A rollercoaster of a year

2015 in review

Last year proved to be quite a rollercoaster ride for contractors, with the threat of not being able to claim travelling expenses, more uncertainty surrounding IR35 and the introduction of dividend taxation from 6^th April 2016. Let’s take a look back at some of the tax events that affected freelancers in 2015.

January

IR35 Forum Administration Review contains 32 recommendations to improve the practical operation of IR35 within five specific areas of administration:

1. External guidance
2. Promotion and communication of IR35
3. Business Entity Tests (BETs)
4. IR35 Helpline and Contract Review Service
5. New compliance approach

February

HMRC announce that a record number of Self Assessment Tax Returns are filed electronically. By midnight on the 31^st January, the Revenue had received a total of 10.24 million tax returns, with 85.5% being filed online.

Pamela Nash, Labour MP for Airdrie and Shotts, poses two Parliamentary written questions to the Treasury asking how many IR35 enquiries there had been and what the tax yield was in each of the last five years for the U.K. The response is unimpressive and underwhelming!

March

From 6^th March, RTI filing penalties apply to PAYE schemes with 49 or fewer employees. However, HMRC announce that employers will not incur penalties for delays of up to three days in filing PAYE information.

In response to recommendations made by the House of Lords Select Committee on PSCs, HMRC publish its own figures to justify the continued existence of IR35. HMRC estimate that if IR35 were abolished £30 million of tax would be at risk.

The Ministry of Defence and the Department of Health are fined a total of £1.5 million for failing to seek adequate IR35 assurances from contractors who were operating outside of IR35 during 2012/13. The fines are donated to military and health charities.

Office of Tax Simplification (OTS) publishes its report on Employment Status. Although IR35 does not form part of this report there are a number of suggestions that may resonate with the intermediaries legislation, including improving the Employment Status Indicator (ESI) tool, a statutory employment test and the introduction of a new category of worker, a ‘third way’ between the employed and self-employed.

The final Budget before the General Election announces that PSCs will no longer be able to claim travel and subsistence expenses where the contractor is under the supervision, direction or control (SDC) of the end user, as from April 2016. George Osborne also heralds the digital tax age which will see 50 million individuals and small businesses doing their tax in real time by 2020 thereby dispensing with the traditional tax return.

April

BETs are abolished as from 6^th April. The tests which were used to enable contractors to self assess their IR35 risk are to be replaced by updated IR35 guidance. Public sector bodies must now rely on contract reviews as evidence that a freelancer is genuinely operating outside of IR35.

Marriage allowance is restored from 6^th April whereby a spouse or civil partner with income of less than £10,600 can transfer £1,060 of their personal allowance to their high-income spouse or partner. However, the high earning partner must not be paying tax at the higher or additional rate.

May

The Small Business, Enterprise and Employment Act 2015 introduces a number of measures designed to reduce red tape for companies, improve transparency and deter illegal activities such as money laundering and tax evasion. Notably the Annual Return is to be scrapped and replaced with an annual ‘check and confirm’ statement as from April 2016.

June

Freelancers who have used contractor loan schemes before 6^th April 2011 and who wish to settle with HMRC and take advantage of the Contractor Loans Settlement Opportunity have until 30^th June to register.

Three significant changes to the expenses and benefits-in-kind regime are announced. The abolition of the £8,500 threshold for certain benefits-in-kind, voluntary ‘payrolling’ of benefits-in-kind and replacing dispensations with an exemption for paid or reimbursed expenses, will take effect from 6^th April 2016.

The OTS publishes its paper on tax complexity, stating that it believes we have come too far to be able to have a simple tax system. However, the OTS believes there is no reason why we should not aspire to a simpler system which may be best achieved through increased digitalisation.

MP for Morecambe and Lunesdale, David Morris, is re-appointed as the government’s self-employed ambassador. Mr Morris announces that one of the things he would like to tackle is IR35 as it “has always been unnecessarily complicated”.

July

Summer Budget is not kind to freelancers with the introduction of 7.5% dividend taxation for basic rate payers and the removal of NIC Employment Allowance, both from 6^th April 2016, together with announcements of IR35 reform and the restriction of travel and subsistence expenses.

IR35 discussion document is published with HMRC hinting that IR35 could be reduced to its much favoured SDC test.

Consultation document, ‘Employment Intermediaries and Tax Relief for Travel and Subsistence’ is published. HMRC confirm its definitions of SDC and there is a proposal that PAYE debts incurred from misuse of travel and subsistence tax relief could be transferred to the engager in certain circumstances.

OTS to explore more fully the steps needed to be taken to achieve income tax and NIC harmonisation.

HMRC announces it is allocating £45 million to improve its woeful customer service.

August

OTS to carry out a project reviewing the taxation of small companies with the overall aim to develop recommendations on how to simplify the system, increase certainty and reduce administrative burdens caused by the tax system.

According to data obtained by Professional Fee Protection (PFP), the average length of time taken by HMRC’s local compliance teams to bring an enquiry to a close has increased by 20% over the last year.

HMRC produce dividend factsheet to illustrate how the new dividend tax regime will work in practice. Although individuals will not pay tax on the first £5,000 of dividend income, this dividend allowance will count towards the basic rate or higher rate bands.

Members of film Limited Liability Partnership schemes promoted by Ingenious Media Plc fail in their claims for judicial review over the legality of Accelerated Payment Notices (APNs).     

September

An online petition calling for the new dividend tax regime to be reconsidered is signed by over 25,000 people forcing the government to respond and defend its stance.

HMRC publish their summary of responses to the consultation on penalties. Fairness, proportionality and consistency are three of five broad principles that HMRC consider should underpin any new penalty regime.      

Since the introduction of APNs in 2014, HMRC announce it has collected £1 billion from those involved in tax avoidance schemes.

PML Accounting Ltd (PML) win its appeal against penalties levied on it for not providing information on time to enable HMRC to ascertain if it was a Managed Service Company (MSC) Provider. The Tribunal found that the Information Notices were invalid as they did not relate to PML’s tax position but rather to the tax position of its clients. HMRC may now have to rethink its approach during an MSC enquiry.

October

HMRC publish a discussion paper, ‘Travel and subsistence: discussion paper’. Amongst other things the document suggests withdrawing tax relief for daily subsistence.

HMRC announce it is to scrap its Business Records Checks, the compliance procedure used to confirm that a business is keeping sufficient information on its income and expenditure to produce an accurate tax return.

November

Ahead of the Autumn Statement, newspapers, the Guardian and Daily Mail report that government ministers are considering forcing contractors who work for a client for more than a month, onto the books.

Autumn Statement evokes mixed feelings as, on the one hand, jubilation over the announcement that contractors will, after all, still be able to claim tax relief to travel and subsistence expenses provided they are not caught by IR35. Silence, however, over IR35 serves only to create increased speculation.

Public Accounts Committee sticks the boot into HMRC due to the department’s continued failure to provide an acceptable customer service.

Within 10 years HMRC plan to close all of its 170 local tax offices across the UK as part of a major reorganisation programme. These are to be replaced by 13 new regional centres.

HMRC publish ’10 things you need to know’ about disclosing tax avoidance schemes.  

December

Although the IR35 Forum minutes of its meeting of the 15th December remain unpublished, it is reported that IR35 is to be left alone for at least the next tax year. Any significant changes therefore will not take place until April 2017, at the earliest.

Draft legislation to take effect from 6th April 2016 reclassifies disposals of shares on the winding-up of a close company as a dividend rather than a capital gain where, within two years after the distribution, the shareholder continues to be involved in a similar trade or activity and one of the main purposes of dissolving the company is to obtain a tax advantage.

The government sets out its roadmap and timeline for Making Tax Digital.

Minor benefits-in-kind are officially declared exempt and from 6th April 2016 employers will not have to report low value trivial benefits.

A happy and prosperous New Year to all of Contractor Weekly’s readers. Here’s hoping that 2016 will be less tax eventful for freelancers unless, of course, it’s all positive.