In amongst the delight of PSC contractors at being spared, yesterday, the question is now being asked as to whether Chancellor Goerge Osborne will suckerpunch contractors.
Has he lulled contractors into a false sense of security? Are they cheering too early?
Was yesterday’s soft jab, as far as personal service company contractors are conerned, just a set-up punch for the uppercut from he Chancellor?
Is he just trying to lure them into position before the knockout blow?
Prior to the Autumn Statement
Let’s just recap, a little, on the events of yesterday in the Autumn Statement and the lead up to it.
Firstly, in July, the Chancellor told us that he was going to take away the offset aganst tax, travel and subsistence expenses from any contractors using an intermidiary company. He means, here, an umbrulla company or a personal service company.
Secondly he had leaked to the Guardian and Daily Mail that he was going to abolish the need for intermediaries altogether.
He was going to force clients to take all contractors onto their payrolls that had been with them for a month or more.
In practice, this meant all contractors, except, maybe, for a few interims.
The minimum contract duration is normally three months.
The normal contract durations are for 6 month contracts and three months contracts which are renewable.
New Online IR35 Test for contractors
Thridly he let it be known that he intended to introduce a new online IR35 Test to be enforced by clients.
Those contractors who passed the IR35 test would be able to contract as normal with the client.
Those who failed the IR35 test would have to go onto the clients’ payrolls.
HMRC would keep the details of all contractors who failed the online iR35 test for future reference.
Contractors Nervous About Autumn Statement
Contractor awaited the Autumn Statement with trepidation.
This could be teh worst day for UK contractors this millennium. It could have been the worst day for contractors since IR35 was introduced in 1999 by New Labour.
It might even have been worse than that.
So, what happend yesterday?
Bad News for Umbrella Companies
It was bad news for umbrella companies and umbrella company contractors.
It was confirmed that they will lose their right to claim travel and subsistence expenses against tax.
That’s a huge chunk of what an umbrella company can save.
They have to pay a month fee to the umbrella company of over £100 a month.
If the cost of staying with an umbrella company is greater than the savings they can make in offsetting expenses against tax then a bean count would say that many contractors would consider leaving their umbrella companies.
Staying with Umbella Companies or Leaving
Of course, many of those who will be happy to continue to pay the umbrella company to continue to do their admin, will stay.
There are others still who use umbrella companies and who don’t claim expenses at the moment.
They will stay too.
However, there may be others who decide that they will just pay the IR35 Tax.
There will be others, still, who will look again at incorporating and changing their contracts and working practices to get themselves outside of IR35.
Personal Service Company winners
However, it was personal service company contractors,and their Accountants, who were celebrating yesterday.
The Chancellor said that he would not take away their right to claim travel and subsistence expenses aginst tax – provided they were not caught by the Intermediaries legislation.
To you and me that means not caught by IR35.
Contractors Outside IR35
This is a bit of an oxymoron, though.
Contractors only use personal service companeis if they think they are not caught by IR35.
So, this should mean that all PSC contractors are able to claim travel and subsistence against tax – unless HMRCcan prove that they are caught by IR35 in an investigation.
So, except for umbrella companies and their contractors, yesterday was a big success then.
Day of Success for Contractors
The Chancellor left personal service company contractors with their travel and subsistence expenses.
There was no new online IR35 test mentioned.
There was no mention of contractors having to go on the payroll of a client company after having been there a month.
So, perhaps the Chancellor has just abandoned those other ideas. Perhapshe will just forget about them.
Finance Bill to Come
Perhaps he has just changed his mind, as IPSE have said, after lobbying from them and their members and others.
I think that is what they think after seeing their latest press release.
We can all relax, then, can we?
Well, there’s still the Finance Bill on December the 9th.
Can Contractors Now Relax?
So, those that are outside of IR35 have got away scot free have they?
Yes, they have got away scot free – providing the IR35 goalposts remain where they are.
What if the Chancellor and HMRC move the IR35 goalposts?
What if they do introduce a new online IR35 test to be announced on December 9th?
Online IR35 Test to Come?
Who is would create this test?
Will it be he Chancellor and HMRC?
HMRC have form here
Remember the now-abandoned Business Entity Tests.
Although HMRC agreed the questions with IPSE (ex-PCG) and others, it was they alone who decided what the marks would be, and what the weighting factors would be, for each question.
All Contractors Failed Previous IR35 Test
This had no basis in law.
HMRC set the criteria so strictly that 99% of contractors would have failed it.
It was said to be just advisory but some Government departments used it as if it was fact.
In the end it had to be abandoned.
However, they may have learned lessons from that.
New IR35 Legislation
What of the Government changed the rules so that it was now much harder to stay outside IR35 and built the online IR35 test around new legsialtion that they would introduce.
It is like one of those Greek tragedies. A God makes a promise to a mere mortal to the mortal’s great delight.
However, the promise actually meant something different than the mortal thought it did – leading to his demise.
So, the ‘God’ Osborne has told the mortal contractors that they those outside IR35 would still be able to claim travel and subsistence expenses against tax – provided they remained outside IR35.
Who Will Remain Outside IR35
But how many will remain outside IR35 if he brings in a new online IR35 test?
Now, there’s the rub.
Will Chancellor Osborne suckerpunch contractors and their representatives on December 9th or on some future date?
Personal Service Company Contractors should not count their chickens yet nor should IPSE pat themselves on the back too early.
We know that the Conservatives, and Chancellor Osborne, think of all contractors as tax avoiders or off payroll employees.
We may know soon what they intend to do about that.