Contractors not caught by IR35 can still claim tax reliefs

17th December 2015

Limited company contractors not caught by IR35 – a tax legislation designed to combat tax avoidance by workers supplying their services to clients via an intermediary – can still claim travel and subsistence tax relief.

That’s according to the draft Finance Bill 2016, released last week, but Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self Employed (IPSE) believes this means HM Revenue and Customs (HMRC) will be using IR35 reform to tighten up the rules.

“The Government is intent on looking at this area, and the fact that IR35 doesn’t feature in the Draft Finance Bill suggests that they are simply giving their proposals further consideration,” said Chamberlain.

“When the IR35 proposals do come through, we’re sure that they will likely make the regime more difficult for legitimate businesses to satisfy.

“We’re positive that there will be changes coming, and when they do, IPSE will be reviewing them very closely and feeding back to the Government.”

Currently contractors operating through personal service companies (PSCs) who are outside of IR35 will not be subject to a supervision, direction or control (SDC) test and can claim travel and subsistence relief.

This follows the government’s acknowledgement that it would be too much red tape for a PSC contractor to undertake two separate tests for each engagement.

HMRC has since amended its proposals so that the legislation only applies to a PSC contractor’s contract when it falls within IR35, meaning contractors operating through PSCs won’t have to separately consider whether their engagement is under SDC.

While Mr Chamberlain prefers a single test to determine both outcomes, he admits this does place more emphasis on HMRC to make the right call regarding IR35.

“It means that tax relief will from now on only be available to contractors outside of IR35, which is fine, but of course it now all depends on what the Government decides to do regarding IR35,” added Chamberlain.

“If the Government imposes a test which is too difficult for legitimate businesses to satisfy, not only will these businesses be hit with a bigger tax bill than they should be, but it also means they will be unable to claim the tax relief to which they are entitled.”

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