The Practical Guide to Limited Company Tax
If you have chosen to operate your business as a limited com...
By Jonathan London on 5th April 2016
As you may already know, a new legislation will come into effect throughout the the UK on April 6th this year. We’re going to look at what it means for freelancers and contractors and how it can affect the way you conduct your business.
The new legislation prohibits tax relief on Travel and Subsistence (T&S) expenses for those considered to be working under “Supervision, Direction or Control” (SDC). This includes Umbrella workers, people contracting through Personal Service Companies (PSC’s) (only those caught by IR35), and Agency workers.
Contractors via Umbrellas will still be able to claim relief on Travel and Subsistence but only as long as they can show that they are not working under Supervision, Direction or Control. Contractors working via a Personal Service Company are able to claim relief as normal, as long as their contract is not caught by IR35.
Supervision is when someone observes your work and progress to make sure you’re doing what’s required of you, and that it’s being done correctly to the right standard. This can also involve helping a worker to develop their skills and knowledge.
Direction is when an overseer (a manager, for example) instructs you to do your work in a particular way, providing you with instructions, guidance or advice on how the work should be done. They may often co-ordinate how you complete your work as it’s being carried out.
Control is when someone dictates what work a person does and how they complete that work. This includes someone having the power to move a worker from one job to another.
The legislation states where a worker is engaged by or through an agency, there will be a presumption that there is SDC (or the right of these) over the worker.
Intermediaries legislation (IR35) is the tax and National Insurance contributions legislation that may apply if you’re working for a client through an intermediary.
IR35 status is looked at on a contract by contract basis – or assignment by assignment – and depends on the contract they have with an employer or agency and whether the contract reflects actual working practises.
The status hinges on whether, disregarding the personal services company, the relationship between contractor and client mirrors that of employer and employee. A number of factors can affect this, including the level of control, mutuality of obligation, whether personal service is required and if overall you are operating as a genuine business.
IR35 is a complicated area and one which HMRC have said they are going to consult over and change for public sector workers from April 2017. The consultation is due in May this year and once we know what is involved we will be letting you know.
So from 6th April 2016, limited company contractors should not claim travel and subsistence if they are inside IR35.
If there’s an IR35 enquiry and someone is caught, HMRC will demand any T&S liability in addition to the standard IR35 liabilities.
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