Autumn Statement offers relief to contractors

Thursday 26 November 2015

Media outlets around the country have been scrutinising the chancellor’s Autumn Statement to see what impact it is likely to have on their readers. From a tax credits u-turn to a major housebuilding programme, it has certainly been an event full of surprises.

Contractors operating as limited companies (also known as personal service companies, or PSCs) are likely to have been watching particularly closely.

This is because of rumours regarding a potential change to IR35 changes. Both the Mail and the Guardian had suggested that the government was considering rules that would have forced contractors who worked for a company for more than one month onto the payroll, turning them into pay as you earn (PAYE) employees.

This would have had an effect on approximately 90 per cent of contractors who use limited companies, hence why it has attracted so much attention.

However, George Osborne made no mention of the policy during his hour-long speech on November 25th, which observers took as a sign that it was either never on the table, or had been quietly dropped in response to condemnation from the business community.

However, reform to IR35 regulations is still set to go ahead. It is possible that these will be tightened further, as the chancellor looks to crack down on anything that could be perceived as tax avoidance in order to fund his investment in building schemes.

Mr Osborne singled out disguised remuneration schemes, such as Employee Benefit Trusts, for attention in this area, and revealed that the government is considering the introduction of new legislation that would pre-emptively ban the introduction of similar schemes between now and the introduction of the next Finance Bill.

In addition to this, there was no mention of planned changes to rules that allow limited company contractors to claim travel and subsistence tax relief. It appears that Mr Osborne is not planning to introduce an additional test that would determine whether a contractor is allowed to claim for these expenses. Instead, only those who are covered by IR35 will be prevented from claiming.

However, since IR35 regulations are currently being reviewed, it is not certain which businesses this will end up affecting in the long term.

Chris Bryce, chief executive officer of the Association of Independent Professionals and the Self-Employed (IPSE), felt that the Autumn Statement was largely positive for contractors.

In an article on the organisation’s website, he wrote: “The government have listened to IPSE and told us they will take more time to find a solution which protects the Exchequer and improves fairness in the system without creating disproportionate burdens on business, or widening the scope of the rules.”

It is not clear how the government intends to proceed over the remainder of this parliament when it comes to key issues such as IR35 reform and expenses. However, given the important role that contractors and freelancers play in growing the national economy, it seems unlikely that the government will actively work to jeopardise their ability to operate and grow.

By Victoria McDonnell

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