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Contractor travel and subsistence restrictions go ahead, confirms Finance Bill 2016

Contractors caught by IR35 or under supervision, direction or control (SDC) will lose travel and subsistence tax relief from April 2016, it has been confirmed by the draft Finance Bill 2016. The dividend tax changes announced in the Summer Budget 2015 will also proceed as planned.

However, despite much anticipation, contractors will have to wait even longer for clarity over planned changes to the administration of IR35, which has again been overlooked by the Treasury.

“The travel and subsistence restrictions come as no surprise, but that won’t lessen the blow to hundreds of thousands of contractors who will see their net pay fall next year,” notes ContractorCalculator CEO Dave Chaplin.

“However, any tax raised is likely to pass straight through the system to cover the extra costs public sector contractors will charge their clients to pay for lost relief. Hiring essential flexible workers will become more expensive for businesses, too.”

T&S restriction set to impact 430,000 contractors

Following consultation, it has been determined that relief will be restricted for contractors who operate a working arrangement where IR35 applies, as well as those who are perceived to be under supervision, direction or control (SDC) in the manner that they carry out their work.

The overview reads: “This will bring the treatment of their [PSCs] travel and subsistence in-line with that of other temporary workers and contractors, whilst ensuring that those who are not under supervision, direction or control whilst undertaking their work continue to be able to claim relief as before.”

HMRC believes that the measure isn’t expected to have any significant economic impact, whilst it is estimated that the restriction will affect approximately 430,000 contractors over the course of a year.

Draft Finance Bill 2016 measures affecting contractors

According to the Treasury’s Draft Finance Bill 2016 overview, the other key measures impacting contractors are:

  • The Government plans to clamp down on contractors who have used remuneration schemes in order to reduce tax liability, and will consider legislating in a future Finance Bill to close down any further new schemes.
  • As announced in the Autumn Statement, the Government has responded to the Office for Tax Simplification’s (OTS) review of employment statement, and is set to go ahead with the majority of recommendations.
  • A penalty for the General Anti-Abuse Rule (GAAR) of 60% of tax due has been confirmed, to act as a disincentive from engaging in tax avoidance schemes.
  • HMRC is set to press ahead with plans to modernise tax administration, meaning self-employed contractors will have to submit tax returns online on a quarterly basis.

Published: 09 December 2015

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