2015 Autumn Statement: top 10 contractor announcements
As to what it did contain, AS 2015 confirms that tax relief on travel and subsistence expenses is going to be restricted from April 2016, for both PSC and umbrella contractors.
The relevant chapter from AS 2015 is reproduced below. Other announcements impacting contractors, such as HMRC, anti-avoidance and sector-specific proposals, follow that reproduction.
Announcements at AS 2015 affecting contractors’ personal finances are covered separately today by ContractorMoney, an IFA who specialises in contractors’ financial affairs.
1. Employment intermediaries and tax relief for travel and subsistence
As confirmed at Summer Budget 2015, the government will legislate 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 applies. This change will take effect from 6 April 2016
2. Office of Tax Simplification (OTS) review of employment status
The government has responded to the final report of the OTS review of employment status and is taking forward the majority of recommendations.
Published in March this year, the OTS review put forward more than 20 recommendations included having a “set de minimise level for payments to an individual who carries out some activities for a business, which would definitely not be an employment.”
According to Tim Stovold, head of tax at accountancy firm Kingston Smith, such a de minimise level for payments would “give certainty to contractors carrying out short term assignments.”
He added: “Whether this sensible suggestion is one of the ‘majority’ the government will be taking forward remains to be seen.”
The accountant explained that, generally, the OTS recommendations “would result in greater certainty and availability of information to contractors so they can determine what their status should be when working for businesses.”
The details of the accepted OTS recommendations are expected to emerge in 2016. UPDATE: Nov 26th 2015, the details have been disclosed in a letter to the OTS.
3. Capital Gains Tax - Entrepreneurs’ Relief: contrived structures
The government will consider bringing forward legislation to amend the changes made by Finance Act 2015 to Entrepreneurs’ Relief, in order to support businesses by ensuring that the relief is available on certain genuine commercial transactions.
According to tax advisory BKL, which counts contractors among its clients, this statement from the government might mean that ER could be “back on the agenda” for companies operating in commercial joint ventures.
“It would be nice to think that any relaxation would be retrospective,” the firm said. “Don’t hold your breath though.”
4. Salary Sacrifice
The government remains concerned about the growth of salary sacrifice arrangements and is considering what action, if any, is necessary. The government will gather further evidence, including from employers, on salary sacrifice arrangements to inform its approach
This statement from the AS shows that the government is still “nervous” about salary sacrifice schemes, believes Kingston Smith’s Tim Stovold.
He warned: “This could mean an end to benign tax planning such as pension contributions through salary sacrifice and child care vouchers through the same method.”
5. Taxation of accommodation benefits
Stovold also says that a promise in the AS to launch a consultation on the taxation of employer-provided accommodation is welcome, as long as it results in “simplification”.
He explained: “The calculations for calculating this benefit can be complex and are often performed incorrectly, leaving employers exposed to interest and penalties where benefits are under-declared.”
6. RTI relaxation to be removed
Chartered accountancy firm Moore Stephens warned: “All employers will therefore need to file FPS returns no later than the date salaries are paid in order to avoid penalties.”
7. Company distributions
The government will publish a consultation on the rules concerning company distributions later in the year.
Reflecting on this promise “or threat” - as they described it yesterday - advisers at BKL said it comes hard on the heels of what contractors who own and manage their own PSC regard as the “unwelcome” 7.5% surcharge on dividends, due to hit from April.
“This [new announcement] sounds fairly ominous,” BKL said. “It’s difficult to avoid the impression that that government is getting to be…suspicious of small private companies”.
Despite the adviser’s concern, in his AS speech the chancellor claimed: “This is a government that backs all our businesses, large and small.
“We understand there is no growth and no jobs without a vibrant private sector and successful entrepreneurs. So this spending review delivers what businesses need.”
8. Other anti-avoidance measures
The government will introduce a new penalty of 60% of tax due to be charged in all cases successfully tackled by the GAAR.
The government will also make small changes to the way the GAAR works to improve its ability to tackle marketed avoidance schemes.
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.
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].
The government will introduce tough new measures for those who persistently enter into tax avoidance schemes that are defeated by HMRC.
The government is also widening the Promoters of Tax Avoidance Schemes (POTAS) regime.
‘Extra investment to hit evaders’
£800 million confirmed funding for additional work [by HMRC] to tackle evasion and non-compliance in the tax system.
9. Other HMRC measures
Digitisation of tax collection and a smaller but more highly skilled workforce [will be introduced at HMRC].
£1.3bn to be reinvested to transform HMRC into one of the most digitally advanced tax administrations in the world.
[Grant] access to digital tax accounts for all small businesses and individuals by 2016-17.
HMRC will find significant savings by consolidating its estate from 170 offices to 13 large, modern regional centres.
The government will publish draft legislation that will enable a new, simpler process for paying tax. This will be used for taxpayers in self-assessment who have simple tax affairs where HMRC already holds all the data it needs to calculate the tax liability.
Taxpayers will be sent a calculation which will be a legally enforceable demand for payment, and taxpayers will be able to challenge and appeal these calculations. This process will come into effect in the 2016-17 tax year.
The government will publish draft legislation clarifying the time allowed for making a self-assessment. It will make clear that the time limit is 4 years from the end of the relevant tax year.
- Innovate UK, which funds hi-tech research, to have its grants turned into loans (as warned against)
- Protect the Science budget of £4.7bn
- Introduce two new anti-avoidance measures on capital allowances on plant and machinery and deductions for lease payments
- Annual Investment Allowance to stay fixed at £200,000
- Increase total number of Enterprise Zones in towns and rural areas to 26
- Extend further education tuition loans to 19-23 year-olds
- Lift age cap on post-graduate loans so they are available to all those under 60
- Allow people to retrain in STEM subjects by removing the restriction on accessing tuition fee loans for a second degree (from 2017-18)
- Set up a new Institute of Coding that will train the next generation in higher level digital skills, and set up an engineering college in Hereford (in 2016)
- Invest in new technology to support prisoner rehab and fund video conferencing technology in prisons to enable video links to court
- Invest up to £700m to fully digitise the courts
- Invest £130m in border technology, further to a £1.8bn digital tech investment across public sector over the next four years
- Provide the Government Digital Service with £450m
- Invest £1.9bn in cyber security and £3.4bn in new counter terrorism activity
- Invest £550 million to make the 700Mhz spectrum band available for mobile broadband use
- Require “self-employed people” among others to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account (from 2020)
- Call for evidence from HMRC on the hidden economy
- Retain the diesel supplement in company car tax (until 2021)
- Reduce business department’s budget by 17%; cut Whitehall budget for DoH by 25% and trim Treasury budget by 25%, helping towards total departmental cuts of £20bn
- Extend by 30 hours free entitlement to child care for working families
- Ditch unpopular tax credit cut proposals but replace tax credits with universal credit from 2018
- Protect police budget
- Invest £47bn over the next 5 years on HS2, roads and local transport, and invest £11bn in London’s transport infrastructure
- Make permanent operational and financial freedoms for national museums, and extend them to the British Film Institute and some other cultural attractions
- Invest £290m in BBC World Service
- Boost funding for UK Sport by 29%.