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Court service pays taxman £12.5m • The Register

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Updated Her Majesty’s Courts & Tribunal Service has been forced to pay the UK taxman £12.5m due to incorrect assessments regarding the employment status of contractors under controversial IR35 rules.

Disclosed in the court service’s annual report [PDF], the payments were a result of a challenge from Her Majesty’s Revenue & Customs (HMRC) to the Ministry of Justice’s handling of IR35 rules between 6 April 2017 and 5 April 2020, which had concluded workers were operating outside of the off-payroll working rules.

Under IR35, contractors, many of whom work in IT, that are “deemed employees” by HMRC need to pay income tax and National Insurance as though they are employees but are not entitled to benefits such as holiday or sick pay.

The government introduced changes to the IR35 rules that came into force in April 2021 and made large and medium-sized businesses responsible for determining the employment status of contractors for tax purposes, rather than the contractors themselves.

What is IR35?

IR35 is a tax reform that was unveiled in 1999 by the UK tax authorities. The latest regulation change will force medium and large businesses in the UK to set the tax status of their contractors and freelancers. Previously this was set by the contractors themselves.

Contractors found to be within the scope of the legislation – ie, inside IR35 – will have to pay more tax than they might expect.

The reforms are part of the government’s crackdown on so-called disguised employment, where workers behave as employees but avoid paying regular income tax and national income contributions by billing for their services through personal service companies (PSCs), which are taxed at lower corporate rates.

The measure came into effect in the public sector in 2017. The British government hoped the reforms would recoup £440m by bringing 20,000 contractors in line.

HMRC reckons that only one in 10 contractors in the private sector who should be paying tax under the current rules are doing so correctly. It estimates the reforms will recoup £1.2bn a year by 2023.

In this case, the court service workers seem to have been miscategorised because of its use of the HMRC’s Check Employment Status Tool (CEST), according to Seb Maley, CEO of Qdos, an advisory firm for contractors.

He pointed out that the Department of Work and Pensions had admitted an £87.9m IR35 liability and the Home Office paid £33.5m under similar circumstances.

“Given that HMRC’s fundamentally flawed CEST was used to decide the IR35 status of contract workers, I’m not in the least bit surprised that mistakes have been made,” he said.

“Here we have proof yet again that the taxman’s very own IR35 tool threatens compliance rather than ensuring it. Businesses should avoid it altogether or at the very least get a second opinion on every answer it provides.”

The CEST tool has been slammed for returning inconclusive responses for one in five of the million-plus times it was called upon during a 16 months period.

Dave Chaplin, CEO of IR35 Shield, said: “HMRC’s CEST tool is failing fast and now we are hearing of yet one more government department, because it has relied on CEST to assess its contracting workforce. It is crucial that once you hire a worker on an ‘outside IR35’ basis that you continue to monitor the status throughout the engagement. Regular checking and gathering contemporaneous evidence are crucial in forming a pre-emptive defence.”

Her Majesty’s Courts & Tribunal Service has been contacted for a response. ®

Updated to add at 15:48 UTC:

A Ministry of Justice spokesperson said: “Strict checks and extra controls have been introduced to ensure that tax rules are applied correctly.”

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Raspberry Pi’s trading arm snags £33m investment as flotation rumours sink • The Register

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The trading arm of the Raspberry Pi Foundation has received a £33m investment – putting paid to rumours that the company was looking to float on the stock exchange as a means of funding growth.

The Raspberry Pi project came to the public’s attention back in 2011, and by the time the education-focused single-board computer entered mass production a year later demand was high – so high that its initial production run of 10,000 units sold out in seconds.

In the years since, the project has gone from strength to strength with increasingly powerful successor devices, a recent foray into microcontrollers designed by its in-house integrated circuit team, variants designed for embedding, and even its first consumer product, the Raspberry Pi 400, which packs the company’s single-board computer tech into a keyboard chassis named for Atari’s famous family of eight-bit microcomputers.

Earlier this year, a report claimed that Raspberry Pi was to float on the stock market with a £300m valuation – a suggestion co-founder Eben Upton gently dismissed as being a simple chat with unnamed advisors about “how we might fund the future growth of the business” that had been “over-interpreted” by the media.

Now the meat behind the sizzle has been revealed: a report in The Telegraph confirming the sale of stakes in the company to Lansdowne Partners and the Ezrah Charitable Trust – providing $45m (around £33m) in funding without needing to go public.

The investment puts the company at a valuation of around $500m (around £366m), slightly higher than its previously suggested worth, but a potential bargain given the company’s high profile and sales on track to exceed 40 million units across its product range – boosted by increased demand during pandemic lockdown periods and units which have made their way to the International Space Station.

Lansdowne Partners’ presence in the list of investors is less surprising than Ezrah Charitable Trust. The latter was founded by former Goldman Sachs vice-president and Farallon Capital Management partner David Cohen in 2016 to focus “on the poorest of the poor, especially in Africa” – an indicator that it may be the work of the not-for-profit Raspberry Pi Foundation that was of interest.

According to executive director Kevin L Miller’s LinkedIn profile, Ezrah Charitable Trust remains “dedicated to serving people burdened by poverty by providing catalytic support to our high-impact implementing partners” – among which Raspberry Pi can now be counted.

Which isn’t to say there isn’t cash on the table while the charity works to improve access to computing for all. The foundation’s 2020 financials [PDF] showed a total group income of over £95.8m, nearly double the £49.5m it reported in 2019.

“The commercial and human impact [Raspberry Pi] has achieved in its first decade has been extraordinary,” Peter Davies, Lansdowne partner and head of developed markets strategy, claimed in a statement to press on the investment, “and we look forward to assisting the company to expand this even further in coming years as new capital is deployed.”

Neither Raspberry Pi nor Ezrah Charitable Trust responded to requests for comment in time for publication. ®

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TrueLayer achieves unicorn status after $130m round involving Stripe

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The British start-up plans to use the funds to expand after it announced the opening of a European HQ in Dublin last month.

TrueLayer has raised $130m in a funding round that saw participation from Stripe and gives the fintech start-up a post-money valuation of over $1bn.

The British company, which develops APIs to securely connect fintech platforms directly to banks, announced last month that it’s opening a European HQ in Dublin, hiring 25 people. TrueLayer has received authorisation from the Central Bank to operate in Ireland.

The round was led by Tiger Global Management, and comes after TrueLayer’s $70m Series D round in April of this year. The company has now raised about $272m in total.

Alex Cook, partner at Tiger Global Management, commented: “The shift to alternative payment methods is accelerating with the global growth of online commerce, and we believe TrueLayer will play a central role in making these payment methods more accessible.

“We’re excited to partner with Francesco, Luca and the TrueLayer team as they help customers increase conversion and continue to grow the network.”

Stripe, which last week announced its intention to grow its Dublin presence significantly, was already an investor in TrueLayer. The Irish-founded payments giant has invested numerous up-and-coming fintech ventures across the US and Europe, such as a renewed interest in Ramp in late August.

Speaking to the Irish Times, TrueLayer Ireland CEO and general manager for Europe Joe Morley said: “The fundraise allows us to commit even further to our markets in Europe…and allows us to start thinking about broader expansion.

“But our focus in the short to medium term is to make sure we win in Europe so we’re really doubling down on what we had already initiated with our last funding round.”

Morley formerly worked as an executive at Facebook and WhatsApp, and is joined by fellow Facebook alum Leigh-Anne Cotter as TrueLayer Ireland COO.

TrueLayer says that, during 2021, it has so far seen a 400pc increase in volume of payments and 800pc increase in total payment valuation through its APIs. It also claims to have “millions of customers” and more than 10,000 developers using its systems.

The company plans to use the fresh funding to expand into new markets and to increase the penetration of open banking services in regions in which it already operates.

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Big tech’s pro-climate rhetoric is not matched by policy action, report finds | Environment

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The world’s biggest tech companies are coming out with bold commitments to tackle their climate impact but when it comes to using their corporate muscle to advocate for stronger climate policies, their engagement is almost nonexistent, according to a new report.

Apple, Amazon, Alphabet (Google’s parent company), Facebook and Microsoft poured about $65m into lobbying in 2020, but an average of only 6% of their lobbying activity between July 2020 and June 2021 was related to climate policy, according to an analysis from the thinktank InfluenceMap, which tracked companies’ self-reported lobbying on federal legislation.

The report also sought to capture tech companies’ overall engagement with climate policy by analyzing activities including their top-level communications as well as lobbying on specific legislation. It found that climate-related engagement levels of three of the five companies – Amazon, Alphabet and Microsoft – had declined compared to the previous year.

Tech companies, which have some of the deepest pockets in corporate America, have been racing to come out with increasingly ambitious climate pledges. Amazon has a target to be net zero by 2040 and to power its operations with 100% renewable energy by 2025, and Facebook has a target of net zero emissions for its entire supply chain by 2030.

In 2020, Microsoft pledged to become carbon negative by 2030 and by 2050 to have removed all the carbon the company has ever emitted. Apple has committed to become carbon neutral across its whole supply chain by 2030.

And Google has pledged to power its operations with 100% carbon-free energy by 2030, without using renewable certificates to offset any fossil-generated power. “The science is clear, we have until 2030 to chart a sustainable course for our planet or face the worst consequences of climate change,” the Google and Alphabet CEO, Sundar Pichai, said in a video announcing the policy.

Yet this strong pro-climate rhetoric is not being matched by action at a policy level, according to the report. “These gigantic companies that completely dominate the stock market are not really deploying that political capital at all,” said the InfluenceMap executive director, Dylan Tanner.

Tech companies have not been entirely silent. Apple, for example, has expressed support for the Biden administration’s proposed clean energy standard, which aims for all US-generated electricity to be renewable by 2035.

But these efforts are significantly outweighed by those of big oil and gas companies, which have ramped up their climate lobbying over the same timeframe, according to the report. “Most of their political advocacy is devoted to climate change and it’s negative,” said Tanner.

A lack of engagement is especially disappointing given the new momentum around climate action under the Biden administration, said Bill Weihl, a former Facebook and Google sustainability executive and now executive director of Climate Voice, which mobilizes tech workers to lobby their companies on climate action. “The dominant business voice on these issues is advocating against the kind of policies that we need,” he said.

Joe Biden’s $3.5tn budget reconciliation bill, which includes large investments for climate action, is facing fierce opposition from some industry groups. The US Chamber of Commerce, the country’s most powerful business lobbying group, has said it will “do everything we can to prevent this tax raising, job killing reconciliation bill from becoming law”. All of the tech companies, with the exception of Apple, are members of the Chamber.

“Our best chance to lead the planet to safety in the race against climate change is through this reconciliation bill, yet InfluenceMap has shown that big tech is still MIA on climate in Congress,” said Senator Sheldon Whitehouse, a Rhode Island Democrat and longtime advocate for climate legislation.

Microsoft and Apple declined to comment on the report and Alphabet did not respond to requests for comment. A spokesperson for Amazon said the company engages at local, state and international levels to “actively advocate for policies that promote clean energy, increase access to renewable electricity, and decarbonize the transportation system”.

A Facebook spokesperson said “we’re committed to fighting climate change and are taking substantive steps without waiting for any legislative action”, adding that the company supports the Paris climate agreement goals and helped found the Renewable Energy Buyers Alliance.

But these actions are not enough given the scale of the crisis, said Tanner. The UN warned in a report published on Friday that even if current climate emissions targets are met, the world is still on a “catastrophic pathway” for 2.7C of heating by the end of the century. “We’re running out of time,” Tanner said, “physically on climate but also on a public policy level.”

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