Contractors - Change to expense law!
22-12-2006, 12:31 PM
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Contractors - Change to expense law!
I've just recieved this email just wondering if any of the contractors on here have heard about this or is this BS!?
"Composite & Managed Service Companies Dead
Gov't stops Expense claims for Contractors operating via
Umbrella and Employment Service Co's
Changes announced in the Pre-Budget Report earlier this week
will affect over 200,000 Contractors and Freelancers.
As a result of this announcement, ALL Contractors and
Freelancers who use a Managed Service Company, Composite or
Employment Service Company (i.e. Umbrella) e.g. Giant,
Brooksons, Parasol IT, Prosperity 4, will no longer be able to
claim any expenses as of 6 April 2007.
Contractors and Freelancers currently claiming - Travel to and
from work, parking, lunch allowance etc will no longer be able
to reclaim these costs. This could reduce take home pay by as
much as £1,000 per month.
Additionally, as of 6 April 2007, Composite and Managed Services
Companies will no longer be allowed to operate as they do.
Contractors operating through these companies will take cuts in
take-home pay of around 40%.
"Composite & Managed Service Companies Dead
Gov't stops Expense claims for Contractors operating via
Umbrella and Employment Service Co's
Changes announced in the Pre-Budget Report earlier this week
will affect over 200,000 Contractors and Freelancers.
As a result of this announcement, ALL Contractors and
Freelancers who use a Managed Service Company, Composite or
Employment Service Company (i.e. Umbrella) e.g. Giant,
Brooksons, Parasol IT, Prosperity 4, will no longer be able to
claim any expenses as of 6 April 2007.
Contractors and Freelancers currently claiming - Travel to and
from work, parking, lunch allowance etc will no longer be able
to reclaim these costs. This could reduce take home pay by as
much as £1,000 per month.
Additionally, as of 6 April 2007, Composite and Managed Services
Companies will no longer be allowed to operate as they do.
Contractors operating through these companies will take cuts in
take-home pay of around 40%.
22-12-2006, 01:18 PM
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Date: 18/12/2006
FAQ’s – answers at a glance
Budget update: tackling managed service companies
We have now had the opportunity to study in detail the document “Tackling Managed Service Companies” issued by HM Treasury/HMRC on 6th December 2006. A number of points are, in our opinion, clear.
Can you provide an overview of the proposed legislation?
On the positive side HMRC recognise that genuine contractors, in business on their own account and bearing all the risks attached, should also be entitled to the benefits (eg. dividends).
HMRC view managed service companies (“MSC’s”) “almost invariably” as a vehicle for disguised employment whereas Personal Service Companies (“PSC’s”) are not.
HMRC do not regard enforcing the IR35 legislation on MSC’s as a realistic option. This is because of the growing large number of workers, the resource intensive nature of the legislative tests and the likely inability to recover funds from MSC’s in any event.
While not making MSC’s illegal the draft legislation will make them very unattractive to contractors (even if genuinely operating outside IR35), agencies, end clients and the providers of MSC’s.
Although there is a consultation period (less than 3 months) the forthright tone of the document makes it clear any changes will only be around both the definitions and, any unintended consequences to ensure the legislation is well targeted and robust. The Document even states “the Government would therefore welcome views on whether the legislation could be strengthened further and, if so, how.”
What is a managed service company (MSC)?
Quoting directly from the Treasury FAQ’s “………..In the draft legislation ‘MSC’ includes both ‘composites’ and ‘managed personal service companies’……….”
However, although the review is directed at IR35 non-compliance by MSC’s, there is some debate, because of the wording of the actual proposed legislation, that umbrella companies may also be caught by the definition of an MSC.
Why has new legislation been proposed?
HMRC has always recognised how MSC’s were structured and operated but often-reminded operators that IR35 must be applied by them - HMRC bulletins 60 (August 2004) and 74 (December 2004)
Unfortunately it appears that many unscrupulous operators did not consider IR35 and paid all their workers a dividend regardless of the IR35 legislation.
HMRC were further frustrated because often they could not recover the unpaid taxes because the operator ‘closed’ the MSC’s and there were no assets left to pay HMRC what they were due. (Some operators apparently set up again almost immediately and started trading again)
What is the proposed new legislation?
MSC’s can still operate but apart from certain expenses all income will now be subject to full PAYE taxes - so there will no benefit in paying a dividend and no benefit in operating as an MSC.
‘Home to work’ travel, as opposed to ‘site to site’ travel, will not be an allowable expense for an MSC. Again, there is some debate as to whether this also affects umbrella companies.
Additionally if full taxes were not being paid to HMRC in accordance with the new legislation then HMRC will have new powers to recover any debt from associated 3rd parties. Obviously in the first instance this is the MSC operator but could be extended to other parties who have benefited.
What is the effect on:
MSC’s: under this revised tax legislation there would be no justification to operate MSC’s.
Umbrella: there is a debate, because of the wording of the actual proposed legislation, as to whether umbrella workers will still receive the benefit of ‘home to work’ travel.
Personal Service Companies (PSC’s): these are unaffected by the legislation and IR35 still applies to them.
How will it affect:
Temporary workers: they will choose between operating under agency paye, an umbrella company or their own PSC.
Recruitment agencies: agencies will want to ensure they are not engaging with an MSC operator who is paying dividends because of the debt transfer legislation.
When is the proposed legislation to be effective from?
6th April 2007
Is there a consultation period?
Yes until the 2nd March 2007.
Giants view
Unfortunately non-compliance to the IR35 regulations by some unscrupulous MSC operators affects all of the industry, and we can understand HMRC’s frustrations especially when they have had issues recovering the unpaid taxes.
Giant has, since 1992, provided compliant services via its PSC, umbrella and MSC options. The decision on whether workers could receive dividends via its MSC service is always taken by Qdos, an independent 3rd party, on an assignment-by-assignment basis. Those who Qdos did not accept for the IR35 insurance and were therefore not eligible for a dividend joined either giant’s umbrella or PSC’s solutions.
What happens next?
Nothing changes until 6th April so we will continue to offer our existing compliant and quality services in the short term.
Going forward giant will be offering a revised PSC service together with its existing umbrella service.
In the meantime workers should continue operating as they are and await clarification of some of the legislation before deciding suitable action, if required.
The current giant powerhouse service will not be available after the end of the current tax year, i.e. 5th April 2007.
There will be changes to the way we provide our services (as a result of the legislation) but we will aim to minimise the impact on both contractors and agencies.
FAQ’s – answers at a glance
Budget update: tackling managed service companies
We have now had the opportunity to study in detail the document “Tackling Managed Service Companies” issued by HM Treasury/HMRC on 6th December 2006. A number of points are, in our opinion, clear.
Can you provide an overview of the proposed legislation?
On the positive side HMRC recognise that genuine contractors, in business on their own account and bearing all the risks attached, should also be entitled to the benefits (eg. dividends).
HMRC view managed service companies (“MSC’s”) “almost invariably” as a vehicle for disguised employment whereas Personal Service Companies (“PSC’s”) are not.
HMRC do not regard enforcing the IR35 legislation on MSC’s as a realistic option. This is because of the growing large number of workers, the resource intensive nature of the legislative tests and the likely inability to recover funds from MSC’s in any event.
While not making MSC’s illegal the draft legislation will make them very unattractive to contractors (even if genuinely operating outside IR35), agencies, end clients and the providers of MSC’s.
Although there is a consultation period (less than 3 months) the forthright tone of the document makes it clear any changes will only be around both the definitions and, any unintended consequences to ensure the legislation is well targeted and robust. The Document even states “the Government would therefore welcome views on whether the legislation could be strengthened further and, if so, how.”
What is a managed service company (MSC)?
Quoting directly from the Treasury FAQ’s “………..In the draft legislation ‘MSC’ includes both ‘composites’ and ‘managed personal service companies’……….”
However, although the review is directed at IR35 non-compliance by MSC’s, there is some debate, because of the wording of the actual proposed legislation, that umbrella companies may also be caught by the definition of an MSC.
Why has new legislation been proposed?
HMRC has always recognised how MSC’s were structured and operated but often-reminded operators that IR35 must be applied by them - HMRC bulletins 60 (August 2004) and 74 (December 2004)
Unfortunately it appears that many unscrupulous operators did not consider IR35 and paid all their workers a dividend regardless of the IR35 legislation.
HMRC were further frustrated because often they could not recover the unpaid taxes because the operator ‘closed’ the MSC’s and there were no assets left to pay HMRC what they were due. (Some operators apparently set up again almost immediately and started trading again)
What is the proposed new legislation?
MSC’s can still operate but apart from certain expenses all income will now be subject to full PAYE taxes - so there will no benefit in paying a dividend and no benefit in operating as an MSC.
‘Home to work’ travel, as opposed to ‘site to site’ travel, will not be an allowable expense for an MSC. Again, there is some debate as to whether this also affects umbrella companies.
Additionally if full taxes were not being paid to HMRC in accordance with the new legislation then HMRC will have new powers to recover any debt from associated 3rd parties. Obviously in the first instance this is the MSC operator but could be extended to other parties who have benefited.
What is the effect on:
MSC’s: under this revised tax legislation there would be no justification to operate MSC’s.
Umbrella: there is a debate, because of the wording of the actual proposed legislation, as to whether umbrella workers will still receive the benefit of ‘home to work’ travel.
Personal Service Companies (PSC’s): these are unaffected by the legislation and IR35 still applies to them.
How will it affect:
Temporary workers: they will choose between operating under agency paye, an umbrella company or their own PSC.
Recruitment agencies: agencies will want to ensure they are not engaging with an MSC operator who is paying dividends because of the debt transfer legislation.
When is the proposed legislation to be effective from?
6th April 2007
Is there a consultation period?
Yes until the 2nd March 2007.
Giants view
Unfortunately non-compliance to the IR35 regulations by some unscrupulous MSC operators affects all of the industry, and we can understand HMRC’s frustrations especially when they have had issues recovering the unpaid taxes.
Giant has, since 1992, provided compliant services via its PSC, umbrella and MSC options. The decision on whether workers could receive dividends via its MSC service is always taken by Qdos, an independent 3rd party, on an assignment-by-assignment basis. Those who Qdos did not accept for the IR35 insurance and were therefore not eligible for a dividend joined either giant’s umbrella or PSC’s solutions.
What happens next?
Nothing changes until 6th April so we will continue to offer our existing compliant and quality services in the short term.
Going forward giant will be offering a revised PSC service together with its existing umbrella service.
In the meantime workers should continue operating as they are and await clarification of some of the legislation before deciding suitable action, if required.
The current giant powerhouse service will not be available after the end of the current tax year, i.e. 5th April 2007.
There will be changes to the way we provide our services (as a result of the legislation) but we will aim to minimise the impact on both contractors and agencies.
22-12-2006, 01:58 PM
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to be honest - i dont see why they SHOULD be able to claim that anyway?!?!
if you have a permanant contract job, you dont get paid to come to work and paid for your lunch - dont see why someone who is termed a temp should either just cos they are operating through an recuitment agency a and getting £3K a week PLUS expenses - cheeky fookers!!!
if you have a permanant contract job, you dont get paid to come to work and paid for your lunch - dont see why someone who is termed a temp should either just cos they are operating through an recuitment agency a and getting £3K a week PLUS expenses - cheeky fookers!!!
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22-12-2006, 02:18 PM
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where is the claim?
is it just the tax or is it the actual money for the things bought?
I take it this affect IT contractors for example 'accenture'?
who pays the expenses anyway? the company instructing the work? they pay to 'accenture' - then they give this to the 'employee/contractor' untaxed?
if they are set up as a limited company individually as contractors then obviously travelling to a place of work is a business expense - like I assume plasterers, builders etc can do? but this is obviously only the tax that can be claimed rather than the actually money as that would just be in the cost of the job or hourly rate.
is it just the tax or is it the actual money for the things bought?
I take it this affect IT contractors for example 'accenture'?
who pays the expenses anyway? the company instructing the work? they pay to 'accenture' - then they give this to the 'employee/contractor' untaxed?
if they are set up as a limited company individually as contractors then obviously travelling to a place of work is a business expense - like I assume plasterers, builders etc can do? but this is obviously only the tax that can be claimed rather than the actually money as that would just be in the cost of the job or hourly rate.
22-12-2006, 02:27 PM
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Good old labour and gordon "fookin tight fisted jock git" brown strike again to deprive us of our hard earned cash.Cany wait to see the back of em
22-12-2006, 09:00 PM
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Originally Posted by Dave Henshall
to be honest - i dont see why they SHOULD be able to claim that anyway?!?!
if you have a permanant contract job, you dont get paid to come to work and paid for your lunch - dont see why someone who is termed a temp should either just cos they are operating through an recuitment agency a and getting £3K a week PLUS expenses - cheeky fookers!!!
if you have a permanant contract job, you dont get paid to come to work and paid for your lunch - dont see why someone who is termed a temp should either just cos they are operating through an recuitment agency a and getting £3K a week PLUS expenses - cheeky fookers!!!
22-12-2006, 09:26 PM
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contractors using these payroll services claim for tools like drills and travel expenses, they are mostly contractors who are moving from contract to contract usually no more than 12mths at a time.
employed ppl get there tools / equipment bought for them. thats why its fair for us to claim.
employed ppl get there tools / equipment bought for them. thats why its fair for us to claim.
23-12-2006, 02:38 PM
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ive been using crestpay for around 3 years
in that time there have messed my wage up once,which turned out to be a bank of scotland clearing problem
there rates are competitive
all this new regulation will cost them money as you can be paid offshore with just a 3% tax deduction
as for us claiming expenses,even if you work for a company direct and pay tax on travel allowances you can claim for the whole lot again
i took around 6k of the taxman a few years ago by using a accountant called first choice accountancy
in that time there have messed my wage up once,which turned out to be a bank of scotland clearing problem
there rates are competitive
all this new regulation will cost them money as you can be paid offshore with just a 3% tax deduction
as for us claiming expenses,even if you work for a company direct and pay tax on travel allowances you can claim for the whole lot again
i took around 6k of the taxman a few years ago by using a accountant called first choice accountancy
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