An end to expense deductions for IR35-caught contractors?

IR35 Test

A source close to the Treasury has told ContractorCalculator that HMRC is seriously considering cutting out the expenses deductions for contractors who are caught by IR35.

The source said that the move was provoked by abuses on the part of a few umbrellas of dispensations for contractor expenses. But the review has now become greater in scope, the source says, and part of it is now the active consideration of the removal of expense privileges for IR35-caught contractors.

Another Attack on Contractors

The move would be yet another in the series of attacks on the contracting industry that began last year with the Managed Service Company legislation. Again and again, the Treasury has come up with ways to limit the privileges that contractors enjoy without taking into account that contractors run businesses at their own risk and have no employee advantages.

Warning in the Budget

The move comes just after the announcement in the Budget for 2008 that HMRC would be ''carefully reviewing'' the operations of umbrella companies. The Budget announcement runs: ''The Government is concerned at the growing use of structures, such as...overarching contracts of employment with employment businesses, to obtain tax relief for travel expenses that would not be available to other workers. It will monitor the use of these structures and, if necessary, consider action in the future.''The language was vague, but the threat, apparently, is real.

The London-based Professional Contractors Group has protested these measures and has announced that it will work closely with the Revenue and the Treasury on these proposed changes.

The review of contractor expenses policy has broadened in scope- Some contractors may lose expense privilieges

ContractorCalculator

The argument that HMRC is using, according to the source, is that these contractors are just like employees, so why should they have the advantage of such deductions? Yet this is virtually the only compensation that contractors caught by IR35 receive in exchange for a tax burden that is almost 20% higher than that of a contractor who is outside of IR35.

Bitter Irony

There is bitter irony here. The contractor caught by IR35 is indeed obliged to pay taxes just like an employee, although that contractor does not enjoy any of the rights and perquisites that the employee can claim. No holiday pay. No sick pay. No bonuses. But the contractor still must pay the same taxes as those who have all these advantages.

Call for A Wave of Protest

We are working closely with the Revenue and the Treasury on these areas

John Brazier-PCG

But this is speculation. What is actually needed is a strong wave of protest from the entire industry. This is only another in the series of attacks that contractors have endured from this Government. But we beat down 'income shifting,' so let's try and beat this one down too.


Alliance Accountants

Published: Tuesday, April 01, 2008

© 2014 All rights reserved. Reproduction in whole or in part without permission is prohibited. Please see our copyright notice. If you want to use any content you have seen on this site then please request our media pack and ask for details of our Content Licencing Service.

Inni Accounts


Readers Comments...


  
Bookmark and Share
  
     
  

Latest Site Updates

ContractorCalculator: Contracting news in brief – 31/Oct/2014 ContractorCalculator: Contracting news in brief – 31/Oct/2014

News this week covers: BETs abolished; BBC test judicial review; late payment; high paying contracts; paper tax return deadline; & simpler CT filing.

Contractors gain greater tax savings and flexibility from pension reforms Contractors gain greater tax savings and flexibility from pension reforms

Contractors to gain upfront pension contribution tax savings and tax savings with flexibility on retirement, says ContractorFinancials’ Tony Harris.

IR35 taxes are a tiny proportion of the tax gap: surely HMRC has better things to do? IR35 taxes are a tiny proportion of the tax gap: surely HMRC has better things to do?

Contractors paying £1m a year in IR35 taxes is such a tiny proportion of the tax gap. Surely the taxman can direct HMRC’s resources more efficiently?

Contractors underpin new ‘lean’ workforce strategies adopted by contracting clients Contractors underpin new ‘lean’ workforce strategies adopted by contracting clients

Contractors offer increased capacity and specialist skills to contracting clients that increasingly adopt lean workforce strategies, says the REC.


  
  

Twitter

Follow Us On Twitter


  
     

  
  

Contractor solutions

Orange and Gold Accountancy Limited IR35 Test Clever Accounts Accountants Checklist Alliance Accountants Contractors Handbook
  
  

Contractor solutions

InTouch Accounting

Perfect mix of technology & personal service for only £92 per month.

Parasol

The UK’s largest employment organisation - 0% risk, 100% compliance

Clever Accounts

Complete contractor accounting service. 24/7 online access. £69 pm!

Contractor Accountant

Free consultation, incorporation and IR35 reviews. Find out more…

Need an accountant?

Comprehensive service for £59 per month. Call now for a FREE consultation.

Contractor Angels

More than just an Umbrella. Retain up to 90% of your earnings.

NA D J Colom Accountants Bedouin Group Parker Cavendish Contractor Financials NewsNow
  
Caprica Accountants Parker Cavendish Contractor Insurance Life Insurance

  

The UK's leading contractor site. Independently audited traffic (ABC) – 131,456 monthly unique visitors.