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.
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.