Spending Review and Autumn Statement 2015

The Chancellor gave his speech in the House of Commons today (25^th November 2015) setting out his plans for the next few years and the current state of the economy.  We were expecting some news for contractors and small businesses in relation to Travel and Subsistence claims and IR35 however there was no mention of IR35 and only minor clarifications to the changes in Travel and Subsistence claims set to come in April 2016.

The full document can be found here:

https://www.gov.uk/government/publications/spending-review-and-autumn-statement-2015-documents

THE HIGHLIGHTS FOR CONTRACTORS AND FREELANCERS

IR35 – A discussion document on IR35 was published in the Summer and invited responses from the industry.  The responses have been received back and the Government will be reviewing these as part of a consultation.  Nothing has been mentioned today regarding this and I don’t believe we will see anything back until next year at the earliest.

TRAVEL AND SUBSISTENCE CLAIMS – As confirmed at the Summer Budget 2015, the government will legislate to restrict tax relief for travel and subsistence expenses for workers engaged through an employment intermediary, such as an umbrella company or a personal service company.  Following consultation, relief will be restricted for individuals working through personal service companies where IR35 applies.  This change will take effect from 6 April 2016.

APPRENTICESHIP LEVY – The Government will introduce an apprenticeship levy in April 2017.  This will be at a rate of 0.5% of the employer’s salary costs and paid via PAYE.  There is an exemption of £15,000 so effectively small businesses with salary costs of less than £3m per year will not have to pay this.  It will however mean that umbrella companies will have to suffer this levy.  I can’t see the umbrella companies taking this on the chin so would expect a further 0.5% deduction to be made by the umbrella company on its contractor workers.

STAMP DUTY LAND TAX – Not content with hitting the buy to let investors with a personal tax liability following the restriction of mortgage interest tax relief there will be a new charge introduced for investors in buy to let property or second homes.  Stamp Duty Land Tax will be paid at an additional 3% on top of headline rates from April 2016.  Interestingly, Corporate entities appear to be excluded from this so we will need to wait on the legislation but could be another reason to transfer property held personally to a limited company structure or use profits built up in an existing company to invest in property.

CAPITAL GAINS TAX: PAYMENT WINDOW – Another one here for investors in property.  A payment on account will need to be made of the capital gains tax liability within 30 days of the sale from April 2019.  Again, we will need to wait on the detail here but it will be interesting to see how this will be administered, my guess is that it will be deducted by the solicitor.

DIVIDEND TAXATION CHANGES – There was no further mention of this and we are anticipating legislation to be drawn up in December 2015.  We will of course digest this and contact our clients in January 2016 with details of the most tax efficient salary/dividend split and also if we should look at changes to shareholdings.

CONTRACTOR LOAN SCHEMES AND OTHER TAX AVOIDANCE SCHEMES – Again, we have seen mention of HMRC being given more resources to tackle tax avoidance schemes.  Our advice is unchanged….if something looks too good to be true it normally is!  Contractor loan schemes that offer take home pay rates of 90% etc are a top priority for HMRC and we have seen so many examples of contractors being lured into these schemes and then hit with crippling tax bills down the line.

OTHER HIGHLIGHTS

• Planned cuts to tax credits have been scrapped entirely
• New 30-hour free childcare subsidy for parents of three-and four-year-olds to be limited to those working more than 16 hours a week from 2017. The income limit on claiming this is being reduced from £150,000 to £100,000.
• A Help to Buy scheme in London will offer up to 40% of the value of new build homes in interest free loans.
• State pension will rise by £3.35 to £119.30 per week from next year.

OUR RECOMMENDATIONS FOLLOWING THE AUTUMN STATEMENT

• We will keep an eye on the IR35 consultation and feedback with anything relevant that comes out of this.
• For those disguised employees caught by IR35 you will no longer be able to claim a deduction for Travel and Subsistence expenses when calculating the deemed salary from April 2016. You will however still be able to claim the 5% flat rate deductions, pension costs, capital allowances etc.
• No changes to the current method of claiming expenses for the vast majority of ltd company contractors not caught by IR35. With the crackdown by HMRC on tax avoidance generally, we would urge all contractors to take a look at our expenses guide (https://sg-accounting.co.uk/resources/guides/expenses-guide/) and review claims for items like the use of flat rate lunch deductions.
• The use of Umbrella Companies in contracting will be even less attractive post April 2016 with the removal of travel and subsistence expenses and if the apprenticeship levy of 0.5% is passed on to workers. If you or a contractor you know is working under an umbrella company at the moment feel free to give us a call or pass on our details to see where we can help.  We are expecting a large number of umbrella workers to be setting up limited companies over the next few months.  Both operating inside and outside IR35 is still more beneficial through a ltd company and will become even more so for the majority of contractors.
• We have a couple of years before the restrictions on mortgage interest relief come in for buy to let investors. We will be working with our partner Financial Advisors and mortgage brokers to see how the transfer of property into a ltd company will work where there is an existing mortgage in place.  As long as the mortgage companies will lend to a ltd company we envisage tax savings in the future by holding property in a ltd company.