How HMRC is revoking your right to expenses
What a difference a day makes.
On Monday, it was merely hoped that contractors would respond to the ‘SDC’ consultation.
Yesterday, after we alerted them, contractors were clamouring to respond to the consultation because the SDC rules are actually much wider than first thought, writes Lisa Keeble of All Umbrella Companies Are Equal (AUCAE).
Indeed, HMRC confirmed to us that if you’re a contractor who works through a recruitment agency, you are automatically going to be considered under Supervision, Direction or Control (SDC), or the right of these, for the purpose of the new legislation prohibiting tax relief on travel and subsistence expenses.
In other words, where a contractor supplies their personal services through an umbrella or limited company, there will be a “presumption” that there is SDC, or the right of SDC, if the contractor is engaged through an employment agency and as such, your travel and subsistence expenses will not be eligible for tax relief
This automatic opt-in to SDC all stems from a single and rather innocuous-sounding sentence on page 14 of the SDC consultation by HM Revenue & Customs, which states:
“This test will be applied in a similar away to that currently used for agency workers in Section 44 (2) of ITEPA.”
Well, Section 44 (2) of ITEPA states that where a worker is engaged by or through an agency, there will be a presumption that there is Supervision, Direction, or Control (or the right of these) over the worker.
Consequently, if the SDC proposal on travel and subsistence goes through, without alteration, then, regardless of whether there is Supervision, Direction or Control in reality, such Supervision, Direction or Control will be presupposed once contractors secure their contract through a recruitment agency.
So all contractors that work through agencies will automatically be in the position where they can no longer claim travel and subsistence expenses, once the current proposal passes into law from April 2016.
We also understand that only those contractors who work through umbrella companies but who are ‘direct-to’ client – without an agency – will still get relief on their expenses, provided they are not Supervised, Directed or Controlled - or under the right of Supervision, Direction or Control.
It’s all a bit of a mouthful really, but the logic of HMRC is brilliant. If you follow it through, and the Revenue applies the SDC test to IR35 (as they are signalling in the IR35 discussion document) then, with everything being equal, any contractor working through an agency would automatically be inside IR35. Now you can see why contractors were yesterday clamouring to send HMRC their thoughts, and we’d recommend you do the same.
Potentially in receipt of the same clarification that we received from HMRC yesterday, a contractor trade body last night described the SDC proposal on contractor expenses as nothing short of “extremely worrying”. We couldn’t agree more. If you concur, then for the good of contracting tell the taxman and tell him why. Alternatively, there is a survey where you can leave your feedback and comments on the ContractorUK Forum. There’s a similar survey on our website.
Contractors are completing these surveys before the consultation deadline of September 30th, especially as the IR35 consultation talks of using SDC as a new test under the legislation. The smart money must be on the SDC criteria being the future of IR35. After all, the Revenue has already parachuted in SDC to combat false self-employment; it’s now doing the same with tax relief on expenses and it’s talking about doing it with the Intermediaries legislation. How fitting that the name of the ContractorUK Forum user who posted the survey is "eek."