Chancellor Spears 430,000 Contractors in Finance Bill 2016

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Chancellor Spears 430,000 Contractors
Chancellor Spears 430,000 Contractors in Finance Bill

Chancellor Spears Contractors

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Well we finally found out what the Chancellor is going to do. Today the Chancellor spears 430,000 contractors in total.

This is over the withdrawal of travel and subsistence expenses being offset against tax.

Many UK contractors will be much poorer after this as this is one of the main expenses that contractors can offset against tax.

Prism reckon that it will cost IT contractors who can no longer claim it. £6,500 a year.

Umbrella Company Contractor Options
Umbrella Company Contractor Options after April

Travel and Subsistence Allowance

First of we were told that Chancellor Osborne was going to take away the right to claim travel and subsistence form umbrella company contractors.

Then we heard that he was going to take it away from personal service contractors, too, so that contractors wouldn’t leave umbrella companies and operate through personal service companies.

Then a couple of weeks ago, in the Autumn Statement, the Chancellor said it was only those caught by the Intermediaries legislation (IR35) who would lose their T and C allowances.

So, as those caught by IR35, in general, operate through umbrella companies and those outside IR35 use personal service companies it looked like it would be just umbrella companies contractors who would lose their travel and subsistence allowance.

Supervision, Direction and Control

However, Chancellor Osborne has corrected that today. Those who will lose their allowance will be:-

  1. Those who are caught by IR35
  2. Those who are under Supervision, Direction and Control by their clients

This is a little different from normal when it comes to IR35.

Staying Outside IR35
Staying Outside IR35 is crucial for contractors

Major IR35 Factors

There are three major factors when it comes to judging whether a contractor is inside IR35 or outside it and nine more minor ones.

All have a bearing on whether you are caught by IR35.

The three major IR 35 Factors are are:-

  1.  Supervision, Direction and Control,
  2. The Right of Substitution,
  3. Mutuality of Obligation.

Failing Supervision Test

It looks as if, in terms of claiming expenses against tax there is just a Big One now.

If you fail the Supervision, Direction and Control test then you lose the right to claim travel and subsistence against tax even if there is a right of substitution, no Mutuality of Obligation and if none of the nine minor IR35 factors apply.

IR35 Rules Explained
IR35 Rules Explained for UK Contractors

Explaining Supervision, Direction and Control

So what is Supervision, Direction and Control?

Are you caught by this new IR35 Superfactor?

Will you lose your right to claim those expenses?

Caught by Supervision, Direction and Control Rules

If you are given a task by the Project Manager at your client’s site, you are told what needs to be done, you are told how long the task should take and you are supervised when you are doing it, then I’m afraid you are caught by the Supervision, Direction and control rule.

You will not be able to claim those expenses against tax any more – even if you are using a Personal Service Company.

Control as an IR35 Factor
Control as an IR35 Factor

Not Supervised, Directed or Controlled

However, if your contract with the agency or company, and your actual working practice, says that

  • you will agree what needs to be supplied to your client, with your client,
  • if the estimated time to do it is agreed between you and your customer, the client,
  • you don’t need to be shown how to do it as you know already and
  • you are not supervised while doing it,
  • and you agree the best place to do the task, onsite or at your home office,

then you are not caught by Supervision, Direction and Control.

Staying Outside IR35 and Control

You can continue to claim travel and subsistence against tax.

Of course, on many projects there is likely to be a mixture of some of these things. It is best to be closer to the latter than the former.

The less you act like a permanent member of staff, and the more you differentiate your working practices from their’s the better off you will be financially.

Today was the day the Chancellor spears 430,000 contractors who can not claim travel and subsistence expenses any more.

See also Leaving Umbrella Companies – Save £15,000 or More By Moving.

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