Contractors warned against Autumn Statement complacency
The chancellor’s ability yesterday to perform a U-turn on the politically sensitive issue of tax credits does not mean he will necessarily abandon a populist plan to payroll some PSCs.
Such was the suggestion last night in the contractor sector, where there are expectations that the plan still has time to hatch, despite its omission from Autumn Statement (AS) 2015.
The Treasury chose its words carefully, telling ContractorUK following the AS: “The government continues to be interested in the IR35 area, but doesn’t have any announcement to make on it at this time.”
The Association of Independent Professionals and the Self-Employed (IPSE) said that it expected yesterday’s AS to have included the government’s response to the ‘IR35 discussion document.’
But the government has “rightly decided to take more time to reflect on any reform to this unwieldy and burdensome tax,” according to IPSE chief executive Chris Bryce.
A legal advisory to contractors, Egos, went further. Rather than just admitting to the possibility of reform, it says that it seems “likely that such changes” – specifically the cap on contracting - “are coming.”
The Autumn Statement merely shows that the changes “remain below the horizon at this time,” says Egos founder Roger Sinclair, who foresees a potential commencement date of April 2017.
Carolyn Walsh, a former tax official, agrees with such a timeframe, although she says initial details of the new rules for PSCs could surface as soon as next month, in Finance Bill 2016.
“The bill will be amended to bring in the proposed changes we've been hearing about and that won't happen until December 9, so the killer blows will be left to David Gauke”.
She also said: “I knew the chancellor wouldn’t announce the change… if you listened carefully, he thanked [those] involved in closing loopholes. I suspect the government sees this as a ‘done deal.’”
As to the one mention IR35 received in the AS, some experts say it simply underlines the need for the changes to the law to be officially confirmed; others say it points to a relaxation.
“HMRC have conceded that the restriction will not apply to PSCs which are ‘IR35 compliant,’ said tax firm BKL, referring to the restriction on tax relief for T&S expenses.
The firm’s interpretation stems from the AS stating: “Relief will be restricted for individuals working through personal service companies where the intermediaries legislation applies.”
“This could be very good news,” reflected tax software firm FreeAgent. “It would eliminate the subjective and overly stringent Supervision, Direction or Control tests that were initially proposed.”
A third tax specialist, ICS, summed up the inference – that from April 2016, the only PSC contractors to be barred from claiming relief on T&S expenses will be those caught by IR35.
But this “begs the question of changes to IR35 itself”, cautions Egos. The subtext is; there will only be a ‘HMRC concession’ if fewer - not more – PSCs are going to be caught by the ‘new’ IR35.
IPSE agrees. “[The AS] suggests that these firms [genuine PSCs] will still be able to claim [relief on expenses]...but this is very much dependent on the outcome of the government’s IR35 review.”
So, much in the same way that last year’s Budget failed to clear up IR35 uncertainty (the PSC Committee’s findings were not released until the month subsequent to the Budget ), the IR35 landscape is still not settled.
Contractors must not only wait; they must also keep on their guard - even after IR35 has been remodelled, suggests Martyn Valentine, founder of IR35 and status advisory The Law Place.
“As part of the ‘digital revolution,’ a digital tax account for every small business will be created,” he said, reflecting on an announcement at AS chapter 1.228.
“Possibly [this will be] assisting [HMRC with the] targeting of personal service companies for employer compliance reviews. The message to personal service companies? Avoid complacency.”