Budget sees restrictions in relief

Thursday 19 March 2015

The government is restricting the relief that is available to certain contractors and limited companies.

Chancellor George Osborne made this announcement when delivering the Budget on Wednesday March 18th. The decision to restrict relief is so that the government can clamp down on such issues as disguised employment.

Among the tax relief that is set to be affected are travel and subsistence relief and entrepreneurs relief.

Mr Osborne stated: "We will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence – while we protect those genuinely self-employed."

Moving forward, this means that contractors will have travel and subsistence relief restricted if they are directed, controlled and supervised by their client. They will not get relief for travelling from home to work if this is the case. Of course, this will not affect contractors who are not under direct supervision, direction or control from their clients.

In short, contractors who fall within the scope of IR35 will not be entitled to travel and subsistence relief.

Additionally, Mr Osborne said that entrepreneurs relief is set to be restricted. He said: "We will close loopholes to make sure Entrepreneurs Relief is only available to those selling genuine stakes in businesses."

This relief caps the amount of capital gains tax that certain contractors have to pay at ten per cent. However, the government said it will no longer be allowing people to claim a reduction in capital gains tax on personal assets that accrue gains and are used in a business that is carried on by a partnership or company. That is, unless these assets are sold as part of at least a five per cent stake in the company or a five per cent share in partnership assets.

As well as the restriction on entrepreneurs relief and travel and subsistence relief, the government is also set to clamp down on people who do not pay their tax on time.

Mr Osborne said: "We will issue more accelerated payments notices to those who hold out from paying the tax that is owed."

HM Revenue and Customs has the power to issue accelerated payments notices to people it believes are using a tax avoidance scheme, which means that people who are sent these notices are required to pay the tax owed up front.

There are some other measures that are set to come into play that should help to reduce tax avoidance and evasion, as well as bringing more money back into the public purse.

Corporation tax rules are being put in place to prevent contrived loss arrangements. Also, the government is introducing diverted profits tax, which is aimed at large multinational companies who put their profits offshore as a means of avoiding corporation tax.

Mr Osborne said that all the measures being put in place to combat tax avoidance and evasion should help to raise £3.1 billion.

By Victoria McDonnell

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