Earlier this month, FreeAgent gathered many experts together including the Tax Director of the Office of Tax Simplification for the inaugural Self-Employment Tax Summit. This event was arranged to discuss proposed changes to contractors who could claim tax relief on travel and subsistence costs. Furthermore, revisions to P11D forms and potential changes to IR35 were also discussed.
The government believe employees and contractors who do the same job should be treated equally. HMRC published a consultation paper for these changes and are awaiting responses before the end of September 2015.
A key trend in the UK labour market is the increased flexibility. Self-employment has risen 40% in the last 15 years, and more full-time employees have started their own part-time self-employments. The experts believed this should be encouraged upon rather than being penalised.
The government also believe that contractors and employees should be on a “level playing field”. Both employees and contractors do the same job, however, contractors face a much higher business risk as they must search for contracts, keep their own books, deal with payroll, and do not receive sick pay, holiday pay or employment benefits. All members believed this was a change that should not take place as full time employees do not face any risk compared to contractors and freelancers.
Removing tax relief on travel and subsistence costs could discourage contractors accepting certain projects as they may now choose to only work within a small geographical area within the UK to make the work worthwhile. Although, it could encourage contractors to work abroad, as rules for international travel are not expected to change. In contrast to this, these rules may encourage international contractors to work in the UK, as there could be less competition from local contractors.
The panel agreed that the current rules are open to abuse and that HMRC should invest in tracking down both rogue providers of umbrella companies and non-compliant contractors. Umbrella company providers could also play their part by marketing themselves as supporting the UK’s growing flexible workforce, rather than simply saving tax for their customers.
The panel agreed that there needs to be a solution to tackle abuse but also protect genuine flexible contractors. They believe this is the case for both the proposed travel and subsistence changes and changes to IR35.
Potential alternatives agreed by the panel on travel and subsistence tax relief for contractors working under SDC include:
- Reducing the 24 month rule (e.g. to six months) as few contracts last as long as 24 months.
- Allowing travel and subsistence relief for contractors who travel over the national average commute (this would need to be quantified).
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