Osborne omits plan to payroll PSC contractors

Contractors are breathing a sigh of relief after a much-feared plan to put Personal Service Companies on the payroll failed to hatch at Autumn Statement 2015, delivered earlier today.

The chancellor’s only swipe at PSCs is at AS chapter 3.20, where he reminds that their tax relief on travel and subsistence expenses will be restricted, as it will for umbrella contractors.

Lisa Keeble of Contractor Umbrella reflected: “The only relevant announcement for contracting in the AS was the restriction of T&S relief, which we already knew about”.

A consultation has already been launched on the restriction, which 3.20 reminds will apply from 6th April 2016, notably for PSCs “where the intermediaries legislation applies.”

Except for this one mention of IR35, the 2015 Autumn Statement “does not specifically address proposals for reforming the legislation,” observes legal advisory The Law Place.

'No cap on contracting, at least not from April'

But the omission does not mean that proposals are not incoming, nor does it mean that the most feared one – to put PSCs on the payroll after a “month or two” – will not emerge.

Staffing body APSCo said: “The lack of an announcement in the Autumn Statement doesn’t mean that the government won’t go forward with this proposal in the future, but it does almost certainly mean that it won’t come into effect in April, 2016, which is what we feared.”

The Law Place’s Martyn Valentine added: “Although the chancellor has decided not to proceed with the leaked policy proposal… the IR35 discussion document closed in September and detailed proposals will no doubt follow.”

ContractorUK understands that more than 160 written responses were submitted to HMRC in response to the IR35 discussion document, further to 14 roundtable events with stakeholders.

HMRC: 'Still considering' responses on IR35

Asked after the AS when the government will respond to the IR35 discussion document, HMRC said it was still “considering responses.” A senior tax official also told a source close to ContractorUK:

“The government’s objective as set out in the discussion document is to find a solution that protects the Exchequer and improves fairness in the system without creating disproportionate burdens on business, or widening the scope of the rules.”

This aim from HMRC not to widen IR35’s scope indicates that ‘Supervision, Direction or Control’ may be less of a prospect, as experts say that ‘SDC’ would extend IR35’s coverage.

'Not the bloodbath we were expecting'

But to Qdos Consulting, an employment status firm, the government’s wording in the AS suggests that ‘SDC’ is the favourite to reform IR35. The firm’s Seb Maley told ContractorUK:

“[Although] Autumn Statement certainly wasn’t the bloodbath many were expecting… the fact that clause 3.20 doesn’t refer to ‘supervision, direction or control’ – whereas the T&S consultation did - could infer that HMRC are indeed planning on using ‘SDC’ for IR35 too.”

For now though, Maley says it is “too early to tell” what a reformed IR35 will look like, and hinted that contractors face a period of ongoing uncertainty until a consultation is launched.

“[In the meantime], we have confirmation [in the AS] on the travel and subsistence rules and draft legislation will be published on 9th December,” he said.

Graham Jenner, a director at accountancy firm Jenner & Co confirmed: “Autumn Statement reaffirms the government’s intention to address what it sees as the abuse of tax relief on travel and subsistence expenses where workers operate through an intermediary or a personal service company…the government has already made up its mind [that this will go ahead].”

'Disguised Remuneration'

Referring to the T&S restriction, Julia Kermode, chair of the Freelancer & Contractor Services Association, said it seemed that contractors outside of IR35 would not now be penalised on expenses.

She said: “Although [this is a welcome clarification] we note that further change on the employment intermediaries legislation is [to] come following Mr Osborne’s statement that he will look into ‘disguised remuneration’.”

In line with her warning, AS chapter 3.87 says the government intends to “take action against those who have used or continue to use disguised remuneration schemes and who have not yet paid their fair share of tax. “

'Only the brave'

The chapter adds: “The government will also consider legislating in a future Finance Bill to close down any further new schemes intended to avoid tax on earned income, where necessary, with effect from 25 November 2015.”

Tim Stovold, head of tax at Kingston Smith reflected: “The HMRC spotlight has returned to ‘disguised remuneration schemes’, possibly encouraged by their recent victory against Rangers FC in the Court of Session on their EBT loan scheme.

“[It means] that additional penalties will be levied on users of these schemes with any new schemes which emerge [to] be blocked with retrospective effect from 25th November 2015. This type of tax planning is now only for the brave as HMRC will aggressively challenge anyone who still believes they work.”

Editor's Note: Related Reading -

Contractors warned against Autumn Statement complacency

Treasury set to overhaul employment status

'Warn your MP against any cap on contracting'

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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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