Travel Expenses of Workers Providing Services Through Intermediaries

The rules on Travel & Subsistence costs for employees are amended where a worker is engaged through an employment intermediary for 2016/17 onwards.

The new rules apply where an individual (‘the worker’) personally provides services which are not excluded services to another person (‘the client’) and the services are not under a contract directly between the clients or a person connected with the client and the worker but under arrangements involving an employment companies.

These rules do not apply if it is shown that the manner in which the worker provides the services is not subject to, or to the right of, supervision, direction or control by any person.

Where the contract is within the scope of the intermediaries legislation (known as IR35), this section will only apply to those contracts which fall within IR35 or world do so if the individual’s remuneration was not being taken as employment income.  Where such a contract is caught, the above exemption does not apply. New s339A ITEPA2003

Where the new rules apply, each engagement is treated as a separate employment for the purposes of the travel and subsistence rules.

In determining whether these rules apply, no regard is to be given to any arrangements the main purpose, or one of the main purposes, of which is to secure they do not apply to any extent

Broadly, where a client or another relevant person provides a fraudulent document intended to mislead the employment intermediary into thinking that the above rules do not apply and, as a result, tax relief for travel and subsistence is deducted incorrectly, the party who provides the fraudulent document will be liable for the tax which was not deducted.

HMRC are given powers to make provision for, or in connection with, the recovery from a director or office of a company of a debt owed as a result of the above rules. (New 688B ITEPA 2003)

Where the rules on fraudulent documents apply, HMRC may serve a personal liability notice on the relevant director for the unpaid tax involved.  Such notices are subject to various rules including the right of appeal. (new chapter 3B part 4 income Tax (pay as you earn) regulations 2003)

‘It is estimated that the measure will affect around 430,000 individuals employed by umbrella companies and employment agencies over the course of a year’ – Overview of the legislation in draft 09.12.15

 

 

 

 

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Public Bodies & IR35

From April 2017, individuals working through their own company in the public sector will no longer be responsible for deciding whether the intermediaries’ legislation applies but rather the public sector employer, agency, or third party that pays the worker’s intermediary will be.  The employer, agency or third party will have to decide if the rules apply to a contract, and, if so, account for the pay the liabilities through RTI and deduct the relevant tax and NIC.

The new rules will apply to payments to intermediaries providing the services of a worker to a client in the public sector.  Public sector will mean organisations that are Public Authorities for the purposes of the Freedom of Information Act 2000 and Freedom of Information Act (Scotland) 2002 and includes Government departments, Legislative bodies, the armed forces, local government, the NHS, schools, the police and the BBC.

To work out the correct amount on which to pay tax and NIC, the engager will need to calculate an amount of deemed employment income i.e. the payment made less any VAT charged and a 5% deduction. The engager will operate all expenses and other allowable deductions and allowances as if this were a normal direct employment.  Responsibility for paying employers’ NIC will also shift to the engager.

Off-payroll working in the public sector; reforming the intermediaries legislation Technical Note 16th March 2016

The End of The Tax Return?

HMRC are convinced that making tax ‘digital’ will mean the end of the tax return and it will ‘make tax easier’.

Are you as convinced as they are?

For HMRC’s view for making tax easier, please click here and for making tax digital here

What does it potentially mean for the normal business who doesn’t have their own accounts department?

Well, although guidelines have been issued, we can only speculate what it could mean at the final version…

Quarterly declarations?

Quarterly payments?

How are seasonable businesses affected?

What steps should I be taking?

If you haven’t already thought about getting yourself a computerised bookkeeping system you might want to, it  can make a lot of sense.  For example:

  • Management accounts giving information and more importantly ‘profits’ at your fingertips.
  • Vat returns filed online
  • Bank reconciliations done for you with live bank feeds
  • Direct client invoicing via email and more importantly the opportunity to let them pay upon receipt.
  • Statements to clients
  • Reconciliation of your purchase invoices to the suppliers statements

Is this Real Time Information (RTI) for the self employed?  Well one has to admit its quite similar. Provision of information on a regular basis and more regular payments like the employed..

Already the transfer to Digital Tax Accounts / Personal Tax Accounts, or whatever they’ll be called next, has been changed to 2018 and with the BREXIT vote, it is possible this could be delayed again but whatever the date you need to ensure you and your accountant are ready for the changes even if they are in 2020.