A Sigh Of Relief For Contractors But Does The Devil Lie In Small Print?

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With very little mentioned about IR35 in the Chancellor’s Autumn Budget Announcement, it would appear the pre-autumn statement PSC scare story was all a hyped affair. After much speculation created by the Media and contractor representatives about the big changes to the way contractors can claim tax relief has in fact resulted in mere speculation at this stage. This most certainly will be a sigh of relief for contractors.

However, the chancellor went ahead with restricting travel and subsistence relief. We do not know much about the finer details in the Chancellor’s red book. This means the contractors and freelancers working through umbrella and personal services companies have to wait till 9th December 2015 when the draft legislations are published. The Chancellor has mentioned about PSCs in AS chapter 3.20 which says that the travel and subsistence relief will be restricted for personal service companies. A consultation has already been initiated to refine the draft legislation. The T & S relief restrictions will likely apply to those PSCs that are caught by intermediary legislation (IR35) and will take effect from 06 April 2016.

I strongly believe that restricting travel and subsistence relief will be detrimental to the millions of UK flexible work-force, which along with other measures like abolition of dividend tax credit will render the agency work an unattractive option.

Restriction on T & S Relief will largely effect Umbrella companies whose business model depends on dispensation for travel and subsistence allowance. This move could result in the closing of many umbrella companies and contractors will be forced to look for alternative options like PSCs.

The government is also serious about legislating to close down new tax avoidance schemes such as disguised remuneration schemes.

Before the final consultation on IR35 is launched we are currently left with uncertainty, this limbo land leading to what many are dreading HMRC next steps in attacking the UK’s contractors further.

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Shams Urrehman
MD Accounts Direct

Hi, I'm Shams Urrehman, Qualified accountant since 2005 and Director at Accounts Direct Ltd since 2009. I have been advising freelancers, management consultancies, IT contractors, SME’s and other businesses about accounts and tax planning.