IR35 2018 update

First introduced in 2000 the IR35 rules (more correctly known as the intermediaries legislation for income tax) have forever since been a source of stress and worry for contractors. Someone who works in a “Personal Service Company” is supposed to do a self assessment as to whether they are caught by the legislation that in effect says that they are a disguised employee. If so they then have to pay a deemed payment to themselves through PAYE as described here: https://www.gov.uk/guidance/how-to-calculate-the-deemed-employment-payment

The practical upshot is that if the deemed payment is applied then the contractor ends up paying the Employer’s and Employee’s National Insurance. Not a scenario most would want. So many contractors assume they are outside IR35 and proceed as such.

Contractors can use HMRC’s CEST tool to try and determine their status. But this tool is potentially not always accurate. HMRC lost yet another tribunal recently https://www.ipse.co.uk/our/news-listing/defeat-puts-to-pasture-hmrc-s-argument-about-moo.html where CEST may well have not reported the answer that the judge found.

Another change came in April 2017 when the Government brought in rules to tighten up the use of contractors in the public sector. The IR35 status decision in Public Sector contracts is now made by the client, not the contractor. The risk of getting the status wrong now resides with the client. This might seem good for the Contractor but in practice has led to the reduction of Public Sector contracts that are available.

If this all seems opaque then there is possibly more to come. The Autumn budget 2017 contained the information that the Government would be consulting about extending the new Public Sector IR35 rules to the private sector. So watch this space!

If you would like common sense advice on a potential or existing contract that you have please give us a call or fill in the contact form below.

 

Contractor and Employee Expenses

We often get asked about what an employee or Contractor (who is an employee of a Ltd Company) can claim in the way of expenses while on business travel away from their normal place of work.

Firstly it is important to understand if the employee is away from their permanent place of work or at a temporary workplace. A temporary workplace is defined as “somewhere the employee only goes to perform a task of limited duration or for a temporary purpose”. The full rules are here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/517266/490.pdf

A temporary workplace also has a 24 month rule that prevents it becoming long term. As soon as it becomes apparant that the assignment will go beyond 24 months the workplace ceases to be temporary.

Why is this important? Well employees are not normally allowed to claim tax relief for commuting costs or costs while they are at work. When on business travel or on travel to a temporary workplace they can claim tax relief for travelling costs and for costs incurred while they were away. These costs must be costs incurred, ie the money must be spent. If an employer pays someone for the cost of a hotel but they stay with a friend this payment is just treated as extra wages.

There is one additional allowance which is for incidental expenses on overnight stays. An employer can provide up to £5 a night while staying overnight in the UK and £10 while staying abroad for out of pocket expenses. Otherwise the payments must be for costs actually incurred.

All this means that in practice a Contractor on a one year contract can claim their travel costs (either the actual costs of public transport or the fixed mileage rates for a using a private car) and also claim the actual cost for lunch if they buy it while at the workplace. Round sum allowances are not allowed and as soon as a contract is extended over 24 months these claims will have to stop.

For any more information on this complex area please give us a call. 

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