The Autumn Statement saw the very, very quiet announcement of new legislation which will, purportedly add £155 million to the Treasury’s coffers; in reality the move is likely to reduce the tax take for the Treasury by around £200 million and, at the same time, significantly reduce the take home pay of tens of thousands of hard working tax payers, otherwise known as voters.
It is thought that there are around 400,000 contractors or freelancers in the UK, who travel wherever and whenever their skills are needed, who will feel the negative impact of the proposed changes. This sector has been growing consistently as the cost of employing someone on a permanent basis rises; the value of temporary agency workers has been recognised by business and the Public Sector alike. The new legislation which will come into effect in April 2016 will mean that these workers will no longer have any entitlement to tax relief on the costs that they incur travelling to their temporary places of work.
Approximately 20,000 operate through umbrella companies who collect PAYE taxes on behalf of HMRC and give the workers Statutory Employment Rights. The only option these workers will now have to claim the tax relief, that has been allowable for the last 18 years, is to open a Limited Company (also referred to by HMRC as a Personal Service Company although this term has no meaning in law).
This presents a number of problems for the Government: |
• The VAT flat rate scheme will allow these workers to pay VAT at 13.5% of gross revenue rather than 20% of turnover; it’s estimated that this will cost HM Treasury around £20 million in a single year.
• Temporary workers who operate via a Ltd Company have to consider IR35, complex legislation which asks the tax payer to consider their employment status and which HMRC, by their own admission, find extremely difficult to police.
If just 50% of these workers operate outside the legislation the potential tax loss for the Treasury is around £175 million i.e. far more than the changes are expected to deliver. MP’s currently claim around £10 million per year in travel and accommodation expenses, so maybe asking them to follow the same rules that are being applied to their constituents could make up some of the shortfall. All they will have to do is provide evidence to HMRC that something intangible doesn’t exist!
The legislation requires the taxpayer to determine their employment status, for tax purposes only, based on whether or not anyone in the organisation they’ll be working for or the agency that may have found them the work could exercise supervision, direction or control over them and the way they work.
They also have to determine, if this is not exercised in practice, whether the organisation or agency would retain a ‘right’ to exercise it throughout the duration of the contract. HMRC cannot give examples of what may or may not constitute ‘evidence’ and the concept of supervision, direction or control whilst a common factor in case law has never been used as the only consideration for determining employment status. Add to this, two of the cases that HMRC use in their internal guidance found that the worker was subject to the right of supervision, direction and control but was not found to be an employee for tax purposes and two others are not available to the public for consideration and you can see why an industry representing around 400,000 workers is in a state of confusion.
Perhaps our MP’s could lead by example and demonstrate that they can prove that something doesn’t exist thereby securing tax relief on the travel costs that workers who don’t have their gold plated pensions and employment rights won’t be entitled to after 6th April.