Change is on the horizon for Umbrella contractors
Whilst the 2015 draft Finance Bill and Autumn Statement indicated less change is immediately on the cards for Limited Company contractors compared to their Umbrella contractor colleagues, there are still certain aspects planned for 2016 that all contractors need to be aware of.
What are these changes and how will they affect you?
Whilst no major changes were presented in the Autumn Statement, it’s likely that further announcements to IR35 will be made, post April. It was, however, announced that if you’re truly operating outside of IR35, then you are still able to claim for travel and subsistence (T&S), which is a major bonus for contractors that rely heavily on their T&S claims to increase their overall tax relief (after considering the 24 month rule).
SDC will not apply to Limited Company contractors, if their contract is not caught inside IR35. So as a Limited Company contractor, as long as you ensure your contracts have undergone an IR35 risk assessment, you can rest easy knowing that SDC will not apply to you. With Intouch, you can have your contracts assessed as part of your all inclusive monthly service.
If your accountant doesn’t offer unlimited, free contract risk assessments, then it’s time to switch. With HMRC likely to once again sharpen their focus on IR35, it’s wise to be certain about the status of your contract.
The new SDC ‘test’ and the effects on Umbrella workers
April 6 will mark a significant change for Umbrella workers, as they will no longer be able to claim tax relief for their T&S expenses, if subject to SDC. It will be up to the Umbrella worker’s enlisted Umbrella service provider and end client to determine their SDC status, meaning that the Umbrella worker will not see a penny of their expenses until their status has been decided.
If you do pass the SDC test, you’ll then only be able to claim tax relief on your expenses via a Self Assessment Tax Return. You will have to pay your tax through PAYE throughout the year, then claim it back at the end of the tax year.
Whilst the finer details of SDC are yet to be announced, it’s clear that Umbrella workers are under the spotlight (with some industries more so than others), so make sure you keep an eye out for any further announcements that are to be made surrounding SDC.
Are you an Umbrella worker worried by SDC?
HMRC have provided some contractor scenarios to give you an indication on how certain careers may be affected. Whilst these scenarios can give you a good understanding of SDC, you should discuss it further with your Umbrella company to understand how they will support you during this time of change.
The Salary Sacrifice Test
If you’re an Umbrella worker that currently receives expense claims as part of your weekly / monthly payroll, then you’re going to notice a major difference come April 6. HMRC now view any form of expense payments within your salary as a salary sacrifice payment and are putting a stop to it.
This means many Umbrella companies will change their approach to how expense claims are paid to their contractors and, as explained previously, Umbrella workers can only claim expenses once a year through the use of a Self Assessment Tax Return.
What a load of kerfuffle for serious contractors still using an Umbrella company!
If you’re a serious contractor that relies on the tax relief from your expenses and you see contracting as a long term option, it make sense to check and be sure that working under an Umbrella is still right for you.
It’s clear that Limited Company contractors have mostly been left untouched (for the foreseeable future) to get on with what they do best, so why not join them and continue to enjoy the benefits from contracting that you rely on the most?
Join the contracting revolution with an accountancy that champions Britain’s contractors! Things are changing, don’t be left behind…
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.