Brexit: tax implications for contractors

Tax implications for contractors

Seven weeks after the EU Referendum vote and there has been little clarity on what will happen, when and by whom! In fact, until Article 50 is triggered, sparking the start of exit negotiations, we’re likely to remain in a haze of uncertainty at least until the Autumn. Our own political parties need to get their houses back in order before they can start divorce proceedings.

 

But a lot of people, understandably, are not keen on playing the waiting game and want at least some idea of what the future holds, now. Here we take a look at what Brexit is likely to mean for contractors and their taxes in the short-, medium- and longer-term. Before we get started, it’s important to stress that even once Article 50 is triggered it’ll be at least another two years until changes come into effect, following what will undoubtedly be complicated negotiations between UK and EU officials. Until that time, existing arrangements will remain in play.

 

In the short-term

Many in the accounting world expected progress to kick start on the Making Tax Digital consultations following a remain outcome. It now seems likely this will slip far down the priority list, unlikely to reemerge at least until a new Cabinet is in place. Any delay in progressing this already unpopular proposal will be music to many contractors’ ears.

 

With the Finance bill 2016 already behind schedule, further delays seem inevitable meaning a delay in the Finance Act due to be passed in October, while the Government sorts itself out.

 

There are already 40 pieces of tax legislation which have been already delayed during the Referendum so these will now be reactivated with a view to most coming into force later this year and early next.

 

One thing we can be pretty certain on, is that an emergency Budget will be held before the year is out.

 

In the medium-term

If the emergency Budget follows the blueprint which Osborne forecast when he was Chancellor during the Referendum campaign, then we can expect £15bn of tax rises and £15bn of spending cuts. If this does happen, we’re likely to see rises in income tax and National Insurance, with the campaign forecast suggesting a 2 pence rise in the basic rate of income tax; a 3 pence rise in the higher rate and a 5% inheritance tax rate to 45p.

 

As an incentive to companies to stay in the UK, it is expected that the rate of corporation tax will probably not increase.

 

There are two key guiding principles relating to the application of taxes within the UK:

1. Direct taxes are imposed by UK law but in accordance with EU law.

2. VAT is imposed and operated in accordance with EU law.

 

So for the next two years nothing can change relating to VAT without complying with the existing EU arrangements.

 

In the long-term

During the transition period (which is likely to continue to late 2018), VAT – like all the other tax and regulation tied to European law – won’t change. Despite the Leave campaign’s promise to cut VAT rates on domestic fuel, this is unlikely to happen in reality as it generates £115bn a year for the UK government. We may even see VAT rates increasing as it is easy to implement the change and is a more straightforward way to boost the government’s coffers.

 

Once fully out of the EU, sales going in and out of the UK will be treated as imports and exports and so subject to different VAT treatments to now, where they are considered as intra-EU movements. VAT on expenses incurred in other EU countries will probably be more difficult to recover.

 

For UK businesses selling digital services in the EU, VAT MOSS will continue to apply but on a non-EU basis, meaning the operation of VAT-MOSS is likely to become more complicated.

 

Since the decision was made to exit it has come to light that the UK and EU have disagreed on several occasions over the scope and operation of UK taxes including patent box, changes to the taxation of controlled foreign companies, differential rates of insurance premium tax and capital duty.

 

Once out of the EU, the powers in London, Edinburgh and Belfast will dictate tax rates and structures according to the UK’s needs and subject to whatever settlement is made with Europe. It is also anticipated that more tax incentives will be introduced to encourage investment in the UK as we break away from needing to seek EU approval on issues concerning R&D credits, the patent box, and executive investment schemes.

 

At Intouch we will, of course, be keeping a keen eye on developments and advising our clients on how to get the best from their Limited Company. To benefit from unlimited advice whenever you need it, sign up to our all inclusive monthly service and rest assured that we’re here for you, whatever the future holds.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

10 facts contractors need to know from today’s Finance Bill

The Finance Bill 2016 – why it’s good news for genuine PSC contractors…bad news for Umbrella workers, their clients and agencies.

Are you a contractor worried about changes to tax relief on travel and subsistence (T&S)? Concerned that you will lose out financially? The Autumn Statement announced that changes were on the way that could affect contractors/ freelancers. Today we’ve found out more and share what the changes in the law mean for Umbrella and personal service company (PSC) contractors.

 

Intouch is at the forefront of tax for contractors and Managing Director Paul Gough, with over 30 years experience in accounting and tax, has completed an initial analysis find out what the draft Finance Bill means to you.

In summary

PSCs who are truly independent and are not “disguised employees” (outside IR35) can still claim tax relief on T&S after April 2016.

 

This will not be the case for many Umbrella workers.

The relevant detail

Today’s publication of the draft Finance Bill 2016 sets out the detailed legislation and now makes these changes clearer:

  • If you are currently an Umbrella worker under the (or right of) supervision, direction or control (SDC) of the client or any party related to them then you cannot claim tax relief on T&S expenses from April 2016.
  • You are automatically deemed to be subject to SDC by HMRC; the Umbrella must determine otherwise with the help of the client.
  • Clients and agencies will have to provide information to help Umbrellas decide on the existence of SDC.
  • The only exception is where all services are conducted at the client’s home (domestic workers for instance).
  • If your employer (the Umbrella) gets this decision wrong then the Umbrella or its directors may have to pay any underpaid tax.
  • If your Umbrella does not pay the tax or the client or agency provide poor information they too may be on the line.
  • If you are an Umbrella worker not under SDC then you can claim T&S relief after 6 April 2016 (but not at source) unless new untested models work when wages are paid.
  • If you are a PSC (Limited Company contractor) and are outside of IR35 then it’s business as usual.
  • PSC contractors can claim T&S relief on travel to the client, and where they are outside of IR35.
  • If you are outside of IR35 then the SDC test is not applied – happy days!

 

HMRC has listened to stakeholders have made it clear with this draft legislation that PSC contractors working outside IR35 are indeed “self employed” and not the same as Umbrella workers.

 

They do enjoy different risks and rewards and as a consequence can claim tax relief for T&S costs.

 

So this is good news for anyone already running their own Limited Company or thinking about going Limited. For any Umbrella workers, it’s a good idea to start asking questions and consider your options so you aren’t forced into unwanted working practices come April 2016. In our next blog we’ll unpick what the Finance Bill 2016 means for contractors and give you ideas on actions you should consider.

 

Does today’s Finance Bill leave you more confident in contracting, or are you a worried Umbrella worker? Share with us how today’s announcements will affect you.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.