In the first of our series of blogs about the proposed changes to IR35 and travel & subsistence claims, we look at what contractors, recruitment agencies and end clients need to do right now to protect themselves from the potential fallout.
As Parasol's founder and an ex-contractor myself, here's my insider view....
T&S and IR35 in brief
IR35 is legislation intended to prevent individuals from avoiding tax by ‘disguised employment’ – working as self-employed contractors through their own limited company while doing the same job as an employee.
If HMRC decides that your contract puts you within IR35, you’ll have to pay tax and National Insurance like an employee rather than paying yourself dividends.
The latest reports suggest that the government plans to further crackdown on Personal Services Companies, classing anyone working for an organisation for more than a month as an employee. Employers will be responsible for making this decision, potentially creating even more burden for end hirers.
This is all about expenses claims for travel and subsistence. At the moment, contractors can claim for both of these things when they’re on assignment (subject to rules of course). The government is currently considering whether to change this, making it more difficult to claim. More on this below...
What is T&S anyway?
You’d be pretty hard pressed to find anyone who’s had any dealings with contracting or contractors lately that hasn’t heard about the proposed changes to travel and subsistence expense claims.
But if you’ve somehow managed to escape the news, the basic idea is that the government is looking to tighten the rules when it comes to contractors claiming expenses for travel and subsistence, basically making it more difficult to claim. Best case scenario, the plans get scrapped and everything stays as it is. Worst case scenario, some contractors won’t be able to claim expenses for travel and subsistence and it has a pretty big knock on effect on recruitment agencies and end hirers.
Who does it affect?
This part is pretty important.
The proposed changes won’t just affect contractors but also recruitment agencies and end clients.
As part of the proposed changes, the government is looking to transfer liability to any firm using workers supplied via employment intermediaries. This means that they could be the ones subject to HMRC penalties if expenses were found to be paid incorrectly.
Here’s a quick overview of how it could affect the various parties:
- Reduction in pay due to loss of expenses payments for travel and subsistence
- Left out of pocket if they work a fair distance from their home
- Added confusion
2. Recruitment agencies
- More contractors joining the agency PAYE, placing additional administrative burden and employment/financial risk on recruitment agencies
- Smaller talent pool to choose from if contractors choose to work closer to home
3. End clients
- Higher prices for contractors to compensate for removal of travel and subsistence expenses
- Potential fines from HMRC for lack of compliance
- Skill shortages if contractors choose to work closer to home
What new solutions are being offered in the market at the moment?
There are a lot of umbrella companies out there shouting about fantastic new models that will solve the T&S problem. But in reality, nobody can come up with the perfect solution just yet because we honestly don’t know what the legislation will reveal.
Everything will become clearer on 25th November when the government will announce their plans in the autumn statement. However we’ll still have a good few months before anything is enforced, giving us the chance to share our in depth knowledge and expertise with our contractors, recruitment agency partners and end clients to ensure they’re well equipped to compliantly handle any changes in a way that works for them.
So at the moment, my advice is to sit tight and get your house in order to ensure your supply chain is compliant. Make sure you’re working with a compliant umbrella company so you can be sure that if and when any changes do take place, they’ll be with you all the way to make sure nobody falls foul of HMRC.