Today the Chancellor George Osbourne delivered his Autumn Statement. Whilst much press was given over to the U-turn on planned cuts to tax credits, there was, amongst a few fiscal treats thrown in for small businesses, important news for contractors.
Removal of Expenses
The government confirmed it was going ahead with changes which would prevent contractors from getting tax relief on the cost of work travel, meals and accommodation linked with that travel. Details of the changes were contained in Paragraph 3.20 of the Tresuary’s Blue Book. However despite announcing earlier in the year that it was considering extending these exclusions to people working via a Personal Services Company (PSA) this did not materialise. In basic terms a contractor who would be regarded as self-employed were they not using a PSA will continue to attain tax relief for their travel and subsistence (The exclusions nevertheless would apply if they were caught by anti-avoidance rules.). Already though this exemption has come under fire, being labeled an “£800m investment in tax evasion”. Few regard this to be the end of the story with further changes to the IR35, anti-avoidance rules, likely following the Office of Tax Simplification’s review earlier this year.
Elsewhere there was also news regarding Salary Sacrifice, the system whereby one can swap their salary for other benefits such as healthcare or a higher pension with tax and/or National Insurance contributions being removed entirely. Whilst no changes are to be implemented as yet the HM Treasury noted in the Autumn Statement Documents that “The government remains concerned about the growth of salary sacrifice arrangements and is considering what action, if any, is necessary.” With salary sacrifice arrangements so widespread it is unlikely the HMRC will outlaw such activities, however due to the increased interest being shown in this area it is advisable to employers to ensure they are being implemented correctly.