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MarkT
9th December 2015, 13:30
So here's the bit we wanted to know about:

1.13. Employment Intermediaries and tax relief for travel and subsistence
As announced at Autumn Statement, legislation will be introduced in Finance Bill 2016 to restrict tax relief for travel and subsistence expenses for workers engaged through an employment intermediary, such as an umbrella company or a personal service company. Following consultation, relief will be restricted for individuals working through personal service companies where the intermediaries’ legislation (IR35) applies, and for individuals working through other employment intermediaries, where the worker is under supervision, direction or control in the manner they carry out the work. The legislation will include provisions for transfer of debt in appropriate circumstances to help ensure compliance. The changes will take effect from 6 April 2016. A response to the consultation was published on 9 December 2015. (Draft clause 9 and TIIN)

jamesbrown
9th December 2015, 14:37
I've had a quick scan of the T&S and dividend draft clauses and I can't see anything immediately untoward, but some of the transfer of debt provisions need further scrutiny. A few quotes from the materials that accompany the T&S changes:


Where the worker is within the charge of the intermediaries legislation this measure will only
apply to those contracts where a deemed employment payment is made, or would be made
if all the individual's remuneration was not being taken as employment income. In these
circumstances the supervision, direction or control test will not be used.


The legislation will include provisions for transfer of debt in appropriate circumstances to help ensure compliance.


This measure is expected to have a negligible impact on businesses and civil society organisations.


End engagers will also need to identify whether a worker is under supervision, direction or control (or the right thereof) in the manner they under take their work and will need to agree the process for ensuring this information is passed to the employment intermediary. Most end engagers will only need to take action where a worker is not under supervision, direction or control in the manner they undertake their work. Workers are assumed to be under supervision, direction or control, unless it is shown otherwise. This will not be necessary for those who are engaging a PSC, as the eligibility for relief will be determined based on whether or not the intermediaries legislation (IR35) applies.


If arrangements have been put in place, the purpose of which, or one of the main purposes of which, are to ensure that section 339A of ITEPA, travel and subsistence expenses for employees employed by ‘employment intermediaries’ do not apply. Then these arrangements are to be disregarded for the purposes of deciding whether section 339A applies.


Where an employment intermediary falls within Chapter 8 ITEPA (the intermediaries legislation) then liability will sit with the employment intermediary in the first instance. If the employment intermediary does not apply section 339A correctly and deducted tax and NICs on an amount of travel and subsistence then that liability incorrectly, then amount that has been incorrectly deducted may be transferred to the directors of the intermediary.

jamesbrown
9th December 2015, 17:28
There's also an interesting comment buried in the consultation on company distributions (i.e. TIS), here (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/483547/Company_distributions_-_consultation_document__7029_.pdf).

Specifically, 5.2 (highlight added):


The government would therefore be interested in receiving suggestions on what
further approaches might be adopted to prevent the conversion of income to
capital for tax reasons, whilst protecting normal commercial practice.
Possibilities include:
Amending the parts of the existing distributions legislation that deal with
income and capital;
Re-introducing some form of the close company apportionment legislation5,
which dealt with similar issues.
Alternative proposed solutions are welcome.

Seems unlikely, but it's worth noting. There was speculation along these lines back in 2010. Here's (http://www.mercerhole.co.uk/tax-plus-blog/budget-2010-a-new-approach-to-close-company-apportionments) some commentary from the time, surprisingly topical given the dividend tax changes.

supersteamer
9th December 2015, 19:59
I couldn't really understand who will be making the SDC assessment: will it be me, myCo, agency, clientCo, HMRC or ANOther?

Zero Liability
9th December 2015, 20:14
I couldn't really understand who will be making the SDC assessment: will it be me, myCo, agency, clientCo, HMRC or ANOther?

An appropriately approved and remunerated third party, no doubt. :tongue

End engager suggests end client, to me, if you work via a brolly. Notice it would require them to dispute a presumption that SDC applied, i.e. stick their necks out.

Yorkie62
9th December 2015, 21:08
An appropriately approved and remunerated third party, no doubt. :tongue

End engager suggests end client, to me, if you work via a brolly. Notice it would require them to dispute a presumption that SDC applied, i.e. stick their necks out.

As far as I am concerned it doesn't matter. My contract explicitly states that neither the agent nor the client can, nor do they have the right to, exercise S,D or C

northernladuk
9th December 2015, 21:09
As far as I am concerned it doesn't matter. My contract explicitly states that neither the agent nor the client can, nor do they have the right to, exercise S,D or C

And what trumps the contract?

Yorkie62
9th December 2015, 21:16
And what trumps the contract?

My point being the client cannot deem me to be under S,D or C when under the terms of the contract they have no rights in this respect. Therefore, if HMRC are going to put the responsibility of determining S,D or C status, come revised IR35, on my client, they can only state that I am not under S,D or C without being in breach of contract.

northernladuk
9th December 2015, 21:28
Am glad you are happy with that. HMRC won't agree. Threat of breaching contract won't matter to them.

And I'd like to see you threaten your client with that even though they probably already are.

Yorkie62
9th December 2015, 21:47
Am glad you are happy with that. HMRC won't agree. Threat of breaching contract won't matter to them.

And I'd like to see you threaten your client with that even though they probably already are.

Who said anything about threatening the client. I would like to think that my relationship is good enough such that it would be discussed with me.

jamesbrown
10th December 2015, 00:06
Hypothetically speaking, if the broader IR35 test is replaced with SDC, an appropriately worded statement on SDC in the contract is very likely to stick because: 1) there would be a debt transfer provision along the lines of the FB 2016 for brollies where SDC applies, with the agency or client (including, potentially, their directors) being responsible in the event that the statement is fraudulent; and 2) for that reason, both parties have a vested interest in demonstrating that the contract holds and, if the client or agency are in clear breach (i.e. make a fraudulent statement about SDC), there would be a strong case for the agency or client to foot the bill. In other words, if you can reach agreement on lack of SDC, you're probably fine, and HMRC are unlikely to pursue such cases. This is about catching the majority that won't be able to secure such statements due to the transfer of debt risks (thereby reducing HMRC compliance costs). Edit: not only unable to secure, but likely to face explicit statements to the contrary, i.e. that SDC applies.

jamesbrown
10th December 2015, 00:13
My point being the client cannot deem me to be under S,D or C when under the terms of the contract they have no rights in this respect. Therefore, if HMRC are going to put the responsibility of determining S,D or C status, come revised IR35, on my client, they can only state that I am not under S,D or C without being in breach of contract.

One word of caution. You may have this clause now, but there is currently no risk to your client from HMRC, only the risk of breach of contract to YourCo. The risk to your client or agency now is not the same as the risk to your client or agency in the event that changes to IR35 are accompanied by a transfer of debt provision.

eazy
10th December 2015, 08:42
Most of the contractors work via agencies, no contractual nexus with the client. Therefore how can there be breach of contract if the client states that contractors are under SDC or caught by IR35.

I agree with the above comment regarding deb transfer provisions, if this becomes the law, vast majority of the clients will ensure explicit clauses are brought in to reflect that contractors are under SDC.

WordIsBond
10th December 2015, 08:48
It raises an interesting point. As with all half-baked legislation, there could be unintended consequences to this "right to SDC" idea. If the contract says they have no right to SDC, then the end client can legitimately tell HMRC that they have no right to SDC -- whatever the working practices may be.

If they legislate to throw out all the case law and make it just about the "right" to SDC, then you are talking about what legal rights the client has, and that is defined by the contract. Mystical divination about what the working practices may or may not have been 6 years ago, and whether you helped a client once on the weekend or talked to their programmers about code structure a couple times, doesn't really have any place in evaluating legal rights.

jamesbrown
10th December 2015, 10:27
It raises an interesting point. As with all half-baked legislation, there could be unintended consequences to this "right to SDC" idea. If the contract says they have no right to SDC, then the end client can legitimately tell HMRC that they have no right to SDC -- whatever the working practices may be.

If they legislate to throw out all the case law and make it just about the "right" to SDC, then you are talking about what legal rights the client has, and that is defined by the contract. Mystical divination about what the working practices may or may not have been 6 years ago, and whether you helped a client once on the weekend or talked to their programmers about code structure a couple times, doesn't really have any place in evaluating legal rights.

No, that isn't what's being proposed. With existing case law on D&C, the right is necessary but not sufficient. Sufficiency is measured by the degree to which that right binds the worker hand and foot. The test on D&C (and the SDC variant) will remain a common law test, not a statutory test. In other words, having the wording in the contract alone will not be enough to demonstrate an absence of the sufficient right to SDC. In the event of disagreement, the courts would ultimately decide against case law precedent (or otherwise make it) about whether the right is, in reality, sufficient in degree to demonstrate employment on that basis (but not with regard to other indicators). Also, any commentary you read about SDC applying to contractual negotiation (i.e. what the client wants), or demonstrated by a trivial amount of SDC, is completely wrong. The test will remain a substantial one, but it will be tougher, because RoS and MoO won't be considered.

However, an appropriately worded clause on SDC (or the right thereof) will be much stronger, in practice, than a similarly worded clause on D&C under IR35, simply because of the transfer of debt provisions. Everyone in the contract chain will, pretty quickly, become attune to the implications of SDC and they will act in unity, led by the end client. Either they will be supportive and back it all the way, or they will be unsupportive and explicitly reject it upfront. It will become much more black and white IMO, which is a good thing for anyone that can manage to secure such a clause, as well as being good for HMRC. It will be quite bad for contracting more generally though (not because of the SDC test, but the transfer of debt and, hence, the keen interest of the client and agency to avoid it in most cases). False self-employment will be replaced by false employment. The big question remains, to what extent, i.e. how many clients would be willing to entertain these clauses?

GB9
10th December 2015, 12:06
I think a large number would. I have worked with several that have no interest in sdc. They want a job doing and then that person to politely f.o.

We may find it becomes role specific rather than company specific. Most backfill and support roles will be within sdc by their nature. Equally, I would expect them to last longer. Those roles for which there is only a fixed piece of work will be more likely to be outside.

Boo
10th December 2015, 13:37
...how many clients would be willing to entertain these clauses?

IMHO : all clients will insist on clauses saying they have direction and control because of the following :


For a b.o.s. contractor that is what they want anyway.

There's no advantage to the client in accepting the risk of a transfer of debt. You could argue that if they let it pass on a nod and a wink then they might gain by a lower contract rate but the client won't see it like that. They will see the rate as being that which applies to the work being done, the contractors tax / expenses affairs are irrelevant to the employer. Therefore the client and agency will just put the terms into their standard contracts and will pass over anyone who kicks up a fuss.


If rates rise as a result then the end result will be that T&S are effectively taxed for Ltd Co. contractors but rates can only rise when there is a shortage of contractors cf the requirement and all the clients I hear of prefer permies at this time anyway.

The thing about terms like thses is that once they get a hold in the HR and other relevant departments they are set in stone for that client and the person who really wants *you* specifically rather than any old contractor, ie the hiring manager, does not have the ability to overrule them.

This is still in the discussion stage though, isn't it ? Is there a government department of email address we can write to to let our feelings known about the adverse impact this will have on our businesses ?

Boo

GB9
10th December 2015, 13:48
IMHO : all clients will insist on clauses saying they have direction and control because of the following :

[LIST=1]
For a b.o.s. contractor that is what they want anyway.

There's no advantage to the client in accepting the risk of a transfer of debt.
Boo

Many clients won't want sdc. I agree about the bos, but if you want a genuine specialist to do a piece of work why would you want to treat them as an employee? Rates rise and there will be a fair chance you won't get who you want. It's not just how much tax the contractor will pay. If the client decides a role is within sdc then anyone they get in won't be able to claim T&S. So either the rate rises or they seriously reduce the number of people willing to take the role.

I can see a split coming between big orgs who want genuine contractors and smaller places who just want additional bodies they can flex.

And at some point, someone under an sdc contract will test for employment rights.

jamesbrown
10th December 2015, 13:59
IMHO : all clients will insist on clauses saying they have direction and control because of the following :


For a b.o.s. contractor that is what they want anyway.

There's no advantage to the client in accepting the risk of a transfer of debt. You could argue that if they let it pass on a nod and a wink then they might gain by a lower contract rate but the client won't see it like that. They will see the rate as being that which applies to the work being done, the contractors tax / expenses affairs are irrelevant to the employer. Therefore the client and agency will just put the terms into their standard contracts and will pass over anyone who kicks up a fuss.


If rates rise as a result then the end result will be that T&S are effectively taxed for Ltd Co. contractors but rates can only rise when there is a shortage of contractors cf the requirement and all the clients I hear of prefer permies at this time anyway.

The thing about terms like thses is that once they get a hold in the HR and other relevant departments they are set in stone for that client and the person who really wants *you* specifically rather than any old contractor, ie the hiring manager, does not have the ability to overrule them.

This is still in the discussion stage though, isn't it ? Is there a government department of email address we can write to to let our feelings known about the adverse impact this will have on our businesses ?

Boo

FWIW, I think you're right. Where the contractor is firmly in the driving seat (e.g. very specialist skills), I think there's a good chance that appropriate clauses will be agreed, not least because they reflect the reality in those cases. However, I think it will completely change the contracting landscape for everyone; agents, umbrellas, accountants, everyone.

It's all rather hypothetical for now. There was an IR35 discussion document, for which the results are not yet available. Strong representations were made about the potential impacts. We're speculating on the basis of a direction of travel, albeit quite a clear direction (e.g. onshore intermediaries reporting requirements and agency regulations, now T&S, and the preferred option in the IR35 discussion document). That said, in Finance Bill 2016, they did back-off from an SDC rule for those seeking T&S relief for regular commuting when working through a Ltd company. You can view this as a concession or response to lobbying. Personally, I view it as a placeholder for more substantial IR35 reform. Some of us have written to our MPs for what that is worth.

I think we're in a holding pattern until we see the response to the IR35 discussion and any associated consultation. It's likely to come quite soon. I believe there's an IR35 Forum meeting next week, so that may shed some light.

eazy
10th December 2015, 14:18
HMRC reveals draft anti-abuse legislation

The Revenue has revealed draft clauses for the Finance Bill 2016 concerning HMRC criminal powers, new penalties for those falling foul of the GAAR and measures to help tackle serial tax avoiders.

On the tax administration front the Revenue has put out policy papers on civil sanctions for enablers of offshore tax evasion, criminal offence for offshore tax evaders, a new threshold condition for promoters of tax avoidance schemes and a serial avoiders special regime.

In addition it has revealed policy papers on corporation tax anti-hybrid rules, penalties for the General Anti-Abuse Rule (GAAR) and the extension of new data-gathering powers.

Serial avoiders special regime
https://www.gov.uk/government/publications/tax-administration-serial-avoiders-special-regime

The final tax administration document, announced at March Budget 2015, applies to taxpayers who repeatedly use tax avoidance schemes.

The government will legislate to provide that HMRC must issue a notice to the user of a tax avoidance scheme which HMRC has defeated. The notice will cover a five-year period, placing an annual reporting requirement on the taxpayer and warning that if HMRC defeats any further tax avoidance schemes used during that period, the taxpayer will face a series of increasing sanctions, including penalties, publication of the taxpayer’s details and denial of access to tax reliefs.

The measure, included in draft clause 63, will have effect on and after 6 April 2017.

Taxpayers who use tax avoidance schemes before the date of Royal Assent to Finance Act 2016 but which HMRC defeats on or after 6 April 2017 will be issued with warning notices, unless they advise HMRC before 6 April 2017 of their firm intention to relinquish their position and settle their case.

Taxpayers who use further avoidance schemes while under warning which HMRC defeat, will become liable to a penalty of 20% of the understated tax and subsequent defeats will result in increasing penalties to a maximum of 60%.

Penalties for the General Anti-Abuse Rule
https://www.gov.uk/government/publications/penalties-for-the-general-anti-abuse-rule

This legislation in draft clauses 60-62 will introduce a penalty of 60% of the tax due, which will be charged in all cases successfully tackled by the GAAR.

Announced at March Budget 2015, the government will also make “small changes” to the GAAR’s procedure to improve its ability to tackle marketed avoidance schemes.

Legislation will be introduced in FB 2016 and will be triggered when a taxpayer submits to HM Revenue and Customs (HMRC) a return, claim or document that includes arrangements which are later found to come within the scope of the GAAR.

The GAAR procedure will be amended such that a GAAR Advisory Panel opinion will enable counteraction of the same arrangements by other users. The GAAR procedure will also be amended to enable a “protective” assessment of tax, to align the GAAR procedure with the overarching enquiry framework.

billybiro
10th December 2015, 15:13
So here's the bit we wanted to know about:

1.13. Employment Intermediaries and tax relief for travel and subsistence
As announced at Autumn Statement, legislation will be introduced in Finance Bill 2016 to restrict tax relief for travel and subsistence expenses for workers engaged through an employment intermediary, such as an umbrella company or a personal service company. Following consultation, relief will be restricted for individuals working through personal service companies where the intermediaries’ legislation (IR35) applies, and for individuals working through other employment intermediaries, where the worker is under supervision, direction or control in the manner they carry out the work. The legislation will include provisions for transfer of debt in appropriate circumstances to help ensure compliance. The changes will take effect from 6 April 2016. A response to the consultation was published on 9 December 2015. (Draft clause 9 and TIIN)

This provides a nice summary of the annoucement, too:

Good news for contractors in the Finance Bill 2016 | Intouch (http://www.intouchaccounting.com/resources/blog/finance-bill-2016/)

jamesbrown
11th December 2015, 20:19
There's also an interesting comment buried in the consultation on company distributions (i.e. TIS), here (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/483547/Company_distributions_-_consultation_document__7029_.pdf).

Seems unlikely, but it's worth noting. There was speculation along these lines back in 2010. Here's (http://www.mercerhole.co.uk/tax-plus-blog/budget-2010-a-new-approach-to-close-company-apportionments) some commentary from the time, surprisingly topical given the dividend tax changes.

Picked up by the FT today in an article entitled "Revenue considers dusting down 1970s-style business tax".

SunnyInHades
12th December 2015, 13:19
So expenses wise come next April ..

1) client,umbrella = no
2) client,agency,umbrella = no
3) client,ltd = yes
4) client,agency,ltd = ??

is 4) yes or no ?

"the eligibility for relief will be determined based on whether or not the intermediaries legislation (IR35) applies"
"contractors who are not paid through an agency only have to consider IR35"

jamesbrown
12th December 2015, 13:52
Yes, in your scheme, assuming the relevant contract is not inside IR35. Not sure where you got the last quote, but the rules apply to direct and agency contracts alike and the policing arrangements haven't changed, i.e. business as usual....for now.

colinrobinson
16th December 2015, 10:29
This is what I've gathered.

Effectively another layer of complexity to the market and more jobs for HMRC and advisers.

1) No, unless Brolly talks to Client and agrees its outside SDC and IR35
2) No, unless Agency-Client-Brolly agrees its outside SDC and IR35
3) Yes, as long as contract is outside IR35 (No SDC test)
4) Yes, as long as contract is outside IR35 (No SDC test)

Unbelievable level of complexity now....


How about making SDC a chargeable service to the client, £500 a day or £550 with the right Of SDC. It would at least be very clear whether the Client Wants SDC or not.

boxingbantz
16th December 2015, 11:02
So these changes to dividend tax - are they definitely coming in April 2016? No mention of the changes from what I can see.

TheFaQQer
16th December 2015, 11:14
So these changes to dividend tax - are they definitely coming in April 2016? No mention of the changes from what I can see.

Yes. That was confirmed in the budget.