Last year involved a lot of uncertainty with regards to the IR35 legislation. 2016, however, looks as if it will be brighter than expected. There will be some changes coming as of the new tax year in April (providing there are no unexpected changes in the Finance Bill next week), but the expected doom and gloom has thankfully, not revealed itself.
As of April this year, the restriction on travel and subsistence expenses for self-employed workers will come into play. The amendment is to prevent those operating through a PSC, and where IR35 applies, from claiming expenses in respect of travel and subsistence. This means that should you be investigated in relation to the IR35 legislation, and eventually found to be owing taxes, you will also be liable for any claims you have made for travel and subsistence expenses, increasing the financial risk of not applying IR35 correctly.
Qdos are well known for their IR35 insurance (Tax Liability Cover), an innovative policy currently protecting over 5,500 contractors and their businesses. Should the amendment go ahead as planned, our Tax Liability Cover will continue to cover for travel and subsistence liabilities under the current policy, which means all new and existing policyholders will be fully covered for IR35 liabilities as well as travel and subsistence liabilities.
Another change which will effect contractors from April is the new dividend tax structure, which will reduce the tax efficiency of operating via a limited company.
Basic rate taxpayers will be expected to pay 7.5% tax on dividend income above £5,000 and up to the higher rate limit, where before this would have been nil when taking into account the tax credit, which has now been removed. Higher rate taxpayers will also see an increase in the tax paid on dividend income due to this change.
The biggest concerns last year however, were with the proposed amendments to the IR35 legislation itself, which could have meant the biggest overhaul of the legislation since it was implemented in 2000. Rumours were abound in the lead up to the Autumn Statement but there was no news to come, which left everybody in a state of confusion.
According to IPSE, the IR35 Forum held a meeting in December, where HMRC confirmed that there would be no changes to IR35 in 2016, allowing the government to find a suitable solution instead of settling for the best of a bad bunch. The official minutes have yet to be published.
We hope that 2016 will be a good year for contracting; the limited company option is still the most financially prudent, but IR35 has not disappeared, and we expect further consultation to take place throughout the year.
For more information, please get in touch on 0116 2690999.
There will be loopholes that can be exploited.
If I work at a customer site (Site A) (which is shown on my contract) but travel to other sites owned by the customer as part of my role can I still claim for this travel? I invoice the customer for the travel that is not to Site A on the contract. I do not claim mileage against my company for travel to Site A, but do claim for mileage to other sites. I work outside IR35.