The changing world of contractor compliance
Contractor compliance, what’s changing and what do you need to do now?
As you’ll be very aware, there are many changes due for IR35 and travel & subsistence claims, we want to look at what contractors, recruitment agencies and end clients need to do right now to protect themselves from the potential fallout.
A summary of T&S and IR35
What is IR35?
The Government introduced the IR35 legislation in 2000, in response to a growing number of individuals leaving their permanent jobs, only to return to the same business to do the same work but as contractors operating through a Personal Service Company (PSC). By setting up as a PSC these individuals were able to benefit from significant tax benefits. IR35 determines how tax on income from assignments should be calculated.
If HMRC decides that your contract puts you within IR35, you’ll have to pay tax and National Insurance like an employee rather than paying yourself dividends.
Travel & Subsistence
A contractor is eligible to claim for most expenses that they incur as a direct result of working on an assignment. From food and drink to laptops and iPads, contractors are entitled to claim for several different types of costs so long as they are a legitimate cost. This is one of the main focus points of the Government in April and we will explore further in this blog.
What is the T&S issue?
As a summary, the government is seeking to tighten the rules when it comes to contractors claiming expenses for travel and subsistence, making it even more challenging to claim. HMRC argues that any legitimate expenses can be claimed via self-assessment and that no legitimate claim will fail. But the vast majority of umbrella workers do not file tax returns so it seems likely that they will either not receive the tax relief or that relief will be denied when the returns are submitted.
Who is going to be effected by this change?
The proposed changes unfortunately don't just affect contractors but this will have an impact on both recruitment agencies and ultimately end clients. Part of the proposed changes by the government is also looking to transfer liability to any firm using workers supplied via employment intermediaries. What this means is that they could be the ones subject to HMRC penalties if expenses were found to be paid incorrectly.
So what is the solution to all of this?
Some Umbrella companies are already promoting “HMRC-Approved” solutions that will solve the whole T&S issue but as the legislation hasn’t been released yet it is very unlikely that these “compliant” umbrella companies will still be complaint.
Whatever is to happen in the next few weeks or months, it is worth keeping in mind to consider all your options post-April 2016 and when in doubt seek independent and impartial advice to help you to continue making informed decisions.