Budget 2015 'to restrict, not remove, contractor expenses'

Umbrella companies do not believe that next week’s Budget will definitely remove tax relief for their workers, even though a chartered adviser warns that a restriction is a near certainty.

Tim Stovold of accountants Kingston Smith says it’s “almost inevitable” that the claiming of travel and subsistence expenses will be curtailed from April 2016, in an announcement by the chancellor on Wednesday.

Mr Stovold bases his expectation on wording in the taxman’s now-closed consultation, which said responses “will inform the government’s decisions at Budget ‘15 on how to best address this avoidance”.

The document from HM Revenue & Customs also stated: “Any proposed measure to address this misuse will not come into effect until 2016 at the earliest.

“This will allow time for people working under an OAC to make informed decisions, and to remove themselves from an OAC if they wish without being disadvantaged.”

The implication from Mr Stovold that ministers have already made up their minds to tighten the rules appears at odds with HMRC’s characterisation of the document and its contents.

As contractor service providers have welcomed, the Revenue has emphasised that the 26-page publication was a “discussion document” that brought up “options,” rather than ‘proposals.’

One of those providers told ContractorUK yesterday that they still believe that contractors have not been up against a cut and dried decision.

“I don’t feel it’s ‘inevitable’ that the government will remove tax relief on travel and subsistence expenses”, said Lisa Keeble of Contractor Umbrella. “But I do think that there will be changes made to current rules.”

Another umbrella company, Liberty Bishop, agrees that Budget 2015 isn’t guaranteeing the end of tax relief on home-to-work travel costs.

“I believe it’s far from ‘inevitable’ that travel and subsistence [expenses] will be removed”, said its director Marc Scott.

He also told CUK: “The government has recently announced its general support of the umbrella model as a mechanism for efficient tax collection, so it would seem to be a bit short-sighted of them were they to then undermine such a model by tampering with it”.

Mr Scott was referring to comments by David Gauke MP, the financial secretary to the Treasury, in response to a question in parliament last month about umbrellas in the construction industry.

Mr Gauke said at the time: “Umbrella companies have been a part of the UK labour market for many years and, when operated responsibly, provide a useful conduit through which payments, including tax, can be made.”

The distinguishing between properly-run umbrellas and those that aren’t appears in line with HMRC’s goal of “ensuring that arrangements that do not seek to exploit the tax rules are not affected” by any proposals at Budget 2015.

But the fact that it is George Osborne’s last red box (of this parliament), and the fact that it is coming before an election, are two realities of Budget 2015 not lost on another umbrella company, Paraplus.

The chancellor’s address on March 18th is also the first major opportunity for policy since unions protested in the streets about umbrellas, and since Channel 4 exposed them on Dispatches.

Paraplus’ managing director Phil McDonald reflected: “It is clearly a subject very high on the political agenda and therefore, I believe government will follow through on its intention to do ‘something.’”

So even though the government “acknowledge[s] that umbrella companies can be used legitimately”, Mr McDonald also said the only thing “inevitable” is that umbrellas will not go under the chancellor’s radar.

But it may not just be umbrella contractors who are affected by Wednesday’s Budget. In fact, HMRC has said that its “potential option one” – to restrict relief for all travel from home-to-workplace costs – would hit PSCs too.

And if Mr Osborne does announce “something,” as two of the three umbrella bosses anticipate, then the odds-on favourite is for it to impact Personal Service Companies as well.

“[As] HMRC’s primary focus is on increasing tax revenues for the Treasury,” Ms Keeble said, ”changes which removed a tax advantage from umbrella workers yet left it in place for their colleagues working through PSCs would be counter-productive.”

Similarly, Mr Scott at Liberty Bishop said: “One assumes that the government realises that no real gain would be made if tax generated through the removal of expenses was simply lost again through a dramatic increase in the abuse of IR35.”

Concerned about the government’s realisations to date, representatives from 38 umbrella companies yesterday visited the House of Commons to present the perks to taxpayers of how they operate.

The visit was organised by the Freelancer and Contractor Services Association (FCSA), which counted MPs from the Freelance All Party Group and Business and Treasury Committees as among the attendees.

“There has been growing concern that the Treasury may rush legislation through in next week’s Budget that will negatively impact some of the 5 million individuals that currently work on a flexible, non-permanent basis for UK plc,” said FCSA’s Julia Kermode.

“We hope that today’s productive conversations between MPs and industry representatives will have gone some way to addressing the misconceptions that the Treasury may have about our industry.”

Even if the conversations don’t, and the Treasury ends up restricting or even removing tax relief from 2016, umbrellas appear to be keeping calm.

Paraplus said: “Any changes, if decided, would only take effect from April 2016 at the earliest, so there is more than enough time to respond.”

Another brolly vowed to just carry on. "We’ve been subject to so much change over the last few years" it said, "that we’ve had to learn to adapt in order to survive."

Editor’s Note: Related Reading –

Government’s dislike of umbrella companies unfolds

Umbrellas wary about the end of dispensations

HMRC’s expenses review: the good, the bad and the ugly

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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