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The time has come for HMRC to pay attention and change tack

Posted by: Intouch | 26.10.15

Intouch Accounting

The time has come for HMRC to pay attention and change tack

If you work in or with the contracting industry, you won’t have been able to miss the concern and speculation surrounding HMRC’s proposed reforms to the way contractors and freelancers are taxed.


In the months that followed the Chancellor’s announcement that this was to be reviewed in an attempt to ‘level the playing field’ and flush out abuse, the contractor industry has been shouting its concerns from the rooftops.


At the heart of the matter are two key documents; HMRC’s Intermediaries Legislation (IR35) discussion document and the hotly debated Employment Intermediaries and Tax Relief for Travel and Subsistence consultation document.


Last month, the CEO of FSCA, Julia Kermode, wrote a blog post ‘Is HMRC listening?’ in which she strongly set out the flaws in HMRC’s calculations. And she raised a good question, as after reviewing the consultation document it would be easy to worry that the views of genuine and compliant flexible workers expressed during the discussion phase did not get through.


Now the closing date for responding to both documents has passed, HMRC is no doubt head down in a pile of paperwork in which the contractor industry has tried again to get its fears and suggestions heard.


The most advanced of these proposals is the consultation document regarding Employment Intermediaries and Tax Relief for Travel and Subsistence. In it, HMRC sets out its proposal to remove home-to-work travel and subsistence (T&S) tax relief where a worker is employed through an employment intermediary and under the supervision, direction or control (SDC) of any person.


Once proposals such as these reach consultation stage, they are usually a pretty reliable indicator of which direction the reforms will go. Which is why our official response to the document makes no bones about the fact we don’t believe it will deliver on HMRC’s intended aims without unintended and costly consequences.


Having spent a great deal of time speaking to our personal service company (PSC) clients, contributing to industry commentary and working closely with membership and trade bodies such as IPSE and FSCA, we strongly believe that the proposals are disproportionate, over simplified, and will negatively impact the UK’s highly valuable, flexible labour supply market. The end result is likely to add an excessive burden on smaller and medium size businesses.


The Intouch response is clear; the majority of UK contractors wish to be compliant and already ensure they are paying the right amount of tax at the right time. Our fear is that, as the proposal stands, even the most compliant of PSC contractors will end up losing out in one form or another.


We, along with so many others, have real concerns over the proposed options for the ‘transfer of liability’. This is an ill-thought out plan to put the burden of determining tax status onto the engager and is likely to have a number of negative consequences. Not least of these could be the application of risk averse measures by UK plc, resulting in a restricted labour market and causing wider economic consequences.


Another contentious reform is making personal service and the exercise (or right to) SDC the only criteria HMRC will consider when ensuring the appropriate application for the new T&S rules. Under the current application of IR35, a broader range of factors are considered when deciding a contractor’s tax status. I talked about this on the Intouch blog earlier in the summer and will be writing more about our response to the IR35 discussion document next week.


Recruitment website FirstPerson has already warned the proposals could put pressure on rates if workers who fail the SDC test suffer a fall in income.


The crumbling icing on the cake is the suggestion that engagers should, in effect, determine availability of tax relief. Our response outlined a number of concerns with this proposal and these can be viewed in more detail in our IR35 and T&S: Proposed changes ebrief.


The industry forums are awash with speculation over what will happen should the proposed changes be implemented in April 2016. Some contractors fear clients will automatically consider everyone is under SDC in order to safeguard their position or may even refuse to engage them altogether to avoid the risk


Whilst we don’t believe that the reforms outlined in the consultation document have been thought through enough to work, we do agree that something needs to be done to better outlaw false self-employments and the use of abusive models to achieve tax relief where it is not due.


It is time for HMRC and the Chancellor to take heed of industry concerns and be brave enough not just to listen, but to go back to the drawing board and change tack.


If you are unsure where you stand in the debate, or would like to know more about how the proposed changes to tax relief may affect you, our expert contractor accountants can help you. Speak to us today on 01202 375562  or email


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.