particularly volatile under the current climate. Whilst equities have risen significantly over recent months, the price of gold has tanked, falling from a high of $1,791 last year to $1,574 on 7 March 2013.

The significant uptrend in equities combined with the sharp downtrend in gold suggest that an economic recovery is anticipated by the markets. However, this is not the case. Economic data suggests that the UK is falling into a triple dip recession, whilst Europe has announced negative growth in the final quarter of 2012. Most of the world markets are in recession, China has slowed down and the US is likely to face a slowdown once government finally faces up to the fact that significant spending cuts are required to tackle their fiscal deficit.

The major move in the markets is driven predominantly by the unprecedented level of money printing. Bloomberg explain that we are facing a period of global “currency wars” as the major economies attempt to devalue their currencies and artificially boost competitiveness.  The Bank of England have already indicated that they will consider further Quantitative Easing (or money printing) this year.

So what do we make of it all? The stimulus provided by last year’s money printing is still filtering into the system. Equities have risen sharply and may well continue to rise for a few months yet. However, the equity markets do not correlate with the underlying performance of the global economies. It is unlikely that we will see a recovery in the UK for a few years yet. In fact we can expect rising inflation as a result of the quantitative easing methods used by the central banks. The equity markets are due a sharp correction but this may not happen whilst money continues to be pumped into the system. Once the banks stop printing, or the US finally decide to tackle their fiscal cliff, we could be in for a huge downturn.

However it is not all doom and gloom. Stocks and shares are rising and so you are likely to have profited from your investments in shares. A continued downturn in the UK economy, or better yet a major correction is likely to benefit dynamic small businesses.  Strong contactors and small businesses are more likely to establish themselves during a recession. Investors are increasingly looking to invest in small businesses in order to maintain the required yields on their assets. The introduction of the Seed (or SEIS) scheme in the UK offers significant tax benefits to angel investors looking to invest in new start up businesses.

If you have a start up business or would like to know more about the SEIS scheme, please feel free to contact Belsize Accountancy on 0207 043 0052. We specialise in working with UK contractors and small businesses.

How To Find Your Corporation Tax Office

If you are a business owner or a Limited Company Contractor you will require your corporation tax office in order to direct any enquiries to HMRC. Unlike other taxes, corporation tax queries must be directed to your relevant tax office.  

HMRC are able to provide details of your corporation tax office provided you are able to supply your company registration number or UTR. However, in order to save time dialling the various HMRC helplines, a quick way to identify your HMRC tax office is as follows:

- The HMRC corporation tax office is represented by the 3 digit code preceding your 10 digit Corporation Tax UTR. You can find your Corporation Tax UTR quoted on any HMRC correspondence received in respect of corporation tax for your limited company.

- Once you have the 3 digit code you can enter it into the following HMRC web link to identify your respective corporation tax office.

http://search2.hmrc.gov.uk/kbroker/hmrc/locator/locator.jsp?type=0

We hope you have found this post useful. Belsize Accountancy specialise in working with Limited Company Contractors and small businesses in the UK.

How do contractors stay out of IR35?

IR35 is a piece of tax legislation announced in 1999, which came into force from April 2000. It is considered to be one of the main pieces of legislation affecting contractors and freelancers as its implications affect the way in which they are paid and their tax liabilities.  The legislation determines whether contractors are "disguised employees" or genuinely self employed, meaning that the Inland Revenue can tax some contractors as though they are employees of their clients if they are found ‘inside the IR35’.

HMRC’s aim was to track down the tax and National Insurance (NIC) avoidance schemes through the use of intermediaries, such as Partnerships or Personal Services Companies (PSC), by the contractors. They argued that if the agency or the PSC were removed, a large number of contractors would really be “disguised employees” who should be included on the client’s payroll and have their tax and National Insurance Contributions (NICs) deducted regularly.

IR35 uses tests of employment  to assess people’s working practices. Applying precedents from past tribunal and court rulings, where a worker’s employment status was being contested, the tests decide whether the worker is genuinely in business on their own account, or if they are a disguised employee. IR35 is applied on a contract by contract basis. If a contractor passes the tests of employment, they are deemed to be inside IR35 for a contract and are determined by HMRC to be a disguised employee, so then the contractor has to pay the income tax and NICs as if their contracting fee income were employment income.

 There are four main tests of employment to determine whether a contractor is a disguised employee and not genuinely self-employed as follows:

• Right to Control: if a contractor is told by their client where, when and how to complete the tasks allocated on their contract, they have passed the control test;

• Right of Substitution: if a contractor cannot send a replacement, or a substitute, to complete the tasks for the client on their behalf, they have passed the substitution test;

• Mutuality of Obligation : if a contractor expects the client to give them work, and the client expects the contractor to complete it, they have passed the mutuality of obligation test;

• Client Integration:  if a contractor becomes so integrated into the client’s organisation that they are behaving exactly like an employee, they have passed the client integration test.

If a contractor is determined to be “inside IR35”, namely they have failed the above tests, they will be required to pay the majority of their income as salary - this is referred to as their IR35 'deemed salary' and are liable for full PAYE and NIC's.

If you are a contractor or run your own business, you should get some expert advice and make sure you understand the implications of IR35. Please feel free to contact Belsize Accountancy for more advice on 0207 0430 052 or at info@belsizeaccountancy.co.uk.